A Subsidized Vickrey Auction for Cost Sharing
AbstractWe introduce a subsidized Vickrey auction for cost sharing problems. Although the average, marginal, and serial cost sharing mechanisms are budget-balanced, they are not allocatively efficient and they do not induce players to truthfully reveal their values as a dominant strategy. The conventional Vickrey auction, on the other hand, is allocatively efficient and does induce truthful bidding as a dominant strategy, but also generates an overpayment. This paper modifies the conventional Vickrey auction so that some of the overpayment is used to subsidize additional production without upsetting the players' incentives to bid truthfully. Although this subsidized Vickrey auction is not allocatively efficient, it always Pareto dominates the conventional Vickrey auction and sometimes dominates other existing cost sharing mechanisms.
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Bibliographic InfoPaper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0705.
Date of creation: Apr 2007
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Cost sharing; dominant strategy implementation; Vickrey auction; subsidized Vickrey auction;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-05-04 (All new papers)
- NEP-EXP-2007-05-04 (Experimental Economics)
- NEP-GTH-2007-05-04 (Game Theory)
- NEP-PBE-2007-05-04 (Public Economics)
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