Optimal private good allocation: The case for a balanced budget

Moritz Drexl and Andreas Kleiner ()

Games and Economic Behavior, 2015, vol. 94, issue C, 169-181

Abstract: In an independent private value auction environment, we are interested in strategy-proof mechanisms that maximize the agents' residual surplus, that is, the utility derived from the physical allocation minus transfers accruing to an external entity. We find that, under the assumption of an increasing hazard rate of type distributions, an optimal deterministic mechanism never extracts any net payments from the agents, that is, it will be budget-balanced. Specifically, optimal mechanisms have a simple “posted price” or “option” form. In the bilateral trade environment, we obtain optimality of posted price mechanisms without any assumption on type distributions.

Keywords: Mechanism design; Bilateral trade; Myerson–Satterthwaite theorem; Budget balance (search for similar items in EconPapers)
JEL-codes: D45 D82 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:94:y:2015:i:c:p:169-181

DOI: 10.1016/j.geb.2015.10.009

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