Optimal private good allocation: The case for a balanced budget |
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| Affiliation: | 1. INRA, UMR1213 Herbivores, Site de Theix, F-63122 Saint-Genès-Champanelle, France;2. Universidade Federal do Rio Grande do Sul, UFRGS, Av. Bento Gonçalves 7712, CEP 91501-970, Porto Alegre-RS, Brazil;3. Universidade Estadual de Maringá, UEM, Av. Colombo 5.790, CEP 87020-900, Maringá-Pr, Brazil;1. Facultad de Informática, Universidad Autónoma de Querétaro, Av. de las Ciencias S/N, Juriquilla, 76230 Queretaro, Mexico;2. CIDESI, Av. Playa Pie de la Cuesta, No. 702 Desarrollo San Pablo, 76130 Querétaro, Qro., Mexico;3. Instituto Politécnico Nacional-CICATA, Cerro Blanco No.141, 76090 Queretaro, Mexico;1. Faculty of Industrial Engineering and Management, Technion-Israel Institute of Technology, Israel;2. Department of Computer Science, University of Liverpool, L69 3BX, UK;1. Department of Animal Science, Cornell University, Ithaca, NY 14853, USA;2. Department of Physiology and Pharmacology, West Virginia University, Morgantown, WV 26506-9229, USA;3. The Robert H. Smith Faculty of Agriculture, Food and Environment, Institute of Biochemistry, Food Science and Nutrition, The Hebrew University of Jerusalem, P.O. Box 12, Rehovot 76100, Israel |
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| 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. |
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| Keywords: | Mechanism design Bilateral trade Myerson–Satterthwaite theorem Budget balance |
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