Mechanism design and communication costs

Abstract

This paper focuses on implementation issues in environments where it may be costly for the players to send certain messages. We suggest an approach allowing to characterize the set of implementable outcomes, and then apply it to derive optimal mechanisms in a number of environments. The key elements of our approach are the absence of any restrictions on the communication structure in a mechanism and the ability of the principal to screen the agents not only on the basis of their preferences over the outcomes, but also on the basis of their communication abilities.