Implementation with Interdependent Valuations (Second Version)

53 Pages Posted: 30 Jan 2013

See all articles by Richard P. McLean

Richard P. McLean

Rutgers University - Department of Economics

Andrew Postlewaite

University of Pennsylvania - Department of Economics

Date Written: January 28, 2013

Abstract

It is well-known that the ability of the Vickrey-Clarke-Groves (VCG) mechanism to implement efficient outcomes for private value choice problems does not extend to interdependent value problems. When an agent’s type affects other agents’ utilities, it may not be incentive compatible for him to truthfully reveal his type when faced with CGV payments. We show that when agents are informationally small, there exist small modifications to CGV that restore incentive compatibility. We further show that truthful revelation is an approximate ex post equilibrium. Lastly, we show that in replicated settings aggregate payments sufficient to induce truthful revelation go to zero.

Keywords: Auctions, Incentive Compatibility, Mechanism Design, Interdependent Values, Ex Post Incentive Compatibility

JEL Classification: C70, D44, D60, D82

Suggested Citation

McLean, Richard P. and Postlewaite, Andrew, Implementation with Interdependent Valuations (Second Version) (January 28, 2013). PIER Working Paper No. 13-005, Available at SSRN: https://ssrn.com/abstract=2207941 or http://dx.doi.org/10.2139/ssrn.2207941

Richard P. McLean

Rutgers University - Department of Economics ( email )

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Andrew Postlewaite (Contact Author)

University of Pennsylvania - Department of Economics ( email )

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