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First-price auction implements efficient investments

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  • Tomoeda, Kentaro

Abstract

This note shows that the first-price auction fully implements efficient investments when agents make not only ex ante but also ex post investments. The essential assumptions of our model are that (i) each agent can invest before and after participating in the auction under the same cost function and (ii) the cost functions are common knowledge among agents. In any equilibrium of our model, the most efficient agent always wins and makes the efficient level of investment.

Suggested Citation

  • Tomoeda, Kentaro, 2017. "First-price auction implements efficient investments," Economics Letters, Elsevier, vol. 159(C), pages 198-200.
    • Handle: RePEc:eee:ecolet:v:159:y:2017:i:c:p:198-200
    DOI: 10.1016/j.econlet.2017.08.013
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    References listed on IDEAS

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    1. Eric Maskin & John Riley, 2000. "Equilibrium in Sealed High Bid Auctions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(3), pages 439-454.
    2. Maskin, Eric & Riley, John, 2003. "Uniqueness of equilibrium in sealed high-bid auctions," Games and Economic Behavior, Elsevier, vol. 45(2), pages 395-409, November.
    3. Leandro Arozamena & Estelle Cantillon, 2004. "Investment Incentives in Procurement Auctions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(1), pages 1-18.
    4. Piccione, Michele & Tan, Guofu, 1996. "Cost-Reducing Investment, Optimal Procurement and Implementation by Auctions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(3), pages 663-685, August.
    5. Tan, Guofu, 1992. "Entry and R & D in procurement contracting," Journal of Economic Theory, Elsevier, vol. 58(1), pages 41-60, October.
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    Cited by:

    1. Tomoeda, Kentaro, 2019. "Efficient investments in the implementation problem," Journal of Economic Theory, Elsevier, vol. 182(C), pages 247-278.

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    More about this item

    Keywords

    First-price auction; Investment efficiency; Full implementation;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design

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