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On the Generic (Im)possibility of Full Surplus Extraction in Mechanism Design

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  • Aviad Heifetz

    ()

  • Zvika Neeman

    ()

Abstract

A number of studies, most notably Cr?mer and McLean (1985, 1988), have shown that in Harsanyi type spaces of a fixed finite size, it is generically possible to design mechanisms that extract all the surplus from players, and as a consequence, implement any outcome as if the players’ private information were commonly known. In contrast, we show that within the set of common priors on the universal type space, the subset of priors that permit the extraction of the players’ full surplus is shy. Shyness is a notion of smallness for convex subsets of infinite-dimensional topological vector spaces (in our case, the set of common priors), which generalizes the usual notion of zero Lebesgue measure in finite-dimensional spaces.

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Bibliographic Info

Paper provided by The Center for the Study of Rationality, Hebrew University, Jerusalem in its series Discussion Paper Series with number dp350.

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Length: 26 pages
Date of creation: Feb 2004
Date of revision:
Publication status: Published in Econometrica, 2006, vol. 74, pp. 213-233.
Handle: RePEc:huj:dispap:dp350

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Keywords: surplus extraction; information rents; mechanism design; private information; universal type space; genericity; prevalence;

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References

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  1. Jeffrey C. Ely & Kim-Sau Chung, 2004. "Foundations of Dominant Strategy Mechanisms," Econometric Society 2004 North American Summer Meetings 169, Econometric Society.
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  4. Dirk Bergemann & Stephen Morris, 2003. "Robust Mechanism Design," Levine's Bibliography 666156000000000035, UCLA Department of Economics.
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  8. Brusco, Sandro, 1998. "Unique Implementation of the Full Surplus Extraction Outcome in Auctions with Correlated Types," Journal of Economic Theory, Elsevier, vol. 80(2), pages 185-200, June.
  9. Jean-Jacques Laffont & David Martimort, 2000. "Mechanism Design with Collusion and Correlation," Econometrica, Econometric Society, vol. 68(2), pages 309-342, March.
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  13. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-57, November.
  14. McAfee, R Preston & McMillan, John & Reny, Philip J, 1989. "Extracting the Surplus in the Common-Value Auction," Econometrica, Econometric Society, vol. 57(6), pages 1451-59, November.
  15. McAfee, R Preston & Reny, Philip J, 1992. "Correlated Information and Mechanism Design," Econometrica, Econometric Society, vol. 60(2), pages 395-421, March.
  16. Johnson, Scott & Pratt, John W & Zeckhauser, Richard J, 1990. "Efficiency Despite Mutually Payoff-Relevant Private Information: The Finite Case," Econometrica, Econometric Society, vol. 58(4), pages 873-900, July.
  17. Aoyagi, Masaki, 1998. "Correlated Types and Bayesian Incentive Compatible Mechanisms with Budget Balance," Journal of Economic Theory, Elsevier, vol. 79(1), pages 142-151, March.
  18. d'Aspremont, C. & Gerard-Varet, L. -A., 1982. "Bayesian incentive compatible beliefs," Journal of Mathematical Economics, Elsevier, vol. 10(1), pages 83-103, June.
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