Algorithmic Mechanism Design with Investment
45 Pages Posted: 13 Apr 2020 Last revised: 8 Nov 2022
Date Written: November 6, 2022
Abstract
We study the investment incentives created by truthful mechanisms that allocate resources using approximation algorithms. Some approximation algorithms guarantee nearly 100% of the optimal welfare, but have only a zero guarantee when one bidder can invest before participating. An algorithm's worst-case allocative and investment guarantees coincide if and only if that algorithm's "confirming negative externalities" are sufficiently small. We introduce new fast approximation algorithms for the knapsack problem that have no confirming negative externalities, with guarantees close to 100% both with and without investments.
Keywords: Combinatorial optimization, Knapsack problem, Investment, Auctions, Approximation, Algorithms
JEL Classification: D44, D47, D82
Suggested Citation: Suggested Citation