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Bid and Guess: A Nested Mechanism for King Solomon's Dilemma

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Author Info
Cheng-Zhong Qin (University of California, Santa Barbara)
Abstract

In this paper we propose a mechanism to resolve King Solomon's dilemma about allocating an indivisible good at no cost to the participating agents. A distinctive feature of our mechanism is the design of a two-part contest that makes the agents guess each other's bids in a second-price auction. The accuracy of an agent's guess of the other agent's bid endogenously determines how much she pays for participating in the contest. The truthfully bidding Bayesian-Nash equilibrium of the contesting game results in a reduced game, which has a unique and strict Bayesian-Nash equilibrium that implements the efficient outcome.

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Paper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number 03-06.

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Date of creation: 28 Mar 2006
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Handle: RePEc:cdl:ucsbec:03-06

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Related research
Keywords: King Solomon's dilemma; Nash equilibrium; Bayesian-Nash equilibrium; subgame-perfect equilibrium;

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  1. Olszewski, Wojciech, 2003. "A simple and general solution to King Solomon's problem," Games and Economic Behavior, Elsevier, vol. 42(2), pages 315-318, February. [Downloadable!] (restricted)
  2. Perry, Motty & Reny, Philip J., 1999. "A General Solution to King Solomon's Dilemma," Games and Economic Behavior, Elsevier, vol. 26(2), pages 279-285, January. [Downloadable!] (restricted)
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