Eliciting Reservation Prices: Becker-DeGroot-Marschak Mechanisms vs. Markets

Peter Bohm, Johan Linden and Joakim Sonnegard

Economic Journal, 1997, vol. 107, issue 443, 1079-89

Abstract: The Becker-DeGroot-Marschak mechanism is used in experimental economies as an incentive-compatible procedure for eliciting reservation prices. It is found here, where seller prices are elicited, that the mechanism is sensitive to the choice of upper bound of the randomly generated buyout prices. Hence, the mechanism cannot be generally incentive compatible in practice. Two ways to specify the upper bound are identified which make the Becker-DeGroot-Marschak mechanism yield mean seller prices that do not differ from those generated in an incentive-compatible market. The experimental market used here is designed so that traders are unable to influence transaction prices, even when the market is small. Copyright 1997 by Royal Economic Society.

Date: 1997
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