I had the opportunity to participate in a delightful workshop on mechanism design and the informed principal organized by Thomas Troeger and Tymofiy Mylovavnov. The setting was a charming `schloss‘ (manse rather than castle) an hour and half outside of Mannheim. They had gathered together a murderer’s row of speakers and auditors. Suffice it to say I was the infimum of the group and lucky to be there.
One (among many) remarkable talks was given by Roger Myerson on his 1983 paper entitled `Mechanism Design by an Informed Principal‘. Kudos to Thomas and Tymofiy for coming up with the idea of doing this. It brought to mind some couplets from Locksley Hall:
When the centuries behind me like a fruitful land reposed;
When I clung to all the present for the promise that it closed:
When I dipt into the future far as human eye could see;
Saw the Vision of the world and all the wonder that would be.—
By the way, the last pair of lines appears on the dedication plaque that graces the USS Voyager (of the Star Trek franchise).
What did Roger do? He tried as best as possible, given the gulf of time, to explain why he had chosen the tack that he did in the paper (axiomatic) and his hope for how it would influence research on the subject.
A principal with private information must propose a mechanism to an agent. However, the choice of mechanism will reveal something of the principal’s private information to the agent. Thus, the problem of mechanism design in this setting is not a straight optimization problem. It is, at a high level, a signaling game. The signals are the set of mechanisms that the principal can propose. Thus, one seeks an equilibrium of this game. But which equilibrium?
In section 7 of the paper, Roger approaches the question axiomatically in the spirit of Nash bargaining. Indeed, Roger made just such an analogy in his talk. Nash did not have in mind any particular bargaining protocol, but a conviction that any reasonable protocol must satisfy some natural invariance conditions. Some decades later Rubinstein arrives with a bargaining protocol to justify Nash’s conviction. So, Roger sought the same here and expressed the wish to see this year a vindication of his hopes.
Lest you think the audience accepted Roger’s axioms uncritically, Thomas Troeger, pointed out Roger’s axiom 1 ruled out some possibly natural settings like Rothschild & Stiglitz. Roger argued that it was right and proper to rule this out and battle joined!