The second-price auction solves King Solomon's dilemma
Consider the problem of allocating k identical, indivisible objects among n agents, where k is less than n. The planner's objective is to give the objects to the top k valuation agents at zero costs to the planner and the agents. Each agent knows her own valuation of the object and whether it is among the top k. Modify the (k+1)st-price sealed-bid auction by introducing a small participation fee and the option not to participate in it. This strikingly simple mechanism (modified auction) implements the desired outcome in iteratively weakly undominated strategies. Moreover, no pair of agents can profitably deviate from the equilibrium by coordinating their strategies or bribing each other.
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- Bag, Parimal Kanti & Sabourian, Hamid, 2005.
"Distributing awards efficiently: More on King Solomon's problem,"
Games and Economic Behavior,
Elsevier, vol. 53(1), pages 43-58, October.
- Bag, P.K. & Sabourian, H., 2004. "Distributing Awards Efficiently: More on King Solomon’s Problem," Cambridge Working Papers in Economics 0418, Faculty of Economics, University of Cambridge.
- Parimal Kanti Bag; Hamid Sabourian, 2004. "Distributing Awards Efficiently: More on King Solomon's Problem," Econometric Society 2004 North American Summer Meetings 257, Econometric Society.
- Perry, M. & Reny, P.J., 1995.
"A General Solution to King Solomon's Dilemma,"
9581, Tilburg - Center for Economic Research.
- 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.
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