Robust mechanism design and social preferences

We study two classic challenges in mechanism design - bilateral trade a la Myerson and Satterthwaite (1983) and redistributive income taxation a la Mirrlees (1971) and Piketty (1993) - to show that some standard mechanism design solutions systematically fail with social preferences. We therefore introduce the notion of a social-preference-robust mechanism which works not only for selfish but also for social preferences of different nature and intensity, and characterize the optimal mechanism for this class. With the help of a series of laboratory experiments we find that behavior can indeed be better controlled with social-preference-robust mechanisms. (C) 2017 Elsevier B.V. All rights reserved