From equals to despots: The dynamics of repeated decision making in partnerships with private information Articles uri icon

publication date

  • July 2019

start page

  • 402

end page

  • 432

volume

  • 182

International Standard Serial Number (ISSN)

  • 0022-0531

Electronic International Standard Serial Number (EISSN)

  • 1095-7235

abstract

  • This paper considers an optimal renegotiation-proof dynamic Bayesian mechanism in which two privately informed players repeatedly have to take a joint action without resorting to side-payments. We provide a general framework which accommodates as special cases committee decision and collective insurance problems. Thus, we formally connect these separate strands of literature. We show: (i) first-best values can be arbitrarily approximated (but not achieved) when the players are sufficiently patient; (ii) our main result, the provision of intertemporal incentives necessarily leads to a dictatorial mechanism: in the long run the optimal scheme converges to the adoption of one player's favorite action. This can entail one agent becoming a permanent dictator or a possibility of having sporadic "regime shifts."

keywords

  • dictatorial mechanism; dynamic bayesian mechanism design; regime shifts; renegotiation-proofness; repeated collective decision making