, 33:83 | Cite as

Foundations of mechanism design: A tutorial Part 1-Key concepts and classical results

  • Dinesh Garg
  • Y. NarahariEmail author
  • Sujit Gujar


Mechanism design, an important tool in microeconomics, has found widespread applications in modelling and solving decentralized design problems in many branches of engineering, notably computer science, electronic commerce, and network economics. Mechanism design is concerned with settings where a social planner faces the problem of aggregating the announced preferences of multiple agents into a collective decision when the agents exhibit strategic behaviour. The objective of this paper is to provide a tutorial introduction to the foundations and key results in mechanism design theory. The paper is in two parts. Part 1 focuses on basic concepts and classical results which form the foundation of mechanism design theory. Part 2 presents key advanced concepts and deeper results in mechanism design.


Mechanism design game theory social choice functions auctions 


  1. Aggarwal G, Goel A, Motwani R 2006 Truthful auctions for pricing search keywords. In EC’06: Proceedings of the 7th ACM Conference on Electronic Commerce, (New York, USA: ACM) 1–7CrossRefGoogle Scholar
  2. Altman A, Tennenholtz M 2005 Ranking systems: The pagerank axioms. In 6th ACM Conference on Electronic Commerce (EC’05) 1–8Google Scholar
  3. Altman A, Tennenholtz M 2006 Quantifying incentive compatibility of ranking systems. In Proceedings of The Twenty-First National Conference on Artificial Intelligence 21: 586–591Google Scholar
  4. Anderegg L, Eidenbenz 2003 Ad hoc-VCG: A truthful and cost-efficient routing protocol for mobile ad hoc networks with selfish agents. In 9th ACM Annual International Conference on Mobile Computing and Networking (MobiCom’03), San Diego, California, USA, September 14–19, 245–259Google Scholar
  5. Arrow K 1979 The property rights doctrine and demand revelation under incomplete information. In M Boskin, (ed), Economics and Human Welfare. (New York: Academic Press)Google Scholar
  6. Baar T, Olsder G J 1999 Dynamic Noncooperative Game Theory. SIAM Series in Classics in Applied MathematicsGoogle Scholar
  7. Brandt F 2003 Social choice and preference protection-towards fully private mechanism design. In 4th ACM Conference on Electronic Commerce (EC’03) 220–221Google Scholar
  8. Buyya R 2002 Economic-based distributed resource management and scheduling for grid computing. PhD thesis, School of Computer Science and Software Engineering, Monash University, AustraliaGoogle Scholar
  9. Caplice C, Sheffi Y 2005 Combinatorial auctions for truckload transportation. In P Cramton, Y Shoham, R Steinberg, (eds.), Combinatorial Auctions, (Cambridge, Massachusetts, USA: The MIT Press) 539–572Google Scholar
  10. Chandrashekar T S, Narahari Y, Rosa C H, Kulkarni D, Tew J D, Dayama P 2006 Auction based mechanisms for electronic procurement. IEEE Transactions on Automation Science and Engineering 4(3): 297–321CrossRefGoogle Scholar
  11. Clarke E 1971 Multi-part pricing of public goods. Public Choice 11: 17–23CrossRefGoogle Scholar
  12. Cramton P 2005 Simultaneous ascending auctions. In P Cramton, Y Shoham, R Steinberg, (eds.), Combinatorial Auctions, (Cambridge, Massachusetts, USA: The MIT Press) 99–114Google Scholar
  13. Das A, Grosu D 2005 Combinatorial auction-based protocols for resource allocation in grids. In IPDPS’05: Proceedings of the 19th IEEE International Parallel and Distributed Processing Symposium (IPDPS’05)-Workshop 13, (Washington, DC: USA, IEEE Computer Society) 251·1Google Scholar
  14. d’Aspremont C, Gérard-Varet L A 1979 Incentives and incomplete information. J. Public Econ. 11: 25–45CrossRefGoogle Scholar
  15. de Vries S, Vohra R V 2003 Combinatorial auctions: A survey. INFORMS J. Computing 15(1): 284–309CrossRefGoogle Scholar
