A Subsidized Vickrey Auction for Cost Sharing

Jesse Schwartz () and Quan Wen ()
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Jesse Schwartz: Department of Economics, Kennesaw State University

No 705, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: We introduce a subsidized Vickrey auction for cost sharing problems. Although the average, marginal, and serial cost sharing mechanisms are budget-balanced, they are not allocatively efficient and they do not induce players to truthfully reveal their values as a dominant strategy. The conventional Vickrey auction, on the other hand, is allocatively efficient and does induce truthful bidding as a dominant strategy, but also generates an overpayment. This paper modifies the conventional Vickrey auction so that some of the overpayment is used to subsidize additional production without upsetting the players' incentives to bid truthfully. Although this subsidized Vickrey auction is not allocatively efficient, it always Pareto dominates the conventional Vickrey auction and sometimes dominates other existing cost sharing mechanisms.

Keywords: Cost sharing; dominant strategy implementation; Vickrey auction; subsidized Vickrey auction (search for similar items in EconPapers)
JEL-codes: C72 D44 H42 (search for similar items in EconPapers)
Date: 2007-04
New Economics Papers: this item is included in nep-exp, nep-gth and nep-pbe
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http://www.accessecon.com/pubs/VUECON/vu07-w05.pdf First version, 2007 (application/pdf)

Related works:
Journal Article: A subsidized Vickrey auction for cost sharing (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:0705

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