Allocative and Informational Externalities in Auctions and Related Mechanisms

Philippe Jehiel () and Benny Moldovanu ()

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: We study the effects of allocative and informational externalities in (multi-object) auctions and related mechanisms. Such externalities naturally arise in models that embed auctions in larger economic contexts. In particular, they appear when there is downstream interaction among bidders after the auction has closed. The endogeneity of valuations is the main driving force behind many new, specific phenomena with allocative externalities: even in complete information settings, traditional auction formats need not be efficient, and they may give rise to multiple equilibria and strategic non-participation. But, in the absence of informational externalities, welfare maximization can be achieved by Vickrey-Clarke- Groves mechanisms. Welfare-maximizing Bayes-Nash implementation is, however, impossible in multi-object settings with informational externalities, unless the allocation problem is separable across objects (e.g. there are no allocative externalities nor complementarities) or signals are one-dimensional. Moreover, implementation of any choice function via ex-post equilibrium is generically impossible with informational externalities and multidimensional types. A theory of information constraints with multidimensional signals is rather complex, but indispensable for our study.

Date: 2005-10
New Economics Papers: this item is included in nep-gth
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Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Allocative and Informational Externalities in Auctions and Related Mechanisms (2006)
Working Paper: Allocative and Informational Externalities in Auctions and Related Mechanisms (2006)
Working Paper: Allocative and Informational Externalities in Auctions and Related Mechanisms (2005)
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