Optimal Combinatorial Mechanism Design

Levent Ulku

No 903, Working Papers from Centro de Investigacion Economica, ITAM

Abstract: We consider an optimal mechanism design problem with several heterogeneous objects and interdependent values. We characterize ex post incentives using an appropriate monotonicity condition and reformulate the problem in such a way that the choice of an allocation rule can be separated from the choice of the payment rule. Central to our analysis is the formulation of a regularity condition, which gives a recipe for the optimal mechanism. If the problem is regular, then an optimal mechanism can be obtained by solving a combinatorial allocation problem in which objects are allocated in a way to maximize the sum of "virtual" valuations. We identify conditions that imply regularity for two nonnested environments using the techniques of supermodular optimization.

New Economics Papers: this item is included in nep-cdm and nep-cta
Date: 2009-02

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Persistent link: http://EconPapers.repec.org/RePEc:cie:wpaper:0903

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