Incentive Compatibility in Two-Stage Repeated Stochastic Games

In this article, we address mechanism design for two-stage repeated stochastic games—a setting using which many emerging problems in electricity markets can be readily modeled. We introduce the notion of dominant strategy nonbankrupting equilibrium (DNBE) which requires players to make very few assumptions about the behaviors of other players in order to employ their equilibrium strategy. Consequently, a mechanism that renders truth-telling a DNBE could be quite effective in molding real-world behavior along truthful lines. We present a mechanism for two-stage repeated stochastic games that renders truth-telling a DNBE.