IDEAS home Printed from https://ideas.repec.org/a/eee/mateco/v46y2010i5p825-843.html
   My bibliography  Save this article

Optimal selling mechanisms with countervailing positive externalities and an application to tradable retaliation in the WTO

Author

Listed:
  • Chen, Bo
  • Potipiti, Tanapong

Abstract

We study revenue-maximizing mechanisms for a seller who sells an indivisible good to several buyers with positive, type-dependent and countervailing allocative externalities. To cope with the difficulty of types obtaining reservation utilities being endogenously determined, we first solve a minimax version of the seller's problem by generalizing Myerson's characterization techniques for the non-regular case. The solution is then shown to solve the seller's original maximin problem as well in our setting. We find that the seller's optimal mechanism normally features bunching even in the regular case and the type with the lowest expected payoff is typically not an extreme type. As an important illustration of our characterization procedures, we apply our results to the problem of selling retaliation rights in the WTO.

Suggested Citation

  • Chen, Bo & Potipiti, Tanapong, 2010. "Optimal selling mechanisms with countervailing positive externalities and an application to tradable retaliation in the WTO," Journal of Mathematical Economics, Elsevier, vol. 46(5), pages 825-843, September.
    • Handle: RePEc:eee:mateco:v:46:y:2010:i:5:p:825-843
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304-4068(10)00059-5
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jehiel, Philippe & Moldovanu, Benny & Stacchetti, Ennio, 1996. "How (Not) to Sell Nuclear Weapons," American Economic Review, American Economic Association, vol. 86(4), pages 814-829, September.
    2. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    3. Bester, Helmut & Strausz, Roland, 2001. "Contracting with Imperfect Commitment and the Revelation Principle: The Single Agent Case," Econometrica, Econometric Society, vol. 69(4), pages 1077-1098, July.
    4. Jullien, Bruno, 2000. "Participation Constraints in Adverse Selection Models," Journal of Economic Theory, Elsevier, vol. 93(1), pages 1-47, July.
    5. Jehiel, Philippe & Moldovanu, Benny & Stacchetti, Ennio, 1999. "Multidimensional Mechanism Design for Auctions with Externalities," Journal of Economic Theory, Elsevier, vol. 85(2), pages 258-293, April.
    6. Figueroa, Nicolás & Skreta, Vasiliki, 2009. "The role of optimal threats in auction design," Journal of Economic Theory, Elsevier, vol. 144(2), pages 884-897, March.
    7. Philippe Jehiel & Benny Moldovanu, 2000. "Auctions with Downstream Interaction Among Buyers," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 768-791, Winter.
    8. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    9. Baldwin, Richard, 1987. "Politically realistic objective functions and trade policy PROFs and tariffs," Economics Letters, Elsevier, vol. 24(3), pages 287-290.
    10. Jorge Aseff & Hector Chade, 2008. "An optimal auction with identity‐dependent externalities," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 731-746, September.
    11. Bagwell, Kyle & Mavroidis, Petros C. & Staiger, Robert W., 2007. "Auctioning countermeasures in the WTO," Journal of International Economics, Elsevier, vol. 73(2), pages 309-332, November.
    12. Giovanni Maggi, 1999. "The Role of Multilateral Institutions in International Trade Cooperation," American Economic Review, American Economic Association, vol. 89(1), pages 190-214, March.
    13. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March.
    14. Lewis, Tracy R. & Sappington, David E. M., 1989. "Countervailing incentives in agency problems," Journal of Economic Theory, Elsevier, vol. 49(2), pages 294-313, December.
    15. Nicolás Figueroa & Vasiliki Skreta, 2011. "Optimal allocation mechanisms with single-dimensional private information," Review of Economic Design, Springer;Society for Economic Design, vol. 15(3), pages 213-243, September.
    16. Maggi G. & Rodriguez-Clare A., 1995. "On Countervailing Incentives," Journal of Economic Theory, Elsevier, vol. 66(1), pages 238-263, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bhirombhakdi, Kornpob & Potipiti, Tanapong, 2012. "Practically Implementable Auction for a Good with Countervailing Positive Externalities," MPRA Paper 42911, University Library of Munich, Germany.
    2. Kyle Bagwell & Chad P. Bown & Robert W. Staiger, 2016. "Is the WTO Passé?," Journal of Economic Literature, American Economic Association, vol. 54(4), pages 1125-1231, December.
