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First Best Bayesian Privatization Mechanisms

Dudek, R. and Kim, Taesung and Ledyard, John O. (1995) First Best Bayesian Privatization Mechanisms. Social Science Working Paper, 986. California Institute of Technology , Pasadena, CA. (Unpublished)

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A planner is interested in designing an ex-post efficient, individually rational, Bayesian mechanism for allocating a single indivisible object to one of the agents who knows his own valuation and only the distribution of other agents' valuations of the object. In this paper, we show that it is impossible to design such a mechanism without any transfers among agents and the planner. However, we discover and describe an ex-post efficient, ex-post individually rational, Bayesian mechanism which balances transfers among agents without any payment to (or from) the planner. Our result that an ex-post efficient, ex-post individually rational, transfer balanced, Bayesian mechanism exists, is in stark contrast to two well-known impossibility results in the literature; the nonexistence of a Bayesian public good mechanism satisfying expost efficiency, individual rationality and budget balance (Laffont and Maskin (1979)) and the impossibility of an ex-post efficient, individually rational, Bayesian bilateral trading mechanism between a seller and a buyer without an outside subsidy (Myerson and Satterthwaite (1983)).

Item Type:Report or Paper (Working Paper)
Additional Information:Revised version. Original dated to August 1994. We are grateful to Kim Border, Leo Hurwicz, Mathew Jackson, Herve Moulin and Tom Palfrey for their comments on an early version. We have also benefited greatly from the many valuable suggestions of two anonymous referees.
Group:Social Science Working Papers
Series Name:Social Science Working Paper
Issue or Number:986
Record Number:CaltechAUTHORS:20170822-135920548
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:80684
Deposited By: Jacquelyn Bussone
Deposited On:23 Aug 2017 18:15
Last Modified:03 Oct 2019 18:33

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