Informational size and two-stage mechanisms

Richard McLean and Andrew Postlewaite

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: We showed in McLean and Postlewaite (2014) that when agents are informationally small, there exist small modifications to VCG mechanisms in interdependent value problems that restore incentive compatibility. This paper presents a two-stage mechanism that similarly restores incentive compatibility. The first stage essentially elicits that part of the agents’ private information that induces interdependence and reveals it to all agents, transforming the interdependent value problem into a private value problem. The second stage is a VCG mechanism for the now private value problem. Agents typically need to transmit substantially less information in the two stage mechanism than would be necessary for a single stage mechanism. Lastly, the firrst stage that elicits the part of the agents’ private information that induces interdependence can be used to transform certain other interdependent value problems into private value problems.

Keywords: Auctions; Incentive Compatibility; Mechanism Design; Interdependent Values; Ex Post Incentive Compatibility; Informational Size (search for similar items in EconPapers)
JEL-codes: C70 D44 D60 D82 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2015-03-04
New Economics Papers: this item is included in nep-cta and nep-gth
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Persistent link: https://EconPapers.repec.org/RePEc:pen:papers:15-011

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