SMU SOE Seminar (Sep 20, 2017, 11-12.30pm): Coarse Communication and Institution Design

How to share information when precise communication is not possible? In this paper, I develop a framework to analyze the design of mechanisms subject to communication constraints in a common interest context. The framework allows me to characterize a parameter-free Pareto ranking of such mechanisms: Mechanism A outperforms mechanism B for any common objective if and only if A′s communication infrastructure can be constructed from B’s by five types of elementary operations. Two applications follow. In the first application, it is shown that an optimal voting system has a sequential procedure and a dictatorial rule. In the second application, it is shown that a certain kind of information overload can be avoided by a mechanism even if the latter only has limited information-processing capacity.