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Prior-free dynamic allocation under limited liability

Author

Listed:
  • Chassang, Sylvain

    (Department of Economics, Princeton University)

  • Kapon, Samuel

    (Department of Economics, New York University)

Abstract

A principal seeks to efficiently allocate a productive public resource to a number of possible users. Vickrey-Clarke-Groves (VCG) mechanisms provide a detail-free way to do so provided users have deep pockets. In practice however, users may have limited resources. We study a dynamic allocation problem in which participants have limited liability: transfers are made ex post, and only if the productive efforts of participants are successful. We show that it is possible to approximate the performance of the pivot VCG mechanism using limited liability detail-free mechanisms that selectively ignore reports from participants who cannot make their promised payments. A complementary use of cautiousness and forgiveness achieves approximate renegotiation-proofness. We emphasize the use of prior-free online optimization techniques to approximate aggregate incentive properties of the pivot mechanism.

Suggested Citation

  • Chassang, Sylvain & Kapon, Samuel, 2022. "Prior-free dynamic allocation under limited liability," Theoretical Economics, Econometric Society, vol. 17(3), July.
    • Handle: RePEc:the:publsh:4575
    as

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    File URL: http://econtheory.org/ojs/index.php/te/article/viewFile/20221109/34319/1008
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    References listed on IDEAS

    as
    1. Dirk Bergemann & Juuso Välimäki, 2006. "Efficient Dynamic Auctions," Levine's Bibliography 321307000000000580, UCLA Department of Economics.
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    More about this item

    Keywords

    Dynamic allocation; renegotiation-proofness; lending; limited liability; VCG; approachability; online optimization; cautiousness; forgiveness;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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