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A simple budget-balanced mechanism

Debasis Mishra () and Tridib Sharma ()
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Debasis Mishra: Indian Statistical Institute
Tridib Sharma: CIE, ITAM

Social Choice and Welfare, 2018, vol. 50, issue 1, 147-170

Abstract: Abstract In the private values single object auction model, we construct a satisfactory mechanism—a dominant strategy incentive compatible and budget-balanced mechanism satisfying equal treatment of equals. Our mechanism allocates the object with positive probability to only those agents who have the highest value and satisfies ex-post individual rationality. This probability is at least $$(1-\frac{2}{n})$$ ( 1 - 2 n ) , where n is the number of agents. Hence, our mechanism converges to efficiency at a linear rate as the number of agents grow. Our mechanism has a simple interpretation: a fixed allocation probability is allocated using a second-price Vickrey auction whose revenue is redistributed among all the agents in a simple way. We show that our mechanism maximizes utilitarian welfare among all satisfactory mechanisms that allocate the object only to the highest-valued agents.

Date: 2018
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Handle: RePEc:spr:sochwe:v:50:y:2018:i:1:d:10.1007_s00355-017-1078-0