, Volume 75, Issue 3, pp 359-387

Optimal allocation mechanisms with type-dependent negative externalities

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Abstract

I analyze optimal auction design in the presence of linear type-dependent negative externalities. I characterize the properties of the optimal mechanism when externalities are “strongly decreasing” and “increasing” in the agent’s valuation and I discuss its implementation with sealed-bid auctions. Interestingly, bidding strategies are not necessarily increasing in valuations, and the optimal mechanism can be implemented by setting a price ceiling instead of a reserve price.

This paper builds on two cases analyzed in Brocas (2001–2009).