Mechanism design without revenue equivalence

Juan Carlos Carbajal*, Jeffrey C Ely

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

18 Scopus citations

Abstract

We study mechanism design problems in quasi-linear environments where the envelope theorem and revenue equivalence principle fail due to non-convex and non-differentiable valuations. We obtain a characterization of incentive compatibility based on the Mirrlees representation of the indirect utility and a monotonicity condition on the allocation rule, which pin down the range of possible payoffs as a function of the allocation rule. To illustrate our approach we derive the optimal selling mechanism in a buyer-seller situation where the buyer is loss-averse; we find a budget-balanced, efficient mechanism in a public goods location model; and we consider a principal-agent model with ex post non-contractible actions available to the agent.

Original languageEnglish (US)
Pages (from-to)104-133
Number of pages30
JournalJournal of Economic Theory
Volume148
Issue number1
DOIs
StatePublished - Jan 1 2013

Keywords

  • Efficiency
  • Incentive compatibility
  • Integral monotonicity
  • Loss aversion
  • Non-contractible actions
  • Public goods
  • Revenue equivalence
  • Revenue maximization

ASJC Scopus subject areas

  • Economics and Econometrics

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