An Efficient Dynamic Mechanism

This paper constructs an e cient, budget-balanced, Bayesian incentive-compatible mechanism for a general dynamic environment with private information.As an intermediate result, we construct an e cient, ex post incentive-compatible mechanism, which is not budget balanced.We also provide conditions under which participation constraints can be satis ed in each period, so that the mechanism can be made self-enforcing if the horizon is in nite and players are su ciently patient.In our dynamic environment, agents observe a sequence of private signals over a number of periods (either nite or countable).In each period, the agents report their private signals, and make public (contractible) and private decisions based on the reports.The probability distribution over future signals may depend on both past signals and past decisions.The construction of an e cient mechanism hinges on the assumption of values" (each agent's payo is determined by his own observations).Balancing the budget relies on the assumption of types" (the distribution of each agent's private signals does not depend on the other agents' private information, except through public decisions).