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Mechanism Design Without Revenue Equivalence

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Abstract

We study mechanism design problems in quasi-linear environments where the en- velope theorem and revenue equivalence principle fail due to non-convex and non- differentiable valuations. Despite these obstacles, we obtain a characterization of in- centive compatibility based on the familiar Mirrlees representation of the indirect util- ity and a monotonicity condition on the allocation rule. These conditions pin down the range of possible payoffs as a function solely of the allocation rule, thus providing a revenue inequality. We illustrate the usefulness of our approach in three economic applications where standard techniques do not apply: we derive the optimal selling mechanism in a buyer-seller situation where the buyer has loss-averse preferences; we find a zero payment (hence budget-balanced) efficient mechanism in a public goods lo- cation model; and we consider a principal–agent model with ex post non-contractible actions available to the agent.

Suggested Citation

  • Juan Carlos Carbajal & Jeffrey C. Ely, 2012. "Mechanism Design Without Revenue Equivalence," Discussion Papers Series 458, School of Economics, University of Queensland, Australia.
  • Handle: RePEc:qld:uq2004:458
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    13. Carbajal, Juan Carlos, 2010. "On the uniqueness of Groves mechanisms and the payoff equivalence principle," Games and Economic Behavior, Elsevier, vol. 68(2), pages 763-772, March.
    14. M. Yenmez, 2015. "Incentive compatible market design with applications," International Journal of Game Theory, Springer;Game Theory Society, vol. 44(3), pages 543-569, August.
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    Cited by:

    1. Carbajal, Juan Carlos & McLennan, Andrew & Tourky, Rabee, 2013. "Truthful implementation and preference aggregation in restricted domains," Journal of Economic Theory, Elsevier, vol. 148(3), pages 1074-1101.
    2. Kos, Nenad & Messner, Matthias, 2013. "Incentive compatibility in non-quasilinear environments," Economics Letters, Elsevier, vol. 121(1), pages 12-14.
    3. Bergemann, Dirk & Pavan, Alessandro, 2015. "Introduction to Symposium on Dynamic Contracts and Mechanism Design," Journal of Economic Theory, Elsevier, vol. 159(PB), pages 679-701.
    4. Wolitzky, Alexander, 2016. "Mechanism design with maxmin agents: theory and an application to bilateral trade," Theoretical Economics, Econometric Society, vol. 11(3), September.
    5. André Berger & Rudolf Müller & Seyed Hossein Naeemi, 2017. "Characterizing implementable allocation rules in multi-dimensional environments," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 48(2), pages 367-383, February.
    6. Lee J. & Müller R.J. & Vermeulen A.J., 2014. "Separating equilibrium in quasi-linear signaling games," Research Memorandum 026, Maastricht University, Graduate School of Business and Economics (GSBE).
    7. Juan Carlos Carbajal & Jeffrey C. Ely, 2012. "Optimal Contracts for Loss Averse Consumers," Discussion Papers Series 460, School of Economics, University of Queensland, Australia.
    8. repec:eee:mateco:v:70:y:2017:i:c:p:29-35 is not listed on IDEAS
    9. Mishra, Debasis & Pramanik, Anup & Roy, Souvik, 2014. "Multidimensional mechanism design in single peaked type spaces," Journal of Economic Theory, Elsevier, vol. 153(C), pages 103-116.
    10. Mishra, Debasis & Roy, Souvik, 2013. "Implementation in multidimensional dichotomous domains," Theoretical Economics, Econometric Society, vol. 8(2), May.
    11. repec:spr:etbull:v:2:y:2014:i:2:d:10.1007_s40505-014-0036-6 is not listed on IDEAS
    12. Debasis Mishra & Anup Pramanik & Souvik Roy, 2013. "Implementation in multidimensional domains with ordinal restrictions," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 13-07, Indian Statistical Institute, New Delhi, India.
    13. Dworczak, Piotr & Zhang, Anthony Lee, 2017. "Implementability, Walrasian equilibria, and efficient matchings," Economics Letters, Elsevier, vol. 153(C), pages 57-60.
    14. M. Yenmez, 2015. "Incentive compatible market design with applications," International Journal of Game Theory, Springer;Game Theory Society, vol. 44(3), pages 543-569, August.
    15. Dirk Bergemann & Alessandro Pavan, 2015. "Introduction to JET Symposium Issue on "Dynamic Contracts and Mechanism Design"," Cowles Foundation Discussion Papers 2016, Cowles Foundation for Research in Economics, Yale University.
    16. Ülkü, Levent, 2014. "Implementation in an interdependent value framework," Mathematical Social Sciences, Elsevier, vol. 68(C), pages 64-70.

    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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