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Designing efficient and incentive compatible mechanisms is almost impossible in quasi-linear environments

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  • Yi, Jianxin
  • Wang, Hefei
  • Li, Yong

Abstract

In quasi-linear environments, classic theories state that it is possible to design efficient and incentive-compatible mechanisms, such as Vickrey, Clarke and Groves (VCG) mechanisms. However, once financial constraints are taken into account, we find that almost no financial constraint is compatible with efficiency and individual incentives over unrestricted domains and some restricted domains. Therefore, our results imply that even in quasi-linear environments, it is still impossible to design an efficient and incentive compatible mechanism because of financial constraints.

Suggested Citation

  • Yi, Jianxin & Wang, Hefei & Li, Yong, 2018. "Designing efficient and incentive compatible mechanisms is almost impossible in quasi-linear environments," Economics Letters, Elsevier, vol. 173(C), pages 113-117.
    • Handle: RePEc:eee:ecolet:v:173:y:2018:i:c:p:113-117
    DOI: 10.1016/j.econlet.2018.09.018
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    References listed on IDEAS

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    More about this item

    Keywords

    Incentive compatibility; Efficiency; Financial constraints; Mechanism design; Impossibility;
    All these keywords.

    JEL classification:

    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations

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