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Individually rational, budget-balanced mechanisms and allocation of surplus

  • Kosenok, Grigory
  • Severinov, Sergei

We investigate the issue of implementation via individually rational ex-post budget-balanced Bayesian mechanisms. We show that all decision rules generating a nonnegative expected social surplus are implementable via such mechanisms if and only if the probability distribution of the agents' type profiles satisfies two conditions: the well-known condition of Crémer and McLean [1988. Full extraction of the surplus in Bayesian and dominant strategy auctions, Econometrica 56, 1247-1257] and the Identifiability condition introduced in this paper. We also show that these conditions are necessary for ex-post efficiency to be attainable with budget balance and individual rationality, and that the expected social surplus in these mechanisms can be distributed in any desirable way. Lastly, we demonstrate that, like Crémer-McLean condition, the Identifiability condition is generic if there are at least three agents.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 140 (2008)
Issue (Month): 1 (May)
Pages: 126-161

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Handle: RePEc:eee:jetheo:v:140:y:2008:i:1:p:126-161
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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  17. Cremer, Jacques & McLean, Richard P, 1985. "Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist When Demands Are Interdependent," Econometrica, Econometric Society, vol. 53(2), pages 345-61, March.
  18. Makowski Louis & Mezzetti Claudio, 1994. "Bayesian and Weakly Robust First Best Mechanisms: Characterizations," Journal of Economic Theory, Elsevier, vol. 64(2), pages 500-519, December.
  19. d'Aspremont, Claude & Cremer, Jacques & Gerard-Varet, Louis-Andre, 1990. "Incentives and the existence of Pareto-optimal revelation mechanisms," Journal of Economic Theory, Elsevier, vol. 51(2), pages 233-254, August.
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