Intermediated Implementation

TL;DR

This paper explores how a principal can implement social choice rules through intermediaries with limited regulatory power, using fee schedules and regulations, especially considering private or interdependent values, with applications in healthcare and income redistribution.

Contribution

It introduces methods for implementing incentive-compatible social choice rules via intermediaries with limited regulation, analyzing fee schedules and regulations under different value settings.

Findings

Per-unit fee schedules can effectively implement social choice rules.

Distribution regulations depend on whether intermediaries have private or interdependent values.

Applications include healthcare regulation and income redistribution.

Abstract

We examine problems of ``intermediated implementation,'' in which a single principal can only regulate limited aspects of the consumption bundles traded between intermediaries and agents with hidden characteristics. An example is sales, in which retailers offer menus of consumption bundles to customers with hidden tastes, whereas a manufacturer with a potentially different goal from retailers' is limited to regulating sold consumption goods but not retail prices by legal barriers. We study how the principal can implement through intermediaries any social choice rule that is incentive compatible and individually rational for agents. We demonstrate the effectiveness of per-unit fee schedules and distribution regulations, which hinges on whether intermediaries have private or interdependent values. We give further applications to healthcare regulation and income redistribution.