  16. de Vries S, Vohra R V 2005 Design of combinatorial auctions. In Handbook of Quantitative Supply Chain Analysis: Modelling in the E-Business Era. International Series in Operations Research and Management Science, (Norwell: MA, USA: Kluwer Academic Publishers) 247–292Google Scholar
  17. Edelman B, Ostrovsky M, Schwarz M 2006 Internet advertising and the generalized second price auction: Selling billions of dollars worth of keywords. In 2nd Workshop on Sponsored Search Auctions in conjunction with the ACM Conference on Electronic Commerce (EC’06), Ann Arbor, MIGoogle Scholar
  18. Eidenbenz S, Santi P, Resta G 2005 COMMIT: A sender centric truthful and energy-efficient routing protocol for ad hoc networks. In Workshop on Wireless, Mobile, and Ad hoc Networks (WMAN) in conjunction with 19th IEEE International Parallel and Distributed Processing Symposium (IPDPS’05) Google Scholar
  19. Eso M, Kalagnanam J, Ladanyi L, Li Y G 2001 Winner determination in bandwidth exchanges. Technical report, IBM TJ Watson Research CenterGoogle Scholar
  20. Feigenbaum J and Shenker S 2002 Distributed algorithmic mechanism design: Recent results and future directions. In 6th International Workshop on Discrete Algorithms and Methods for Mobile Computing and Communications (MobiCom’02), New York: 1–13Google Scholar
  21. Feigenbaum J, Papadimitriou C H, Sami R, Shenker S 2002 A BGP-based mechanism for lowest-cost routing. In 21st ACM Symposium on Principles of Distributed Computing (PODC’02), New York: June 30–July 4, 173–182Google Scholar
  22. Garg D 2006 Design of Innovative Mechanisms for Contemporary Game Theoretic Problems in Electronic Commerce. PhD thesis, Department of Computer Science and Automation, Indian Institute of Science, Bangalore, IndiaGoogle Scholar
  23. Garg D, Narahari Y 2005 Design of incentive compatible mechanisms for stackelberg problems. In First Workshop on Network and Internet Economics, WINE-2005, Springer, Lecture Notes in Computer Science, Decemeber 3828: 718–727Google Scholar
  24. Garg D, Narahari Y, Gujar S 2008 Foundations of mechanism design: A tutorial-Part 2: Advanced concepts results. Sādhanā 33: 131–174zbMATHMathSciNetGoogle Scholar
  25. Gautam Raghav, Hemachandra N, Narahari Y, Hastagiri Prakash 2007 Optimal auctions for multiunit procurement with volume discount bidders. In Proceedings of IEEE Conference on Electronic Commerce (IEEE CEC-2007) 21–28Google Scholar
  26. Gibbard A 1973 Manipulation of voting schemes. Econometrica 41: 587–601zbMATHCrossRefMathSciNetGoogle Scholar
  27. Green J R, Laffont J J 1979 Incentives in Public Decision Making. (Amsterdam: North-Holland Publishing Company)zbMATHGoogle Scholar
  28. Grosu D, Chronopoulos A T 2003 A load balancing mechanism with verification. In IPDPS’03: Proceedings of the 17th International Symposium on Parallel and Distributed Processing, (Washington, DC: USA, IEEE Computer Society) 163–170Google Scholar
  29. Grosu D, Chronopoulos A T 2004 Algorithmic mechanism design for load balancing in distributed systems. Systems, Man, and Cybernetics, Part B, IEEE Transactions on 34(1): 77–84CrossRefGoogle Scholar
  30. Groves T 1973 Incentives in teams. Econometrica 41: 617–631zbMATHCrossRefMathSciNetGoogle Scholar
  31. Gyongyi Z, Garcia-Molina H 2005 Link spam alliances. In 31st International Conference on Very Large Data Bases (VLDB’05), Trondheim, NorwayGoogle Scholar
  32. Hershberger J, Suri S 2001 Vickrey prices and shortest paths: What is an edge worth? In 42nd Annual IEEE Symposium on Foundations of Computer Science (FOCS’01) 252–259Google Scholar
  33. Hurwicz L 1960 Optimality and informational efficiency in resource allocation processes. In Mathematical Methods in the Social Sciences. Arrow, Karlin and Suppes (eds.). Stanford University PressGoogle Scholar
