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AGV mechanism balances the budget with minimum total transfer variance

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  • Le, Toan

Abstract

Two mechanisms are equivalent if they share the same allocation rules and interim transfer rules, carrying incentive properties from one mechanism to the other. I prove the generalized d’Aspremont-Gérard-Varet (AGV) mechanism achieves minimal liquidity risk. It uniquely minimizes total transfer variance among all ex post budget-balanced mechanisms equivalent to an initial mechanism that balances the budget in expectation. Motivated by the contrast between ex ante and ex post fairness, I characterize the optimal mechanism minimizing payoff volatility. Finally, I show that in single-item auctions, a first-price auction with the optimal reserve price jointly maximizes expected revenue and minimizes revenue variance.

Suggested Citation

  • Le, Toan, 2026. "AGV mechanism balances the budget with minimum total transfer variance," Journal of Mathematical Economics, Elsevier, vol. 122(C).
    • Handle: RePEc:eee:mateco:v:122:y:2026:i:c:s0304406825001259
    DOI: 10.1016/j.jmateco.2025.103208
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    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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