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Efficient Mechanism Design

  • Vijay Krishna

    (Penn State University)

  • Motty Perry

    (The Hebrew niversity)

We study Bayesian mechanism design in situations where agents' information may be multi-dimensional, concentrating on mechanisms that lead to efficient allocations. Our main result is that a generalization of the well-known Vickrey-Clarke-Groves mechanism maximizes the planner's "revenue'' among all efficient mechanisms. This result is then used to study multiple object auctions in situations where bidders have privately known "demand curves'' and extended to include situations with complementarities across objects or externalities across bidders. We also illustrate how the main result may be used to analyze the possibility of allocating both private and public goods efficiently when budget balance considerations are important. The generalized VCG mechanism, therefore, serves to unify many results in mechansim design theory.

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Paper provided by EconWPA in its series Game Theory and Information with number 9703010.

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Length: 24 pages
Date of creation: 25 Mar 1997
Date of revision: 28 Apr 1998
Handle: RePEc:wpa:wuwpga:9703010
Note: Type of Document - SciWord-LaTex; prepared on IBM PC ; to print on HP Laserjet 4; pages: 24 ; figures: None
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  1. Green, Jerry & Laffont, Jean-Jacques, 1977. "Characterization of Satisfactory Mechanisms for the Revelation of Preferences for Public Goods," Econometrica, Econometric Society, vol. 45(2), pages 427-38, March.
  2. Fernando Branco, 1996. "Multiple unit auctions of an indivisible good," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(1), pages 77-101.
  3. d'ASPREMONT, Claude & GERARD-VARET, Louis-André, . "Incentives and incomplete information," CORE Discussion Papers RP 354, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. McAfee, R. Preston, 1991. "Efficient allocation with continuous quantities," Journal of Economic Theory, Elsevier, vol. 53(1), pages 51-74, February.
  5. Makowski Louis & Mezzetti Claudio, 1994. "Bayesian and Weakly Robust First Best Mechanisms: Characterizations," Journal of Economic Theory, Elsevier, vol. 64(2), pages 500-519, December.
  6. Mookherjee, Dilip & Reichelstein, Stefan, 1992. "Dominant strategy implementation of Bayesian incentive compatible allocation rules," Journal of Economic Theory, Elsevier, vol. 56(2), pages 378-399, April.
  7. Armstrong, Mark, 1996. "Multiproduct Nonlinear Pricing," Econometrica, Econometric Society, vol. 64(1), pages 51-75, January.
  8. Lawrence M. Ausubel & Peter Cramton & Marek Pycia & Marzena Rostek & Marek Weretka, 2014. "Demand Reduction and Inefficiency in Multi-Unit Auctions," Review of Economic Studies, Oxford University Press, vol. 81(4), pages 1366-1400.
  9. Roger B. Myerson & Mark A. Satterthwaite, 1981. "Efficient Mechanisms for Bilateral Trading," Discussion Papers 469S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Robert Wilson, 1979. "Auctions of Shares," The Quarterly Journal of Economics, Oxford University Press, vol. 93(4), pages 675-689.
  11. George J. Mailath & Andrew Postlewaite, 1990. "Asymmetric Information Bargaining Problems with Many Agents," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 351-367.
  12. Wilson, Robert, 1997. "Nonlinear Pricing," OUP Catalogue, Oxford University Press, number 9780195115826, December.
  13. John McMillan, 1994. "Selling Spectrum Rights," Journal of Economic Perspectives, American Economic Association, vol. 8(3), pages 145-162, Summer.
  14. Rochet, Jean-Charles, 1987. "A necessary and sufficient condition for rationalizability in a quasi-linear context," Journal of Mathematical Economics, Elsevier, vol. 16(2), pages 191-200, April.
  15. John G. Riley & William Samuelson, 1979. "Optimal Auctions," UCLA Economics Working Papers 152, UCLA Department of Economics.
  16. Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-31, July.
  17. McAfee, R. Preston & McMillan, John, 1988. "Multidimensional incentive compatibility and mechanism design," Journal of Economic Theory, Elsevier, vol. 46(2), pages 335-354, December.
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