Dynamic Mechanisms without Money
We analyze the optimal design of dynamic mechanisms in the absence of transfers. The designer uses future allocation decisions as a way of eliciting private information. Values evolve according to a two-state Markov chain. We solve for the optimal allocation rule, which admits a simple implementation. Unlike with transfers, eﬀiciency decreases over time, and both immiseration and its polar opposite are possible long-run outcomes. Considering the limiting environment in which time is continuous, we show that persistence hurts.
Guo, Yingni and Hörner, Johannes, "Dynamic Mechanisms without Money" (2015). Cowles Foundation Discussion Papers. 2411.