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Implementation in Large Population Games with Multiple Equilibria

  • Economics Discussion Papers
  • June 3, 2021
  • Ratul Lahkar,
  • Sarvesh Bandhu, Ratul Lahkar

Evolutionary implementation is a standard method of implementation in large population games. Such implementation may, however, be ineffective in certain situations. We consider one such situation where strategic complementarities generate multiple Nash equilibria. The planner constructs an externality adjusted game by adding the positive externalities in the game to the original payoffs. However, strategic complementarities render the Pareto inferior Nash equilibrium evolutionarily stable. The society, therefore, fails to converge to the efficient state of the model leading to the failure of evolutionary implementation. We provide a new solution to this problem of implementation in large population games with multiple equilibria using dominant strategy implementation. Our main result is that the efficient state can be implemented in strictly dominant strategy by applying Pigouvian pricing calculated on the basis of the distribution of reported types.

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