Discussion Paper Details

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Title: Protocol Design and (De-)Centralization

Author(s): Hans Peter Grüner

Publication Date: June 2007

Keyword(s): decentralization, EU, mechanism design, Protocol design and Turkey

Programme Area(s): Public Economics

Abstract: Should privately informed agents with diverging interests act independently or should they commit to a mechanism? This paper analyzes different communication and decision protocols when communication involves delay. It studies under which conditions agents should (i) choose their actions immediately and non-cooperatively, (ii) communicate and act independently or (iii) contract before receiving their information. Well informed agents with similar preferences do not contract or communicate. Communication is desirable when preferences are similar and individual signals are of intermediate quality. Contracting on a Bayesian mechanism only pays when agents' preferences are not too strongly correlated, when information quality is high, and when the cost of delay is sufficiently low. When the correlation is negative and large enough, the optimal contract does not involve any communication.

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Bibliographic Reference

Grüner, H. 2007. 'Protocol Design and (De-)Centralization'. London, Centre for Economic Policy Research.