Efficient Design with Interdependent Valuations
We study efficient, Bayes-Nash incentive compatible mechanisms in a social choice setting that allows for informational and allocative externalities. We show that such mechanisms exist only if a congruence condition relating private and social rates of information substitution is satisfied. If signals are multidimensional, the congruence condition is determined by an integrability constraint, and it can hold only in non-generic cases such as the private value case or the symmetric case. If signals are one-dimensional, the congruence condition reduces to a monotonicity constraint and it can be generically satisfied. We apply the results to the study of multi-object auctions, and we discuss why such auctions cannot be reduced to one-dimensional models without loss of generality.
|Date of creation:||13 Jul 1999|
|Note:||An earlier version (january 1998) of this paper was circulated as SFB 504 discussion paper 98-22. We wish to thank Olivier Compte, Eric Maskin, Paul Milgrom, Tim Van Zandt and Asher Wolinsky for very valuable remarks. Andy Postlewaite and two anonymous referees made comments that greatly improved the quality of the exposition. We also wish to thank seminar audiences at Basel, Berkeley, Boston, Frankfurt, Harvard, L.S.E., Mannheim, Michigan, MIT, Northwestern, Penn, Stanford, U.C.L., Wisconsin, and Yale for numerous comments. Financial Support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.|
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