Definition:
The revelation principle is that truth-telling, direct revelation mechanisms can generally be designed to achieve the Nash equilibrium outcome of other mechanisms; this can be proven in a large category of mechanism design cases.
The revelation principle is relevant to a modelling (that is, theoretical) context with:
- two players, usually firms
- a third party (usually the government) managing a mechanism to achieve a desirable social outcome
- incomplete information -- in particular, the players have types that are hidden from the other player and from the government.
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