ABSTRACT
Chapter 10 discusses the way a party without private information can obtain another party’s private information via mechanism design. The key to mechanism design is making people tell the truth. We prove that when a type of institution causes the cost of telling a lie to be higher than telling the truth, then people will tell the truth. No matter if we are discussing the transaction of private goods or the provision of public goods, institutions that lead to telling the truth improve efficiency and create a win-win situation. This chapter also discusses the contradiction between equality and efficiency in the allocation of income caused by asymmetric information, as well as the selection mechanism for university professors.
