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On the planner’s loss due to lack of information in bayesian mechanism design

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  • José R. Correa
  • Nicolás Figueroa

Abstract

In this paper we study a large class of resource allocation problems with an important complication, the utilization cost of a given resource is private information of a profit maximizing agent. After reviewing the characterization of the optimal bayesian mechanism, we study the informational cost introduced by the presence of private information. Our main result is to provide an upper bound for the ratio between the cost under asymmetric information and the cost of a fully informed designer, which is independent of the combinatorial nature of the problem and tight. We also show that this bound holds for a variation of the Vickrey-Clark-Groves mechanism. Finally we point out implementation issues of the optimal mechanism.

Suggested Citation

  • José R. Correa & Nicolás Figueroa, 2008. "On the planner’s loss due to lack of information in bayesian mechanism design," Documentos de Trabajo 247, Centro de Economía Aplicada, Universidad de Chile.
    • Handle: RePEc:edj:ceauch:247
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    References listed on IDEAS

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    1. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    2. Krishna, Vijay & Maenner, Eliot, 2001. "Convex Potentials with an Application to Mechanism Design," Econometrica, Econometric Society, vol. 69(4), pages 1113-1119, July.
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