abstract

Strategy-proofness, investment efficiency, and marginal returns: an equivalence

Authors:

John William Hatfield,

Fuhito Kojima,

Scott Duke KominersAuthors Info & Claims

EC '14: Proceedings of the fifteenth ACM conference on Economics and computation

Page 801

https://doi.org/10.1145/2600057.2602833

Published: 01 June 2014 Publication History

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Abstract

The market design literature has successfully designed mechanisms that achieve desirable properties such as strategy-proofness (incentive compatibility) and efficiency at the allocation stage. However, agents must often make investment decisions before participating in allocation mechanisms. These decisions are endogenous, in the sense that market participants' investments depend on the choice of mechanism.

The goal of this paper is to understand when it is possible to design fully efficient mechanisms, i.e., mechanisms that both are efficient ex post and induce agents to make efficient investment decisions ex ante. To do so, we consider a general public choice setting (with transfers). Our framework includes, but is not limited to, object allocation settings such as auctions as well as two-sided matching environments such as residency matching. In our setting, payoffs depend not only on the outcome selected by the mechanism but also on agents' pre-mechanism investment choices. We say that a mechanism induces efficient investment by an agent if the investment choices that maximize the utility of that agent coincide with the investment choices that maximize social welfare.

Our first main result shows that a mechanism induces efficient investment if and only if it provides marginal rewards, in the sense that the change in an agent's utility when that agent adjusts her investment is equal to the associated change in social welfare. For our second main result, we focus on ex post efficient mechanisms, i.e., mechanisms that select welfare-maximizing outcomes given agents' investment decisions.

We show that for ex post efficient mechanisms, inducing efficient investment and providing marginal rewards are both equivalent to strategy-proofness. We extend our equivalence results to approximate versions of the aforementioned properties. Our results imply that under the Kelso--Crawford (1982) worker-optimal stable mechanism (with discrete transfers), workers are incentivized to make approximately efficient human capital investments before entering the labor market (conditional on the actions of firms).

Cited By

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Matsushima HNoda S(2023)Mechanism design with general ex-ante investmentsJournal of Mathematical Economics10.1016/j.jmateco.2023.102831106(102831)Online publication date: May-2023
https://doi.org/10.1016/j.jmateco.2023.102831
Song Y(2023)Approximate Bayesian Implementation and Exact Maxmin Implementation: An EquivalenceGames and Economic Behavior10.1016/j.geb.2023.01.012Online publication date: Feb-2023
https://doi.org/10.1016/j.geb.2023.01.012
Schlegel J(2022)The structure of equilibria in trading networks with frictionsTheoretical Economics10.3982/TE440517:2(801-839)Online publication date: 2022
https://doi.org/10.3982/TE4405
Show More Cited By

Index Terms

Strategy-proofness, investment efficiency, and marginal returns: an equivalence
1. Applied computing
  1. Electronic commerce
  2. Law, social and behavioral sciences

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Information

Published In

EC '14: Proceedings of the fifteenth ACM conference on Economics and computation

June 2014

1028 pages

ISBN:9781450325653

DOI:10.1145/2600057

General Chair:
Moshe Babaioff
Microsoft Research
,
Program Chairs:
Vincent Conitzer
Duke University
,
David Easley
Cornell University

Permission to make digital or hard copies of part or all of this work for personal or classroom use is granted without fee provided that copies are not made or distributed for profit or commercial advantage and that copies bear this notice and the full citation on the first page. Copyrights for third-party components of this work must be honored. For all other uses, contact the Owner/Author.

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Association for Computing Machinery

New York, NY, United States

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Published: 01 June 2014

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EC '14

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SIGecom

EC '14: ACM Conference on Economics and Computation

June 8 - 12, 2014

California, Palo Alto, USA

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EC '14 Paper Acceptance Rate 80 of 290 submissions, 28%;

Overall Acceptance Rate 664 of 2,389 submissions, 28%

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The 25th ACM Conference on Economics and Computation

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Cited By

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Matsushima HNoda S(2023)Mechanism design with general ex-ante investmentsJournal of Mathematical Economics10.1016/j.jmateco.2023.102831106(102831)Online publication date: May-2023
https://doi.org/10.1016/j.jmateco.2023.102831
Song Y(2023)Approximate Bayesian Implementation and Exact Maxmin Implementation: An EquivalenceGames and Economic Behavior10.1016/j.geb.2023.01.012Online publication date: Feb-2023
https://doi.org/10.1016/j.geb.2023.01.012
Schlegel J(2022)The structure of equilibria in trading networks with frictionsTheoretical Economics10.3982/TE440517:2(801-839)Online publication date: 2022
https://doi.org/10.3982/TE4405
Schlegel J(undefined)Trading Networks With General PreferencesSSRN Electronic Journal10.2139/ssrn.3230767
https://doi.org/10.2139/ssrn.3230767
Noda S(undefined)Strategic Experimentation with Random Serial DictatorshipSSRN Electronic Journal10.2139/ssrn.2956548
https://doi.org/10.2139/ssrn.2956548

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Sequential partition mechanism for strongly budget-balanced redistribution

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