A simple budget-balanced mechanism

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Research Article

Publication Title

Social Choice and Welfare


In the private values single object auction model, we construct a satisfactory mechanism—a dominant strategy incentive compatible and budget-balanced mechanism satisfying equal treatment of equals. Our mechanism allocates the object with positive probability to only those agents who have the highest value and satisfies ex-post individual rationality. This probability is at least (1-2n), where n is the number of agents. Hence, our mechanism converges to efficiency at a linear rate as the number of agents grow. Our mechanism has a simple interpretation: a fixed allocation probability is allocated using a second-price Vickrey auction whose revenue is redistributed among all the agents in a simple way. We show that our mechanism maximizes utilitarian welfare among all satisfactory mechanisms that allocate the object only to the highest-valued agents.

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