Optimal private good allocation: The case for a balanced budget

Moritz Drexl, Andreas Kleiner

Research output: Contribution to journalArticle

10 Scopus citations

Abstract

In an independent private value auction environment, we are interested in strategy-proof mechanisms that maximize the agents' residual surplus, that is, the utility derived from the physical allocation minus transfers accruing to an external entity. We find that, under the assumption of an increasing hazard rate of type distributions, an optimal deterministic mechanism never extracts any net payments from the agents, that is, it will be budget-balanced. Specifically, optimal mechanisms have a simple "posted price" or "option" form. In the bilateral trade environment, we obtain optimality of posted price mechanisms without any assumption on type distributions.

Original languageEnglish (US)
Pages (from-to)169-181
Number of pages13
JournalGames and Economic Behavior
Volume94
DOIs
StatePublished - Nov 1 2015
Externally publishedYes

Keywords

  • Bilateral trade
  • Budget balance
  • Mechanism design
  • Myerson-Satterthwaite theorem

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance

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