Participation Rights and Mechanism Design

This paper is concerned with the procedural aspects of collective choice and the impact of the parties' participation rights on the optimal mechanism. We ̄nd that the mechanism designer generally bene ̄ts from the selective engagement of the agents | the exclusion of some agenttypes from the choice process. We show that optimization of mechanisms with voluntary participation involves two mutually dependent instruments: the scope of the agents' engagement, and the functional form of the social choice function. The bene ̄ts of selective engagement, as well as two optimization methodologies, are illustrated on principal-agent models. We ̄nd that the participation constraint is redundant and generally leads to suboptimal mechanisms. Contrary to its general interpretation, this restriction does not re°ect the voluntary aspect of the agents' participation. Rather, it gives them an additional entitlement: to force their involvement in the collective choice. We formulate a free-exit constraint that is devoid of incentives and fully accounts for the voluntary aspect of participation. It also leads to an equivalent representation of incentivecompatibility that explicates incentives and speci ̄es the feasibility of a mechanism.