    3. Isabelle Brocas, 2013. "Optimal allocation mechanisms with type-dependent negative externalities," Theory and Decision, Springer, vol. 75(3), pages 359-387, September.
    4. Hummel, Patrick, 2016. "Position auctions with dynamic resizing," International Journal of Industrial Organization, Elsevier, vol. 45(C), pages 38-46.
    5. Staiger, Robert & Bagwell, Kyle & Bown, Chad, 2015. "Is the WTO Passé?," CEPR Discussion Papers 10672, C.E.P.R. Discussion Papers.
    6. Brocas, Isabelle, 2014. "Countervailing incentives in allocation mechanisms with type-dependent externalities," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 22-33.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Brocas, Isabelle, 2014. "Countervailing incentives in allocation mechanisms with type-dependent externalities," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 22-33.
    2. Isabelle Brocas, 2013. "Optimal allocation mechanisms with type-dependent negative externalities," Theory and Decision, Springer, vol. 75(3), pages 359-387, September.
    3. Alexandre Belloni & Changrong Deng & Saša Pekeč, 2017. "Mechanism and Network Design with Private Negative Externalities," Operations Research, INFORMS, vol. 65(3), pages 577-594, June.
    4. Nicolás Figueroa & Vasiliki Skreta, 2011. "Optimal allocation mechanisms with single-dimensional private information," Review of Economic Design, Springer;Society for Economic Design, vol. 15(3), pages 213-243, September.
    5. Nicolas Figueroa & Vasiliki Skreta, 2006. "The Role of Outside Options in Auction Design," Levine's Bibliography 321307000000000140, UCLA Department of Economics.
    6. Figueroa, Nicolás & Skreta, Vasiliki, 2009. "The role of optimal threats in auction design," Journal of Economic Theory, Elsevier, vol. 144(2), pages 884-897, March.
    7. Bhirombhakdi, Kornpob & Potipiti, Tanapong, 2012. "Practically Implementable Auction for a Good with Countervailing Positive Externalities," MPRA Paper 42911, University Library of Munich, Germany.
    8. Philippe Jehiel & Benny Moldovanu, 2005. "Allocative and Informational Externalities in Auctions and Related Mechanisms," Levine's Bibliography 784828000000000490, UCLA Department of Economics.
    9. Roberto Sarkisian & Takuro Yamashita, 2024. "Optimal student allocation with peer effects," Review of Economic Design, Springer;Society for Economic Design, vol. 28(3), pages 551-571, September.
    10. Maggi, Giovanni, 2014. "International Trade Agreements," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 317-390, Elsevier.
    11. Nicolas Gruyer, 2009. "Optimal Auctions When A Seller Is Bound To Sell To Collusive Bidders," Journal of Industrial Economics, Wiley Blackwell, vol. 57(4), pages 835-850, December.
    12. Schmitz, Patrick W., 2002. "On Monopolistic Licensing Strategies under Asymmetric Information," Journal of Economic Theory, Elsevier, vol. 106(1), pages 177-189, September.
    13. Hernandez-Chanto, Allan & Fioriti, Andres, 2019. "Bidding securities in projects with negative externalities," European Economic Review, Elsevier, vol. 118(C), pages 14-36.
    14. Bagwell, Kyle & Staiger, Robert W., 2001. "Reciprocity, non-discrimination and preferential agreements in the multilateral trading system," European Journal of Political Economy, Elsevier, vol. 17(2), pages 281-325, June.
    15. Nuno Limão & Kamal Saggi, 2018. "Tariff retaliation versus financial compensation in the enforcement of international trade agreements," World Scientific Book Chapters, in: Policy Externalities and International Trade Agreements, chapter 12, pages 337-349, World Scientific Publishing Co. Pte. Ltd..
    16. Bonatti, Alessandro & Dahleh, Munther & Horel, Thibaut & Nouripour, Amir, 2024. "Selling information in competitive environments," Journal of Economic Theory, Elsevier, vol. 216(C).
    17. Kyle Bagwell & Petros C. Mavroidis & Robert W. Staiger, 2003. "The Case for Auctioning Countermeasures in the WTO," NBER Working Papers 9920, National Bureau of Economic Research, Inc.
    18. Noldeke,G. & Samuelson,L., 2004. "Decomposable principal-agent problems," Working papers 14, Wisconsin Madison - Social Systems.
    19. Noldeke, Georg & Samuelson, Larry, 2007. "Optimal bunching without optimal control," Journal of Economic Theory, Elsevier, vol. 134(1), pages 405-420, May.
    20. Luke A. Boosey & Christopher Brown, 2021. "Contests with Network Externalities: Theory & Evidence," Working Papers wp2021_07_02, Department of Economics, Florida State University.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:mateco:v:46:y:2010:i:5:p:825-843. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jmateco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.