When designing a system for self-interested agents, one needs to take into account that these agents may behave strategically. In the field of mechanism design (inverse game theory) there are a number of well established methods to design socially optimal system allocating resources for rational agents in static settings, such as the well-known class of Vickrey-Clarke-Groves mechanisms.
However, when the system is dynamic, e.g. when the population of agents changes over time, different methods are needed and these are less well developed. This tutorial aims to give an overview of the main existing approaches for such dynamic systems. Specifcally, we consider both problems where the preferences of agents change over time, as well as problems where agents dynamically enter and leave the system (so-called online mechanism design problems).
A particular application area we will consider is allocating electricity in the smart grid. Moving towards sustainable energy, the production costs of electricity become dependent upon the weather. Users planning electricity-consuming activities have individual objectives that are different from those of electricity generators. As a society we are interested in a pricing scheme for electricity with an equilibrium for electricity consumption and production that optimises the social welfare. The design of such a mechanism is an example of mechanism design in a dynamic setting involving planning and scheduling of activities.