Incentive compatible market design with applications
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This paper studies markets for heterogeneous goods using mechanism-design theory. For each combination of desirable properties, we derive an assignment process with these properties in the form of a corresponding direct-revelation game, or we show that it does not exist. Each participant’s utility is quasi-linear in money, and depends upon the allocation that he gets and his privately known multidimensional ‘type.’ The key properties are incentive compatibility, individual rationality, efficiency, and budget balance. The main results characterize mechanisms that are ex post incentive compatible in combination with other properties.
KeywordsAuctions Matching Incomplete information Incentive compatibility Multidimensional types
JEL ClassificationC71 C78 D82 D44
This paper is a part of my dissertation submitted to Stanford University, and it has been circulated as a part of “Incentive Compatible Market Design with an Application to Matching with Wages”. I would like to thank the co-editor, Vijay Krishna, and two anonymous referees. I am grateful to my advisors Michael Ostrovsky, Andrzej Skrzypacz, and Robert Wilson for continuous guidance and support. I thank Jeremy Bulow, Itay Fainmesser, Yossi Feinberg, Alexander Frankel, John Hatfield, Onur Kesten, John Lazarev, John Ledyard, Hongyi Li, Naz Nami, Muriel Niederle, Michael Schwarz, Daniel Taylor, Ali Yurukoglu, and seminar participants at various institutions for helpful comments. The author acknowledges the financial support of the SIEPR Leonard W. Ely & Shirley R. Ely Graduate Student Fellowship. Part of this research was conducted at Microsoft Research New England.
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