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Vickrey allocation rule with income effect

  • Hiroki Saitoh

    ()

  • Shigehiro Serizawa

    ()

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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File URL: http://hdl.handle.net/10.1007/s00199-007-0235-6
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Article provided by Springer in its journal Economic Theory.

Volume (Year): 35 (2008)
Issue (Month): 2 (May)
Pages: 391-401

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Handle: RePEc:spr:joecth:v:35:y:2008:i:2:p:391-401
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  1. John W. Hatfield & Paul Milgrom, 2005. "Auctions, Matching and the Law of Aggregate Demand," Levine's Bibliography 122247000000000780, UCLA Department of Economics.
  2. Klemperer, Paul, 2000. "What Really Matters in Auction Design," CEPR Discussion Papers 2581, C.E.P.R. Discussion Papers.
  3. 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.
  4. Lawrence M. Ausubel & Peter Cramton, 2004. "Vickrey Auctions with Reserve Pricing," Papers of Peter Cramton 99wpvic, University of Maryland, Department of Economics - Peter Cramton, revised 28 Jun 1999.
  5. Louis Makowski & Joseph M. Ostroy, 1984. "Vickrey-Clarke-Groves Mechanisms and Perfect Competition," UCLA Economics Working Papers 333, UCLA Department of Economics.
  6. Green, Jerry & Laffont, Jean-Jacques, 1977. "Characterization of Satisfactory Mechanisms for the Revelation of Preferences for Public Goods," Econometrica, Econometric Society, vol. 45(2), pages 427-38, March.
  7. Edward Clarke, 1971. "Multipart pricing of public goods," Public Choice, Springer, vol. 11(1), pages 17-33, September.
  8. Mitsunobu Miyake, 1998. "On the incentive properties of multi-item auctions," International Journal of Game Theory, Springer, vol. 27(1), pages 1-19.
  9. Shinji Ohseto, 2006. "Characterizations of strategy-proof and fair mechanisms for allocating indivisible goods," Economic Theory, Springer, vol. 29(1), pages 111-121, September.
  10. Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-31, July.
  11. Roth, Alvin E. & Sotomayor, Marilda, 1992. "Two-sided matching," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 1, chapter 16, pages 485-541 Elsevier.
  12. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, 03.
  13. repec:cup:cbooks:9780521551847 is not listed on IDEAS
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