An Assignment Problem with Interdependent Valuations and Externalities

Tatiana Daddario, Richard McLean and Andrew Postlewaite

Papers from arXiv.org

Abstract: In this paper, we take a mechanism design approach to optimal assignment problems with asymmetrically informed buyers. In addition, the surplus generated by an assignment of a buyer to a seller may be adversely affected by externalities generated by other assignments. The problem is complicated by several factors. Buyers know their own valuations and externality costs but do not know this same information for other buyers. Buyers also receive private signals correlated with the state and, consequently, the implementation problem exhibits interdependent valuations. This precludes a naive application of the VCG mechanism and to overcome this interdependency problem, we construct a two-stage mechanism. In the first stage, we exploit correlation in the firms signals about the state to induce truthful reporting of observed signals. Given that buyers are honest in stage 1, we then use a VCG-like mechanism in stage 2 that induces honest reporting of valuation and externality functions.

Date: 2023-05
New Economics Papers: this item is included in nep-des, nep-gth and nep-mic
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Journal Article: An assignment problem with interdependent valuations and externalities (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2305.01477

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