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Efficient Mechanisms under Unawareness

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  • Kym Pram
  • Burkhard C. Schipper

Abstract

We study the design of efficient mechanisms under asymmetric awareness and information. Unawareness refers to the lack of conception rather than the lack of information. Assuming quasi-linear utilities and private values, we show that we can implement in conditional dominant strategies a social choice function that is utilitarian ex-post efficient when pooling all awareness of all agents without the need of the social planner being fully aware ex-ante. To this end, we develop novel dynamic versions of Vickrey-Clarke-Groves mechanisms in which types are revealed and subsequently elaborated at endogenous higher awareness levels. We explore how asymmetric awareness affects budget balance and participation constraints. We show that ex-ante unforeseen contingencies are no excuse for deficits. Finally, we propose a modified reverse second price auction for efficient procurement of complex incompletely specified projects.

Suggested Citation

  • Kym Pram & Burkhard C. Schipper, 2025. "Efficient Mechanisms under Unawareness," Papers 2504.04382, arXiv.org.
    • Handle: RePEc:arx:papers:2504.04382
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    File URL: http://arxiv.org/pdf/2504.04382
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    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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