Implementation theory: Difference between revisions

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'''Implementation theory''' is an area of research in [[game theory]] concerned with whether a class of mechanisms (or institutions) can be designed whose equilibrium outcomes implement a given set of normative goals or welfare criteria.<ref name = "palfrey">Palfrey, Thomas R. "Chapter 61 Implementation Theory." Handbook of Game Theory with Economic Applications, 2002. {{doi|10.1016/S1574-0005(02)03024-2}}.</ref>

There are two general types of implementation problems: the economic problem of producing and allocating public and private goods and choosing over a finite set of alternativealternatives.<ref name = "maskin">Maskin, Eric. "Implementation Theory." Science, 2002. {{doi|10.1111/j.1477-9552.2010.00281.x}}.</ref> In the case of producing and allocating public/private goods, solution concepts are focused on finding dominant strategies.

In his paper "Counterspeculation, Auctions, and Competitive Sealed Tenders," William Vickrey showed that if preferences are restricted to the case of quasi-linear utility functions then the mechanism dominant strategy is dominant-strategy implementable.<ref>Vickrey, William. "Counterspeculation, Auctions, and Competitive Sealed Tenders." The Journal of Finance 16, no. 1 (1961): 8–37. {{doi|10.1111/j.1540-6261.1961.tb02789.x}}. {{JSTOR|2977633}}.

</ref> "A [[social choice]] rule is dominant strategy incentive compatible, or strategy-proof, if the associated revelation mechanism has the property that honestly reporting the truth is always a dominant strategy for each agent."<ref name="maskin" /> However, the payments to agents become large, sacrificing budget neutrality to incentive compatibility.