Current Volume 9
Mechanism Design with Asymmetric Information: An Analysis of Incentive Compatibility and Efficiency
Abstract
The theoretical underpinnings of incentive compatibility and efficiency are the main emphasis of this paper's formal investigation of mechanism design in the context of asymmetric information. In particular, we investigate a static Bayesian principal-agent model where a risk-neutral principal creates a method to extract personal data from a risk-neutral participant. By applying the Revelation Principle, we reduce the study without sacrificing generality by focusing just on direct revelation methods. Using the envelope theorem, we get the necessary and sufficient criteria for incentive compatibility and describe the structure of optimum mechanisms that strike a balance between informational rents and efficiency. Our model demonstrates a basic trade-off between the goal of the principal and the agent's requirement for involvement and honest disclosure. We also analyze the impact of individual rationality limitations on the allocation and transfer rules. Our findings' practical importance is demonstrated by applications to digital platforms, regulatory policy, and auction design. By providing thorough mathematical analysis and lucid economic intuition, this study adds to the body of literature on economic design. Additionally, it offers a basis for investigating increasingly intricate dynamic and multi-agent environments, where asymmetric knowledge adds more strategic factors. The findings have wide-ranging effects on creating strong, honest, and effective institutions.
Citations
IRE Journals:
Luora Selyne Atieno , Dr. Yasin Ghabon
"Mechanism Design with Asymmetric Information: An Analysis of Incentive Compatibility and Efficiency" Iconic Research And Engineering Journals Volume 8 Issue 12 2025 Page 147-155
IEEE:
Luora Selyne Atieno , Dr. Yasin Ghabon
"Mechanism Design with Asymmetric Information: An Analysis of Incentive Compatibility and Efficiency" Iconic Research And Engineering Journals, 8(12)
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