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Optimal Allocation With Ex-Post Verification And Limited Penalties

Listed author(s):
  • Tymofiy Mylovanov
  • Andriy Zapechelnyuk

We study the problem of allocating a prize to one of several agents. The social value of giving the prize to an agent is privately known by this agent. The allocation rule chooses the winner of the prize based on the agents’ reports about these values. After the prize is allocated, the social value of giving the prize to the winner becomes commonly known and the agent can be penalized for lies about the value. We show that, if the number of agents is low, the optimal allocation rule takes the form of a restricted-bid procedure; otherwise, it takes the form of a shortlisting procedure. Examples of applications of this model are grant competitions, scholarship allocations, and hiring for a fixed-salary post.

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File URL: http://www.gla.ac.uk/media/media_500912_en.pdf
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Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2016_21.

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Date of creation: Oct 2016
Handle: RePEc:gla:glaewp:2016_21
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Phone: 0141 330 4618
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Web page: http://www.gla.ac.uk/schools/business/research/

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  1. Bull, Jesse & Watson, Joel, 2007. "Hard evidence and mechanism design," Games and Economic Behavior, Elsevier, vol. 58(1), pages 75-93, January.
  2. Elchanan Ben-Porath & Eddie Dekel & Barton L. Lipman, 2014. "Optimal Allocation with Costly Verification," American Economic Review, American Economic Association, vol. 104(12), pages 3779-3813, December.
  3. Yoon, Kiho, 2011. "Optimal mechanism design when both allocative inefficiency and expenditure inefficiency matter," Journal of Mathematical Economics, Elsevier, vol. 47(6), pages 670-676.
  4. Sher, Itai & Vohra, Rakesh, 2015. "Price discrimination through communication," Theoretical Economics, Econometric Society, vol. 10(2), May.
  5. Kim C. Border & Joel Sobel, 1987. "Samurai Accountant: A Theory of Auditing and Plunder," Review of Economic Studies, Oxford University Press, vol. 54(4), pages 525-540.
  6. Mehmet Ekmekci & Nenad Kos & Rakesh Vohra, 2016. "Just Enough or All: Selling a Firm," American Economic Journal: Microeconomics, American Economic Association, vol. 8(3), pages 223-256, August.
  7. Condorelli, Daniele, 2012. "What money canʼt buy: Efficient mechanism design with costly signals," Games and Economic Behavior, Elsevier, vol. 75(2), pages 613-624.
  8. Eraslan, Hulya & Mylovanov, Tymofiy & Yilmaz, Bilge, 2014. "Deliberation and Security Design in Bankruptcy," Working Papers 14-029, Rice University, Department of Economics.
  9. Rahul Deb & Debasis Mishra, 2013. "Implementation with Securities," Working Papers tecipa-484, University of Toronto, Department of Economics.
  10. Skrzypacz, Andrzej, 2013. "Auctions with contingent payments — An overview," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 666-675.
  11. Francesco Decarolis, 2014. "Awarding Price, Contract Performance, and Bids Screening: Evidence from Procurement Auctions," American Economic Journal: Applied Economics, American Economic Association, vol. 6(1), pages 108-132, January.
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