Investment Incentives in Near-Optimal Mechanisms

Research Seminars

In a Vickrey auction, if one bidder can invest to increase his value, the combined mechanism including investments is still fully optimal. By contrast, there exist monotone allocation rules that are arbitrarily close to the the allocative optimum, but such that the associated mechanism with investments by one bidder cannot guarantee any positive fraction of the full optimum. The presented paper in this Virtual Market Design Seminar shows that if a monotone allocation rule that guarantees some fraction of the allocative optimum also “excludes bossy negative externalities”, then the same guarantee applies to the combined mechanism with investments. They show moreover that a mild weakening of this property is necessary and sufficient for the result.





Ass. Prof Shengwu Li

Shengwu Li // Harvard University, Cambridge, USA

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