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Vickrey Allocation Rule with Income Effect

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Author Info
Hiroki Saitoh
Shigehiro Serizawa

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Abstract

We consider situations where a society tries to efficiently allocate several homogeneous and indivisible goods among agents. Each agent receives at most one unit of the good. For example, suppose that a government wishes to allocate a fixed number of licenses to operate in its country to private companies with highest abilities to utilize the licenses. Usually companies with higher abilities can make more profits by licenses and are willing to pay higher prices for them. Thus, auction mechanisms are often employed to extract the information on companies' abilities and to allocate licenses efficiently. However, if prices are too high, they may damage companies' abilities to operate. Generally high prices may change the benefits agents obtain from the goods unless agents' preferences are quasi-linear, and we call it "income effect". In this paper, we establish that on domains including nonquasi-linear preferences, that is, preferences exhibiting income effect, an allocation rule which satisfies Pareto-efficiency, strategy-proofness, individual rationality, and nonnegative payment uniquely exists and it is the Vickrey allocation rule.

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Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0646.

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Date of creation: Dec 2005
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Handle: RePEc:dpr:wpaper:0646

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Makowski, Louis & Ostroy, Joseph M., 1987. "Vickrey-Clarke-Groves mechanisms and perfect competition," Journal of Economic Theory, Elsevier, vol. 42(2), pages 244-261, August. [Downloadable!] (restricted)
  2. John W. Hatfield & Paul Milgrom, 2005. "Auctions, Matching and the Law of Aggregate Demand," Levine's Bibliography 122247000000000780, UCLA Department of Economics. [Downloadable!]
  3. Shinji Ohseto, 2006. "Characterizations of strategy-proof and fair mechanisms for allocating indivisible goods," Economic Theory, Springer, vol. 29(1), pages 111-121, September. [Downloadable!] (restricted)
  4. Mitsunobu Miyake, 1998. "On the incentive properties of multi-item auctions," International Journal of Game Theory, Springer, vol. 27(1), pages 1-19. [Downloadable!] (restricted)
  5. Lawrence Ausubel & Peter Cramton, 2004. "Vickrey auctions with reserve pricing," Economic Theory, Springer, vol. 23(3), pages 493-505, March. [Downloadable!] (restricted)
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  6. Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-31, July. [Downloadable!] (restricted)
  7. Demange, Gabrielle & Gale, David & Sotomayor, Marilda, 1986. "Multi-Item Auctions," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 863-72, August. [Downloadable!] (restricted)
  8. Paul Klemperer, 2002. "What Really Matters in Auction Design," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 169-189, Winter. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Lars-Gunnar Svensson, 2009. "Coalitional strategy-proofness and fairness," Economic Theory, Springer, vol. 40(2), pages 227-245, August. [Downloadable!] (restricted)
  2. Toyotaka Sakai, 2008. "Second price auctions on general preference domains: two characterizations," Economic Theory, Springer, vol. 37(2), pages 347-356, November. [Downloadable!] (restricted)
  3. Shigehiro Serizawa, 2006. "Strategy-Proof and Anonymous Allocation Rules of Indivisible Goods: A New Characterization of Vickrey Allocation Rule," ISER Discussion Paper 0648, Institute of Social and Economic Research, Osaka University. [Downloadable!]
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