Strategy-Proof Allocations with Punishment

Lining Han and Ruben Juarez

A mechanism chooses an allocation of the resource to agents based on their reported type. We discover and describe the set of incentive compatible mechanisms when a monetary punishment to agents who misreport type is possible. This class depends on the punishment function and the probability of punishment. It expands previous char- acterizations of incentive compatible mechanisms when punishment was no available. Furthermore, when the planner has the ability to select the punishment, the minimal punishment necessary to achieve incentive compatibility and the corresponding class of first-best is provided. For any punishment, optimal mechanism for the planner are introduced.

Economics and Management School, Wuhan University 2Department of Economics, University of Hawaii