Mechanism Design under Costly Signaling: the Value of Non-Coordination

TL;DR

This paper explores how non-coordination mechanisms, which rely solely on individual reports rather than joint signals, can outperform coordination mechanisms in allocation problems involving costly signaling, especially when implementable via coarse-ranking contests.

Contribution

It formalizes conditions where non-coordination mechanisms are optimal and demonstrates their implementation through coarse-ranking contests.

Findings

Non-coordination mechanisms can outperform coordination ones under certain conditions.

Optimal mechanisms may not require joint signals, simplifying implementation.

Coarse-ranking contests can implement these non-coordination mechanisms.

Abstract

We study allocation mechanisms that utilize costly signaling as a screening tool. A social planner aims to maximize social welfare, defined as the weighted sum of agents' utilities, while implementing a specific allocation rule. Within a broad class of agent preferences, we show that coordination mechanisms (where recommended signals depend on joint reports) can be outperformed by non-coordination mechanisms (where signals depend solely on individual reports). We formalize the conditions under which the optimal mechanism features no coordination and demonstrate that such mechanisms are implementable through coarse-ranking contests.