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A simple budget-balanced mechanism

Author

Listed:
  • Debasis Mishra

    (Indian Statistical Institute)

  • Tridib Sharma

    (CIE, ITAM)

Abstract

In the private values single object auction model, we construct a satisfactory mechanism—a dominant strategy incentive compatible and budget-balanced mechanism satisfying equal treatment of equals. Our mechanism allocates the object with positive probability to only those agents who have the highest value and satisfies ex-post individual rationality. This probability is at least $$(1-\frac{2}{n})$$ ( 1 - 2 n ) , where n is the number of agents. Hence, our mechanism converges to efficiency at a linear rate as the number of agents grow. Our mechanism has a simple interpretation: a fixed allocation probability is allocated using a second-price Vickrey auction whose revenue is redistributed among all the agents in a simple way. We show that our mechanism maximizes utilitarian welfare among all satisfactory mechanisms that allocate the object only to the highest-valued agents.

Suggested Citation

  • Debasis Mishra & Tridib Sharma, 2018. "A simple budget-balanced mechanism," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 50(1), pages 147-170, January.
    • Handle: RePEc:spr:sochwe:v:50:y:2018:i:1:d:10.1007_s00355-017-1078-0
    DOI: 10.1007/s00355-017-1078-0
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    References listed on IDEAS

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    Cited by:

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