Implementation
CHAPTER 5
Implementation, contracts, and renegotiation in environments with complete information*
John Moore
READER'S GUIDE Part one of the chapter is written in an easy style, to try to demystify the subject (it is based on the lecture given at the World Congress). The Biblical story of the Judgement of Solomon is used as a running example for presenting different notions of implementation. Inevitably, perhaps, this part of the chapter contains a number of statements that are rather loose. This is compensated for by the more formal part two, which amplifies certain results and topics - though here, too, some degree of detail has been sacrificed for the sake of readability. The chapter deals with situations in which agents are presumed to have complete information about each other's preferences. Thomas Palfrey's chapter in this volume, "Implementation in Bayesian Equilibrium: The Multiple Equilibrium Problem in Mechanism Design," is a companion to this, and looks at environments with incomplete information. Even though the complete-information environment is a restrictive case, the literature on it is vast and still growing. I have therefore had to be quite selective. The chapter should be seen as an overview of recent research, not as a comprehensive survey; I regret that I have not been able to do justice to the work of a number of authors. PART ONE The text is taken from the Old Testament: the First Book of Kings, chapter 3, verses 16-28. It is the story of the Judgement of Solomon. Two women
Cambridge Collections Online © Cambridge University Press, 2006
Implementation, contracts, and renegotiation
183
came before the King, disputing who was the mother of a child. Quoting from the Jerusalem Bible: "If it please you, my lord," one of the women said, "this woman and I live in the same house, and while she was in the house I gave birth to a child. Now it happened on the third day after my delivery that this woman also gave birth to a child.
Implementation, contracts, and renegotiation in environments with complete information*
John Moore
READER'S GUIDE Part one of the chapter is written in an easy style, to try to demystify the subject (it is based on the lecture given at the World Congress). The Biblical story of the Judgement of Solomon is used as a running example for presenting different notions of implementation. Inevitably, perhaps, this part of the chapter contains a number of statements that are rather loose. This is compensated for by the more formal part two, which amplifies certain results and topics - though here, too, some degree of detail has been sacrificed for the sake of readability. The chapter deals with situations in which agents are presumed to have complete information about each other's preferences. Thomas Palfrey's chapter in this volume, "Implementation in Bayesian Equilibrium: The Multiple Equilibrium Problem in Mechanism Design," is a companion to this, and looks at environments with incomplete information. Even though the complete-information environment is a restrictive case, the literature on it is vast and still growing. I have therefore had to be quite selective. The chapter should be seen as an overview of recent research, not as a comprehensive survey; I regret that I have not been able to do justice to the work of a number of authors. PART ONE The text is taken from the Old Testament: the First Book of Kings, chapter 3, verses 16-28. It is the story of the Judgement of Solomon. Two women
Cambridge Collections Online © Cambridge University Press, 2006
Implementation, contracts, and renegotiation
183
came before the King, disputing who was the mother of a child. Quoting from the Jerusalem Bible: "If it please you, my lord," one of the women said, "this woman and I live in the same house, and while she was in the house I gave birth to a child. Now it happened on the third day after my delivery that this woman also gave birth to a child.