Coalition-proof Ambiguous Mechanism

Abstract

The paper studies when efficient allocations are implementable via coalition-proof mechanisms. When ambiguous mechanisms are allowed and agents are maxmin expected utility maximizers, we prove that all efficient allocations are implementable via interim coalition incentive compatible mechanisms if and only if the prior distribution of agents’ types satisfies the Coalition Beliefs Determine Preferences (CBDP) property. When the CBDP property holds, these mechanisms can be designed to satisfy additional conditions of interim coalition rationality, interim ambiguity insurance, and ex-post budget balance. When ambiguous mechanisms are not allowed, under every prior, there exists an efficient allocation that is not implementable via interim coalition incentive compatible simple mechanisms. Thus, the paper sheds light on how coalition-proofness may be achieved by engineering ambiguity in mechanism rules.