EX ANTE EFFICIENT MECHANISM WITH PRIVATE ENTRY COSTS

Xin Feng, Jingfeng Lu and Yeneng Sun

Economic Inquiry, 2020, vol. 58, issue 3, 1531-1541

Abstract: This paper studies ex ante efficient resource allocation mechanism in an environment where agents endowed with their private values must incur private entry costs to participate. Due to the nature of this bidimensional screening problem and the difficulty in fully characterizing all implementable endogenous entries, the domain of the related social planner's problem that is essential for establishing the existence of efficient mechanism needs to be carefully designed. We find that a second‐price auction among the entrants with a reserve price equal to the seller's valuation is ex ante efficient, and any ex ante efficient mechanism must be ex post efficient. (JEL D44, D61, D82)

Date: 2020
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