Implementation in partial equilibrium

Printer-friendly version
Working paper
Takashi Hayashi and Michele Lombardi
Issue number: 
Adam Smith Business School Discussion Papers
Adam Smith Business School - University of Glasgow
Consider a society with a finite number of sectors (social issues or commodities). In a partial equilibrium (PE) mechanism a sector authority (SA) aims to elicit agentsípreference rankings for outcomes at hand, presuming separability of preferences, while such presumption is false in general and such isolated rankings might be artifacts. Therefore, its participants are required to behave as if they had separable preferences. This paper studies what can be Nash implemented if we take such misspeciÖcation of PE analysis as a given institutional constraint. The objective is to uncover the kinds of complementarity across sectors that this institutional constraint is able to accommodate. Thus, in our implementation model there are several SAs, agents are constrained to submit their rankings to each SA separately and, moreover, SAs cannot communicate with each other. When a social choice rule (SCR) can be Nash implemented by a product set of PE mechanisms, we say that it can be Nash implemented in PE. We identify necessary conditions for SCRs to be Nash implemented in PE and show that they are also su¢ cient under a domain condition which identiÖes the kinds of admissible complementarities. Thus, the Nash implementation in PE of SCRs is examined in auction and matching environments.
Developed by Paolo Gittoi