Efficient Mechanisms under Unawareness

Kym Pram and Burkhard Schipper

Papers from arXiv.org

Abstract: We study the design of efficient mechanisms under asymmetric awareness and information. Unawareness refers to the lack of conception rather than the lack of information. Assuming quasi-linear utilities and private values, we show that we can implement in conditional dominant strategies a social choice function that is utilitarian ex-post efficient when pooling all awareness of all agents without the need of the social planner being fully aware ex-ante. To this end, we develop novel dynamic versions of Vickrey-Clarke-Groves mechanisms in which types are revealed and subsequently elaborated at endogenous higher awareness levels. We explore how asymmetric awareness affects budget balance and participation constraints. We show that ex-ante unforeseen contingencies are no excuse for deficits. Finally, we propose a modified reverse second price auction for efficient procurement of complex incompletely specified projects.

Date: 2025-04
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2504.04382

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