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Bid and Guess: A Nested Mechanism for King Solomon's Dilemma

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  • Qin, Cheng-Zhong

Abstract

In this paper we propose a mechanism to resolve King Solomon’s dilemma about allocating an indivisible good at no cost to the participating agents. A distinctive feature of our mechanism is the design of a two-part contest that makes the agents guess each other’s bids in a second-price auction. The accuracy of an agent’s guess of the other agent’s bid endogenously determines how much she pays for participating in the contest. The truthfully bidding Bayesian-Nash equilibrium of the contesting game results in a reduced game, which has a unique and strict Bayesian-Nash equilibrium that implements the efficient outcome.

Suggested Citation

  • Qin, Cheng-Zhong, 2006. "Bid and Guess: A Nested Mechanism for King Solomon's Dilemma," University of California at Santa Barbara, Economics Working Paper Series qt78s8m9rn, Department of Economics, UC Santa Barbara.
    • Handle: RePEc:cdl:ucsbec:qt78s8m9rn
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    References listed on IDEAS

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    1. Olszewski, Wojciech, 2003. "A simple and general solution to King Solomon's problem," Games and Economic Behavior, Elsevier, vol. 42(2), pages 315-318, February.
    2. Perry, Motty & Reny, Philip J., 1999. "A General Solution to King Solomon's Dilemma," Games and Economic Behavior, Elsevier, vol. 26(2), pages 279-285, January.
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