B01: Information aggregation and the role of transfers in mechanism design

Classical applications of mechanism design theory to trading mechanisms have focused on the development of optimal procedures given some design goal, such as schemes that maximize welfare or revenue in an auction, or that maximize the principal’s utility in a contracting situation. In such settings, the presence of monetary transfers is the main facilitator for modulating incentives. On the other hand, both the classical social choice literature and more recent applications of mechanism design to voting, contests, optimal delegation and Bayesian persuasion have addressed aggregation and decision procedures where money does not play a role. We plan to combine methods and insights from both strands in order to achieve a unified approach to optimization problems that appear in economics applications with and without money.

A major, new role in our analysis will be played by the concept of majorization, due to Hardy et al. (1929): together with convexity, this concept constitutes the basis for the modern theory of inequalities. It turns out that many of the abovementioned problems can be represented as optimization under various majorization constraints. In addition to emphasizing the role of majorization, we shall continue our analysis of other fundamental aspects of mechanism design such as informed-principal problems, multi-dimensional mechanism design, equivalence between mechanisms, and mechanism design with interdependent values.

We will use these methods to solve mechanism design problems in a broad range of areas, including some very practical applications such as voting rules in the Bundestag or optimal regulation of social distancing in a pandemic.