Protocol Design and (De-)Centralization

25 Pages Posted: 23 May 2008

See all articles by H. P. Gruner

H. P. Gruner

University of Mannheim - Department of Economics; Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR)

Date Written: June 2007

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.

Keywords: Decentralization, EU, mechanism design, Protocol design, Turkey

JEL Classification: D23, D71, D74, D86

Suggested Citation

Grüner, Hans Peter, Protocol Design and (De-)Centralization (June 2007). CEPR Discussion Paper No. DP6357, Available at SSRN: https://ssrn.com/abstract=1136683

Hans Peter Grüner (Contact Author)

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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