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A Coasian Approach to Efficient Mechanism Design

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  • Mikhail Safronov

Abstract

Vickrey-Clarke-Groves and d'Apresmont Gerard-Varet mechanisms implement efficient social choice by paying each agent the externality her report imposes on all other agents. This paper provides an alternative mechanism, where each pair of agents directly compensates each other according to the externalities they impose. In the new mechanism any agent can guarantee to receive her ex ante efficient payoff by committing to report truthfully, regardless of others' strategies. This absence of ex ante externalities makes all equilibria efficient, whether agents act individually or in coalitions. Truthful report is a coalition-proof equilibrium, and under mild assumptions it is the uniquely rationalizible strategy. The mechanism is extended to repeated interactions.

Suggested Citation

  • Mikhail Safronov, 2016. "A Coasian Approach to Efficient Mechanism Design," Cambridge Working Papers in Economics 1619, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:1619
    Note: ms2329
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    File URL: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1619.pdf
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    1. Palfrey, Thomas R & Srivastava, Sanjay, 1989. "Implementation with Incomplete Information in Exchange Economies," Econometrica, Econometric Society, vol. 57(1), pages 115-134, January.
    2. repec:aea:aecrev:v:107:y:2017:i:8:p:2243-77 is not listed on IDEAS
    3. Matsushima Hitoshi, 1993. "Bayesian Monotonicity with Side Payments," Journal of Economic Theory, Elsevier, vol. 59(1), pages 107-121, February.
    4. Yusuke Kamishiro & Roberto Serrano, 2011. "Equilibrium Blocking in Large Quasilinear Economies," Mathematics of Operations Research, INFORMS, vol. 36(3), pages 552-567, August.
    5. Chen, Jing & Micali, Silvio, 2012. "Collusive dominant-strategy truthfulness," Journal of Economic Theory, Elsevier, vol. 147(3), pages 1300-1312.
    6. Myerson, Roger B., 2007. "Virtual utility and the core for games with incomplete information," Journal of Economic Theory, Elsevier, vol. 136(1), pages 260-285, September.
    7. Dutta, Bhaskar & Vohra, Rajiv, 2005. "Incomplete information, credibility and the core," Mathematical Social Sciences, Elsevier, vol. 50(2), pages 148-165, September.
    8. Barbera, Salvador & Gerber, Anke, 2003. "On coalition formation: durable coalition structures," Mathematical Social Sciences, Elsevier, vol. 45(2), pages 185-203, April.
    9. Aytek Erdil & Paul Klemperer, 2010. "A New Payment Rule for Core-Selecting Package Auctions," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 537-547, 04-05.
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    1. repec:eee:jetheo:v:177:y:2018:i:c:p:659-677 is not listed on IDEAS

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