Imperfect commitment and the revelation principle: the multi-agent case

We consider mechanism design problems with n agents when the mechanism designer cannot fully commit to an allocation function. With a single agent (n = 1) optimal mechanisms can always be represented by direct mechanisms, under which each agent's message set is the set of his possible types [Bester, H., Strausz, R., 2000. Contracting with imperfect commitment and the revelation principle: the single agent case. Free University of Berlin, mimeo]. We show that this result does not hold if n greater than or equal to 2. That is, in mechanism design problems with multiple agents the use of direct mechanisms may be suboptimal. (C) 2000 Elsevier Science S.A. All rights reserved.