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Dynamic Mechanism Design: Theory and Applications


Principal Investigator

Prof. Dr. Benny Moldovanu
Wirtschaftstheoretische Abteilung II
Lennéstr. 37
53113 Bonn



Our main purpose is to construct a solid theoretical connection between the classical, non-strategic, dynamic allocation models used in Operations Research/Management Science/Computer Science, and between the modern theory of mechanism design.

The Economics literature has focused on information and incentive issues in static models, whereas the Operations  Research/Management Science literature has looked at dynamic models that were lacking strategic and informational aspects. There is an increased recent interest in combining these bodies of knowledge, spurred by applications to yield management, and by the emergence of decentralized platforms for interaction and communication among agents.

The planned research will focus on new models involving multidimensional incomplete information:

  1. Introduce incomplete information in the dynamic and stochastic knapsack problem;
  2. Allow for strategic purchase time in dynamic pricing models;
  3. Enrich the existing models by allowing for competing mechanism designers.

A general mechanism design approach needs to start with the characterization of all dynamically implementable allocation policies. Once implementable policies are identified, variational arguments can be used in order to characterize optimal policies. The ensuing control problems are often not standard and require special tools.

When there is learning about the environment, the information revealed by an agent affects both the value of the current allocation, and the option value of any future allocation. The main objective in this part are:

  1. Derive the properties of learning processes that allow efficient, dynamic implementation,
  2. Characterize second-best mechanism in cases where adaptive learning and first-best efficiency are not compatible with each other.

We expect that our theoretical results will generate insights for the construction of applied pricing schemes and many empirically testable implications about the pattern of observed prices associated in practice.