CFDP 1985

Dynamic Mechanisms without Money

Publication Date: February 2015

Pages: 68

Abstract: 

We analyze the optimal design of dynamic mechanisms in the absence of transfers. The designer uses future allocation decisions as a way of eliciting private information. Values evolve according to a two-state Markov chain. We solve for the optimal allocation rule, which admits a simple implementation. Unlike with transfers, efficiency decreases over time, and both immiseration and its polar opposite are possible long-run outcomes. Considering the limiting environment in which time is continuous, we show that persistence hurts.

Keywords: 

Mechanism design, Principal-Agent, Token mechanisms

JEL Classification Codes:  C73, D82