Deniz Kattwinkel: Mechanism design without transfers for fully biased agents

Deniz Kattwinkel will be speaking on two related papers.

Allocation with Correlated Information: Too good to be true

A principal can allocate an indivisible good to an agent. The agent privately learns the value of the good while the principal privately learns the cost. Value and cost are correlated. The agent wants to have the good in any case. The principal wants to allocate whenever the value exceeds the cost. She cannot use monetary transfers to screen the agent.
I study how the principal utilizes her information in the optimal mechanism: when the correlation is negative, she bases her decision only on the costs, and when the correlation is positive, she screens the agent. To this end, she forgoes her best allocation opportunities: when the agent reports high valuations but her own costs are low. Under positive correlation, these realizations are unlikely; the principal will find them too good to be true. In contrast to standard results, this optimal mechanism may not allocate to a higher value agent with higher probability. I discuss applications to intra-firm allocations, task-delegation, and industry self-regulation.

Mechanisms without transfers for fully biased agents

A principal has to decide between two options. Which one she prefers depends on the private information of two agents. One agent always prefers the first option; the other always prefers the second. Transfers are infeasible. The principal designs and commits to a mechanism: a mapping from reported information profiles to a – potentially randomized – decision. One prominent example of a setting without transfers is the allocation of a fixed amount of money. We characterize all implementable mechanisms under arbitrary correlation and find a connection between our mechanism design setting and a zero-sum game.
When the principal is ex-ante indifferent the existence of a profitable mechanism is equivalent to a non-additive payoff structure. When she is not ex-ante indifferent a key insight is that choosing a mechanism corresponds to introducing endogenous correlation. Existence of a profitable mechanism depends on the value of a related optimal transport problem in which the principal chooses this endogenous correlation structure