On the Generic (Im)Possibility of Full Surplus Extraction in Mechanism Design
AbstractA number of studies, most notably Crémer and McLean (1985, 1988), have shown that in generic type spaces that admit a common prior and are of a fixed finite size, an uninformed seller can design mechanisms that extract all the surplus from privately informed bidders. We show that this result hinges on the nonconvexity of such a family of priors. When the ambient family of priors is convex, generic priors do not allow for full surplus extraction provided that for at least one prior in this family, players' beliefs about other players' types do not pin down the players' own preferences. In particular, full surplus extraction is generically impossible in finite type spaces with a common prior. Similarly, generic priors on the universal type space do not allow for full surplus extraction. Copyright The Econometric Society 2006.
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Bibliographic InfoArticle provided by Econometric Society in its journal Econometrica.
Volume (Year): 74 (2006)
Issue (Month): 1 (01)
Other versions of this item:
- Aviad Heifetz & Zvika Neeman, 2004. "On the Generic (Im)possibility of Full Surplus Extraction in Mechanism Design," Discussion Paper Series dp350, The Center for the Study of Rationality, Hebrew University, Jerusalem.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
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