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Optimal private good allocation: The case for a balanced budget

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  • Drexl, Moritz
  • Kleiner, Andreas
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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  • Drexl, Moritz & Kleiner, Andreas, 2015. "Optimal private good allocation: The case for a balanced budget," Games and Economic Behavior, Elsevier, vol. 94(C), pages 169-181.
    • Handle: RePEc:eee:gamebe:v:94:y:2015:i:c:p:169-181
    DOI: 10.1016/j.geb.2015.10.009
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    Cited by:

    1. Debasis Mishra & Tridib Sharma, 2018. "A simple budget-balanced mechanism," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 50(1), pages 147-170, January.
    2. Kiho Yoon, 2021. "Robust double auction mechanisms," Papers 2102.00669, arXiv.org, revised May 2022.
    3. Shao, Ran & Zhou, Lin, 2016. "Voting and optimal provision of a public good," Journal of Public Economics, Elsevier, vol. 134(C), pages 35-41.
    4. Jesse A. Schwartz & Quan Wen, 2018. "Robust trading mechanisms with budget surplus and partial trade," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(2), pages 201-208, October.
    5. Moritz Drexl & Andreas Kleiner, 2018. "Why Voting? A Welfare Analysis," American Economic Journal: Microeconomics, American Economic Association, vol. 10(3), pages 253-271, August.
    6. Mustafa Ç. Pınar, 2018. "Robust trading mechanisms over 0/1 polytopes," Journal of Combinatorial Optimization, Springer, vol. 36(3), pages 845-860, October.
    7. Yan Long, 2020. "Optimal budget-balanced ranking mechanisms to assign identical objects," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 70(2), pages 467-502, September.
    8. Long, Yan & Mishra, Debasis & Sharma, Tridib, 2017. "Balanced ranking mechanisms," Games and Economic Behavior, Elsevier, vol. 105(C), pages 9-39.
    9. Blumrosen, Liad & Dobzinski, Shahar, 2021. "(Almost) efficient mechanisms for bilateral trading," Games and Economic Behavior, Elsevier, vol. 130(C), pages 369-383.
    10. Kiho Yoon, 2018. "Optimal robust allocation of private goods," Discussion Paper Series 1803, Institute of Economic Research, Korea University.
    11. Conan Mukherjee, 2020. "On group strategyproof and optimal object allocation," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(2), pages 289-304, October.
    12. Shao, Ran & Zhou, Lin, 2016. "Optimal allocation of an indivisible good," Games and Economic Behavior, Elsevier, vol. 100(C), pages 95-112.
    13. Yan Long, 2018. "Envy-free and budget-balanced assignment of identical objects," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 50(4), pages 705-719, April.
    14. Leo, Greg, 2017. "Taking turns," Games and Economic Behavior, Elsevier, vol. 102(C), pages 525-547.
    15. Manea, Mihai & Maskin, Eric, 2023. "Withholding and damage in Bayesian trade mechanisms," Games and Economic Behavior, Elsevier, vol. 142(C), pages 243-265.

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    More about this item

    Keywords

    Mechanism design; Bilateral trade; Myerson–Satterthwaite theorem; Budget balance;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing

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