A Toolbox for Economic Design

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  • Edition: 1st
  • Format: Hardcover
  • Copyright: 2009-03-15
  • Publisher: Palgrave Macmillan
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This book combines economic theory and design to create tools that economists can use to apply in social, political and institutional application. This book seeks to provide the necessary stepping stones in order to facilitate the diffusion and adoption of this powerful tool for studying incentive structures in economics. The book presents a number of examples, both theoretical and real-life. It also has a chapter that samples the literature that tests mechanisms away from the blackboard, in laboratories and the real world.This book provides readers (students and applied economists) with the tools to design the rules of economics to harness the power of incentives.

Author Biography

Dimitrios Diamantaras is an associate professor at Temple University.

Table of Contents

List of Figuresp. vii
List of Tablesp. viii
Prefacep. ix
Acknowledgmentsp. xi
Introductionp. 1
A Story from Ancient Athensp. 1
Institutions and Economicsp. 2
Getting the Big Picturep. 4
Example: An Auctionp. 7
A Taste of Social Choice Theoryp. 8
Arrow's Impossibility Theoremp. 9
Social Choice Functionsp. 14
Economic Domainp. 18
Exchange Economiesp. 18
Social Choice Correspondences on the Exchange Economy Domainp. 20
The Pareto Social Choice Correspondencep. 21
The Individually Rational Social Choice Correspondencep. 23
The Core Social Choice Correspondencep. 23
The No-Envy Social Choice Correspondencep. 25
Combinations of the Previous Social Choice Correspondencesp. 25
The Walrasian Social Choice Correspondencep. 26
Quasilinear Preferences and Their Usesp. 27
Appendix: Proofsp. 29
Arrow's Impossibility Theoremp. 29
Gibbard-Satterthwaite Theoremp. 33
Exercisesp. 36
Dominant Strategy Implementationp. 38
Definitionsp. 38
Revelation Principlep. 41
Restricting Domains: Single-Peaked Preferencesp. 43
Restricted Domains: Quasilinear Domains and Groves Mechanismsp. 45
Balance Problemp. 52
Voluntary Participation Problemp. 53
The Vickrey Auctionp. 53
Exercisesp. 55
Implementation in Nash Equilibriap. 58
A Quick Lesson on Nash Equilibriump. 58
Nash Equilibrium in Mixed Strategiesp. 61
Nash Equilibrium in Implementationp. 62
Strategy Space Reductionp. 72
Two Person Casesp. 75
Exercisesp. 78
Bayesian Equilibrium and Mechanismsp. 81
Preliminary: How to Represent Informationp. 81
Bayesian Equilibriump. 83
The Bayesian Revelation Principlep. 86
The Mechanism of d'Aspremont and Gerard-Varet and of Arrowp. 88
Voluntary Participationp. 91
Optimal Auctionsp. 94
Bilateral Tradingp. 100
Exercisesp. 105
Refined Nash Implementationp. 107
Implementation in Subgame Perfect Equilibriump. 107
Subgame Perfect Implementation in Quasilinear Environmentsp. 112
Implementation Using Undominated Strategiesp. 115
Double Implementationp. 121
Definitionsp. 121
Ratio Correspondencep. 123
Virtual Nash Implementationp. 126
Applicationsp. 132
Manipulation-Resistant Online Reputation Systemsp. 132
Walrasian Implementation via Market Gamesp. 136
Implementing the Lindahl Social Choice Correspondencep. 139
Implementing Fair Allocationsp. 142
Application to Negative Externality Problems: Pollution Abatementp. 147
A Nearly Efficient Mutual Insurance Mechanismp. 150
Financing the Athenian Fleetp. 153
Bayesian Implementationp. 158
Example of Multiple Bayesian Equilibriap. 158
Bayesian Implementation and Bayesian Monotonicityp. 160
Restrictiveness of Bayesian Monotonicityp. 166
Virtual Bayesian Implementationp. 169
Further Topics in Mechanism Designp. 172
Endogenous Mechanismsp. 172
Notation and Definitionsp. 174
An Application: Public Goodsp. 179
Positive Results for Endogenous Games with 3 or More Playersp. 181
Overcoming Incentive Constraints by Linking Decisionsp. 183
Notation and Definitionsp. 185
Resultsp. 187
Robust Mechanism Designp. 189
Notation and Definitionsp. 190
Resultsp. 192
The Limits of Ex Post Implementationp. 195
Notation and a Resultp. 195
An Illustration of the Geometric Conditionp. 197
Exercisesp. 199
Matching Modelsp. 202
What Is Matching?p. 202
Notation and Definitionsp. 203
Two-Sided Matchingp. 204
One-to-One Matchingp. 205
Many-to-One Matchingp. 212
One-Sided Matchingp. 221
The Shapley and Scarf House Marketp. 221
House Allocation Problemsp. 223
The Kidney Exchange Problemp. 224
Exercisesp. 226
Empirical Evidence on Mechanismsp. 228
Introductionp. 228
Voluntary Contribution Mechanisms for Public Goodsp. 229
Tests of Incentive Compatibilityp. 237
Research on Mechanism Dynamicsp. 239
Tests of Implementation Conceptsp. 241
Applied Economic Design: Notes from the Fieldp. 244
Conclusionp. 250
Mathematics Review and More on Economic Domainsp. 254
Sets, Correspondences, Functions, Intervalsp. 254
Derivatives and Related Notationp. 256
Elements of Mathematical Optimizationp. 258
Envelope Theoremp. 259
The Edgeworth Boxp. 260
Public Good Economiesp. 261
The Simplest Public Project Modelp. 261
Public Goods Modelsp. 261
Social Choice Correspondencesp. 262
Pareto Social Choice Correspondencesp. 263
Lindahl and Constrained Lindahl Social Choice Correspondencesp. 264
Ratio Social Choice Correspondencep. 270
Exercisesp. 275
Notationp. 276
Bibliographyp. 278
Indexp. 288
Table of Contents provided by Ingram. All Rights Reserved.

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