Implementation and Renegotiation (Q4262862)

Implementation theory is concerned with the design of social mechanisms that select equilibrium outcomes which are optimal according to some criterion of social welfare (called a social choice rule). In many cases, the social mechanism is designed before the state of the world is known. When the number of agents is large, this mechanism can be a constitution, and when it is small, we can think of a contract. When agents are in an out-of-equilibrium position and could, by renegotiating, realize a Pareto improvement, i.e., reach a position beneficial to all, several difficulties arise. In particular, agents may no longer have a sufficient incentive to conform. In this paper, a way of formalizing renegotiation is proposed and, given this, characterizations of implementable social choice rules are established. This paper and other papers in the same issue of this journal were among the most famous unpublished paper in economic theory. Economists are very grateful to the editors for making them at last available to a larger readership.