Mechanisms without transfers for fully biased agents

TL;DR

This paper characterizes mechanisms without transfers for fully biased agents, identifying conditions under which a principal can improve outcomes by eliciting private information without monetary transfers.

Contribution

It provides a complete characterization of implementable mechanisms without transfers for biased agents and establishes conditions for when such mechanisms can outperform ex-ante optimal decisions.

Findings

Implementable mechanisms characterized under arbitrary correlation.

Profitable mechanisms exist if one agent's information influences the other's expected returns.

Necessary and sufficient conditions derived for n-agent allocation problems with independent types.

Abstract

A principal must 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. One application of this setting is the efficient division of a fixed budget between two competing departments. We first characterize all implementable mechanisms under arbitrary correlation. Second, we study when there exists a mechanism that yields the principal a higher payoff than she could receive by choosing the ex-ante optimal decision without consulting the agents. In the budget example, such a profitable mechanism exists if and only if the information of one department is also relevant for the expected returns of the other department. We generalize this insight to derive necessary and sufficient conditions for the existence of a profitable mechanism in the n-agent allocation problem with independent types.