Implementation with ex post hidden actions

Abstract

In this paper, we study implementation in settings where agents take strategic actions that influence preferences over mechanism outcomes and yet are hidden from the mechanism designer. We show that such settings can arise in entry auctions for markets, and that the Vickery-Clarke-Groves Mechanism is not guaranteed to be truthful because of strategic actions. We thus pursue a new approach in this paper: (i) we formalize so-called ex post hidden actions, (ii) we characterize social choice functions that can be implemented in a way that is robust to ex post hidden actions, and (iii) we propose a mechanism to do so. The model allows agents to have multi-dimensional types and quasi-linear preferences. We showcase these results by identifying social choice functions that can and cannot be implemented in entry auctions for Cournot competitions.