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Mechanism Design with Expenditure Consideration

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  • Kiho Yoon

    (Department of Economics, Korea University, Seoul, South Korea)

Abstract

We characterize the structure of optimal assignment rules when both allocative ineffciency and expenditure ineffciency are present. We find that the optimal structure critically depends on how the hazard rate of the value distribution behaves, and that it is often optimal to use probabilistic assignment rules so that the winner of the object is not always the one with the highest valuation. We also find that the ineffciency of the optimal assignment rule decreases as the variability of value distribution increases.

Suggested Citation

  • Kiho Yoon, 2009. "Mechanism Design with Expenditure Consideration," Discussion Paper Series 0903, Institute of Economic Research, Korea University.
    • Handle: RePEc:iek:wpaper:0903
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    Cited by:

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    3. Kaplan, Todd R. & Zamir, Shmuel, 2015. "Advances in Auctions," Handbook of Game Theory with Economic Applications,, Elsevier.
    4. Tymofiy Mylovanov & Andriy Zapechelnyuk, 2017. "Optimal Allocation with Ex Post Verification and Limited Penalties," American Economic Review, American Economic Association, vol. 107(9), pages 2666-2694, September.
    5. Chakravarty, Surajeet & Kaplan, Todd R., 2013. "Optimal allocation without transfer payments," Games and Economic Behavior, Elsevier, vol. 77(1), pages 1-20.
    6. Condorelli, Daniele, 2012. "What money canʼt buy: Efficient mechanism design with costly signals," Games and Economic Behavior, Elsevier, vol. 75(2), pages 613-624.
    7. Moritz Drexl & Andreas Kleiner, 2018. "Why Voting? A Welfare Analysis," American Economic Journal: Microeconomics, American Economic Association, vol. 10(3), pages 253-271, August.
    8. Rohit Patel & Can Urgun, 2021. "Costly Inspection and Money Burning in Internal Capital Markets," Working Papers 2021-29, Princeton University. Economics Department..
    9. Kiho Yoon, 2018. "Optimal robust allocation of private goods," Discussion Paper Series 1803, Institute of Economic Research, Korea University.
    10. Holzer Jorge & McConnell Kenneth, 2016. "A Model of Access in the Absence of Markets," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 16(1), pages 367-388, January.
    11. Helmuts Āzacis & Péter Vida, 2015. "Collusive communication schemes in a first-price auction," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 58(1), pages 125-160, January.
    12. Daniele Condorelli, 2009. "What money can't buy: allocations with priority lists, lotteries and queues," Discussion Papers 1482, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    13. Kwiek, Maksymilian & Marreiros, Helia & Vlassopoulos, Michael, 2016. "An experimental study of voting with costly delay," Economics Letters, Elsevier, vol. 140(C), pages 23-26.
    14. Dogan, Mustafa & Uyanik, Metin, 2020. "Welfare maximizing allocation without transfers," Economics Letters, Elsevier, vol. 195(C).

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    More about this item

    Keywords

    auctions; contests; lottery; random assignment; ineffciency;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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