  34. Hurwicz L 1972 On informationally decentralized systems. In Decision and Organization. Radner and McGuire. North-Holland, AmsterdamGoogle Scholar
  35. Jackson M O 2001 A crash course in implementation theory. Social Choice and Welfare 18: 655–708zbMATHCrossRefMathSciNetGoogle Scholar
  36. Jackson M O 2003 Mechanism theory. In Ulrich Derigs, (ed.), Optimizations and Operations Research. Oxford, UKGoogle Scholar
  37. Jayant K, Parkes D C 2005 Auctions, bidding, and exchange design. In David Simchi-Levi, David S Wu, and Max Shen, (eds.), Handbook of Quantitative Supply Chain Analysis: Modelling in the E-Business Era, Int. Series in Operations Research and Management Science. (Norwell, USA: Kluwer Academic Publishers)Google Scholar
  38. John C Harsanyi 1967 Games with incomplete information played by Bayesian players. Part I: The basic model. Management Sci. 14: 159–182MathSciNetzbMATHGoogle Scholar
  39. John C Harsanyi 1968a Games with incomplete information played by Bayesian players. Part II: Bayesian equilibrium points. Management Sci. 14: 320–334MathSciNetzbMATHGoogle Scholar
  40. John C Harsanyi 1968b Games with incomplete information played by Bayesian players. Part III: The basic probability distribution of the game. Management Sci. 14: 486–502MathSciNetCrossRefzbMATHGoogle Scholar
  41. Kameshwaran S, Narahari Y, Rosa C H, Kulkarni D, Tew J D 2006 Multi-attribute electronic procurement using goal programming. European J. Operational Res. 179: 518–536CrossRefGoogle Scholar
  42. Karabuk S, David Wu S 2005 Incentive schemes for semiconductor capacity allocation: A game theoretic analysis. Production and Operations Management 14(2): 175–188Google Scholar
  43. Krishna V 2002 Auction Theory. (Burlington, USA: Academic Press)Google Scholar
  44. Laffont J J 1988 Fundamentals of Public Economics (Cambridge: The MIT Press)Google Scholar
  45. Martin J Osborne 2003 An Introduction to Game Theory. (Cambridge: The MIT Press)Google Scholar
  46. Maskin E 1999 Nash equilibrium and welfare optimality. Rev. Econ. Studies 66: 23–38zbMATHCrossRefMathSciNetGoogle Scholar
  47. Mas-Colell A, Whinston M D, Green J R 1995 Microeconomic Theory. (New York: Oxford University Press)Google Scholar
  48. McAfee P R, McMillan J 1987 Auctions and bidding. J. Econ. Literat. 25(2): 699–738Google Scholar
  49. Milgrom P 1989 Auctions and bidding: A primer. J. Econ. Perspectives 3(3): 3–22Google Scholar
  50. Milgrom P 2004 Putting Auction Theory to Work. (New York, USA: Cambridge University Press)Google Scholar
  51. Myerson R B 1981 Optimal auction design. Mathematics of Operations Research 6(1): 58–73zbMATHMathSciNetGoogle Scholar
  52. Myerson R 1989 Mechanism design. In J Eatwell, M Milgate, P Newman, (eds.), The New Palgrave: Allocation, Information, and Markets, Norton, New York 191–206Google Scholar
  53. Myerson R B 1997 Game Theory: Analysis of Conflict. (Cambridge, Massachusetts: Harvard University Press)Google Scholar
  54. Naor M 2001 Cryptography and mechanism design. In 8th Conference on Theoretical Aspects of Rationality and Knowledge (TARK), Certosa di Pontignano, University of Siena, ItalyGoogle Scholar
  55. Naor M, Pinkas B, Sumner R 1999 Privacy preserving auctions and mechanism design. In EC’99: Proceedings of the 1st ACM conference on Electronic commerce, (New York, USA: ACM Press) 129–139CrossRefGoogle Scholar
  56. Narahari Y, Dayama P 2005 Combinatorial auctions for electronic business. Sādhanā 30(2–3): 179–212zbMATHMathSciNetGoogle Scholar
  57. Narahari Y, Srivastava N K 2007 Incentive compatible mechanisms for decentralized supply chain formation. In Proceedings of IEEE Conference on Electronic Commerce (IEEE CEC-2007) 315–322Google Scholar
