This research project in microeconomic theory starts from the following observation: In environments with interdependent values and private information, the incentive compatible outcome of a centralized mechanism (or, the equilibrium outcome of a decentralized game or market) may convey valuable information to the participating agents, in light of their knowledge of the mechanism and of equilibrium strategies. Given this information, a subset of agents may unanimously prefer an alternative outcome that is feasible for them to implement. For the given mechanism to be immune from such renegotiations, it must satisfy some stability properties. The term posterior stability reflects a focus on renegotiation possibilities that arise after everyone observes the outcome of the status quo mechanism.
The research project consists of work on a canonical two-sided matching problem as well as cooperative games on the core. Various definitions of the core under incomplete information have been proposed in the literature. These differ, among other things, in their notions of the "timing of renegotiations," i.e., whether they occur at the ex-ante, interim or ex-post stage. The principal intellectual merit of this research project is that it is the first to raise the possibility of renegotiation that arises at the posterior stage, when the information publicly available to a blocking coalition is endogenous.
Posterior stability is a natural concept within the standard paradigm of common knowledge of equilibrium strategies, as in rational expectations equilibria or Nash equilibria (and its variants). Therefore, a complete study of its implications will have broad impact on the understanding of observed formal and informal institutions beyond the realm of matching, e.g., markets/games such as auctions that determine allocations to individuals under conditions of incomplete information. The project will provide insight on issues of institutional stability and market structure that is of interest to the general audience of microeconomists.
