Mechanism design without revenue equivalence

Juan Carlos Carbajal and Jeffrey Ely

Journal of Economic Theory, 2013, vol. 148, issue 1, 104-133

Abstract: We study mechanism design problems in quasi-linear environments where the envelope theorem and revenue equivalence principle fail due to non-convex and non-differentiable valuations. We obtain a characterization of incentive compatibility based on the Mirrlees representation of the indirect utility and a monotonicity condition on the allocation rule, which pin down the range of possible payoffs as a function of the allocation rule. To illustrate our approach we derive the optimal selling mechanism in a buyer–seller situation where the buyer is loss-averse; we find a budget-balanced, efficient mechanism in a public goods location model; and we consider a principal–agent model with ex post non-contractible actions available to the agent.

Keywords: Incentive compatibility; Revenue equivalence; Integral monotonicity; Revenue maximization; Loss aversion; Efficiency; Public goods; Non-contractible actions (search for similar items in EconPapers)
JEL-codes: C72 D44 D70 D82 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35)

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Working Paper: Mechanism Design Without Revenue Equivalence (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:148:y:2013:i:1:p:104-133

DOI: 10.1016/j.jet.2012.12.014

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