Centre for Development Economics
Department of Economics, Delhi School of Economics


On the Optimality of the Green-Laffont Mechanism


Debasis Mishra

ISI Delhi
[ Joint work with: Tridib Sharma (ITAM, Mexico) ]

Thursday, 6th August 2015 at 3:00 PM

Venue : Seminar Room (First Floor)
Department of Economics, Delhi School of Economics

All are cordially invited

One unit of a resource has to be assigned among a set of agents (at least three), who have private value for the resource. We look for mechanisms that are satisfactory - dominant strategy incentive compatible, budget-balanced, and symmetric. In their seminal work, Green and Laffont consider a mechanism where each agent is drawn uniformly at random and made a "residual claimant". Then, a Vickrey auction is run on the remaining agents, whose revenue is given to the residual claimant. The Green-Laffont mechanism is satisfactory and satisfies ex-post individual rationality.

Our main result shows that the Green-Laffont mechanism is not Pareto optimal in the class of all satisfactory mechanisms. In particular, we construct a mechanism by modifying the Green-Laffont mechanism at a measure-zero set of type profiles. This ``modified Green-Laffont mechanism" is a Pareto optimal satisfactory mechanism. Conversely, any satisfactory mechanism that coincides with the modified Green-Laffont mechanism at those measure-zero set of type profiles, must be the modified Green-Laffont mechanism.

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