Mechanism Design with Informational Punishment

TL;DR

This paper introduces informational punishment as a novel mechanism design tool that leverages delayed, garbled messages to enforce participation and robustness without altering the standard revelation principle.

Contribution

It develops a new approach using informational punishment that ensures participation and robustness in mechanisms, independent of the designer’s objectives and applicable off the equilibrium path.

Findings

Enables full participation without loss using informational punishment.

Operates independently of the mechanism designer’s objective.

Robust to refinements and applicable in informed-principal settings.

Abstract

We introduce \emph{informational punishment} to the design of mechanisms that compete with an exogenous status quo mechanism: Players can send garbled public messages with some delay, and others cannot commit to ignoring them. Optimal informational punishment ensures that full participation is without loss, even if any single player can publicly enforce the status quo mechanism. Informational punishment permits using a standard revelation principle, is independent of the mechanism designer's objective, and operates exclusively off the equilibrium path. It is robust to refinements and applies in informed-principal settings. We provide conditions that make it robust to opportunistic signal designers.