Efficient Mechanisms under Unawareness

Kym Pram and Burkhard C. Schipper
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Burkhard C. Schipper: Department of Economics, University of California Davis

No 372, Working Papers from University of California, Davis, Department of Economics

Abstract: We study the design of efficient mechanisms under asymmetric awareness and information. Unawareness refers to the lack of conception rather than the lack of information. Assuming quasi-linear utilities and private values, we show that we can implement in conditional dominant strategies a social choice function that is utilitarian ex-post efficient when pooling all awareness of all agents without the need of the social planner being fully aware ex-ante. To this end, we develop novel dynamic versions of Vickrey-Clarke-Groves mechanisms in which types are revealed and subsequently elaborated at endogenous higher awareness levels. We explore how asymmetric awareness affects budget balance and participation constraints. We show that ex-ante unforeseen contingencies are no excuse for deficits. Finally, we propose a modified reverse second price auction for efficient procurement of complex incompletely specified projects.

Keywords: dynamic mechanism design; VCG mechanisms; auctions versus negotiations; unknown unknowns; complex projects (search for similar items in EconPapers)
JEL-codes: D83 (search for similar items in EconPapers)
Pages: 36
Date: 2025-04-05
New Economics Papers: this item is included in nep-des
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