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 language | English (US) |
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Pages (from-to) | 104-133 |
Number of pages | 30 |
Journal | Journal of Economic Theory |
Volume | 148 |
Issue number | 1 |
DOIs | |
State | Published - Jan 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