  58. Narahari Y, Garg D, Rama Suri N, Prakash H 2008 Game Theoretic Problems in Network Economics and Mechanism Design Solutions. Advanced Information and Knowledge Processing Series, (London: Springer)Google Scholar
  59. Nisan N 2007 Introduction to mechanism design (for computer scientists). In E Tardos, N Nisan, T Roughgarden, V Vazerani, (eds.), Algorithmic Game Theory (New York, USA: Cambridge University Press) 209–242Google Scholar
  60. Nisan N, Ronen A 2000 Computationally feasible VCG mechanisms. In 2nd ACM Conference on Electronic Commerce (EC’00), New York 242–252Google Scholar
  61. Nisan N, Ronen A 2001 Algorithmic mechanism design. Games and Economic Behaviour 35: 166–196zbMATHCrossRefMathSciNetGoogle Scholar
  62. Nisan N, Roughgarden T, Tardos E, Vazerani V 2007 Algorithmic Game Theory. Cambridge University PressGoogle Scholar
  63. Nisan N 1999 Algorithms for selfish agents, mechanism design for distributed computation. In 16th Symposium on Theoretical Aspects of Computer Science (STACS’99), Heidelberg 1–15Google Scholar
  64. Paul Klemperer 2004 Auctions: Theory and Practice. The Toulouse Lectures in Economics. Princeton University PressGoogle Scholar
  65. Pekec A, Rothkopf M H 2003 Combinatorial auction design. Management Sci. 49: 1485–1503CrossRefGoogle Scholar
  66. Prakash H V, Narahari Y 2005 A strategy-proof auction mechanism for grid scheduling with selfish entities. In 2nd International Conference on Web Information Systems and Technologies (WEBIST’05), Satubal, Portugal 178–183Google Scholar
  67. Roughgarden T 2005 Selfish Routing and the Price of Anarchy. (Cambridge: The MIT Press)Google Scholar
  68. Satterthwaite M A 1975 Strategy-proofness and arrow’s conditions: Existence and correspondence theorem for voting procedure and social welfare functions. J. Econ. Theory 10: 187–217zbMATHCrossRefMathSciNetGoogle Scholar
  69. Suri Rama N 2006 Design of incentive compatible broadcast protocols for wireless ad-hoc networks. Technical report, Master’s Dissertation, Department of Computer Science and Automation, Indian Institute of Science, Bangalore, IndiaGoogle Scholar
  70. The Nobel Foundation 2007 The Sveriges Riksbank Prize in Economic Sciences in memory of Alfred Nobel 2007: Scientific Background. Technical report, The Nobel Foundation, Stockholm, SwedenGoogle Scholar
  71. Varian H R 1995 Economic mechanism design for computerized agents. In 1st USENIX Workshop on Electronic Commerce Berkeley, CA, USAGoogle Scholar
  72. Vickrey W 1961 Counterspeculation, auctions, and competitive sealed tenders. J. Finance 16(1): 8–37CrossRefGoogle Scholar
  73. Walsh W E, Wellman M P, Wurman P R, MacKie-Mason J K 1998 Some economics of market-based distributed scheduling. In ICDCS’98: Proceedings of the The 18th International Conference on Distributed Computing Systems, (Washington, DC, USA: IEEE Computer Society) 612Google Scholar
  74. Walsh W E, Wellman M P, Ygge F 2000 Combinatorial auctions for supply chain formation. In 2nd ACM Conference on Electronic Commerce (EC’00), Minneapolis, Minnesota 260–269Google Scholar
  75. Walsh W E, Wellman M P 2003 Decentralized supply chain formation: A market protocol and competitive equilibrium analysis. J. Artificial Intell. Res. 19: 513–567zbMATHGoogle Scholar
  76. Wang W, Xiang-Yang Li, Wang Y 2004 Truthful multicast routing in selfish wireless networks. In MobiCom’04: Proceedings of the 10th annual international conference on Mobile computing and networking, (New York, USA: ACM) 245–259CrossRefGoogle Scholar
  77. Wolfstetter E 1996 Auctions: An introduction. Econ. Surv. 10: 367–421CrossRefGoogle Scholar

Copyright information

© Indian Academy of Sciences 2008

Authors and Affiliations

  1. 1.IBM India Research LaboratoryBangaloreIndia
  2. 2.Electronic Commerce Laboratory, Department of Computer Science and AutomationIndian Institute of ScienceBangaloreIndia

Personalised recommendations