Dominant Strategy Implementation of Bayesian incentive Compatible Allocation Rules
Abstract A large literature on incentive mechanisms represents incentive constraints by the requirement that truthful reporting be a Bayesian equilibrium. This paper identifies mechanism design problems for which there is no loss in replacing Bayesian incentive compatibility by the stronger requirement of dominant strategies. We identify contexts where it is possible to change the transfer payments of an optimal Bayesian mechanism so as to create dominant strategies and yet leave every participant's expected utility unchanged. We also address the issue of multiple equilibria and unique implementation. Contexts where these results apply include auctions, bilateral bargaining, procurement contracting, and intrafirm resource allocation.