Journal ArticleDOI
Full extraction of the surplus in bayesian and dominant strategy auctions
Jacques Cremer,Richard P. McLean +1 more
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In this article, the authors consider auctions for a single indivisible object, in which the bidders have information about each other which is not available to the seller and show that the seller can use this information to his own benefit, and completely characterize the environ- ments in which a well chosen auction gives him the same expected payoff as that obtainable were he able to sell the object with full information about the bidder's willingness to pay.Abstract:
We consider auctions for a single indivisible object, in the case where the bidders have information about each other which is not available to the seller. We show that the seller can use this information to his own benefit, and we completely characterize the environ- ments in which a well chosen auction gives him the same expected payoff as that obtainable were he able to sell the object with full information about each bidder's willingness to pay. We provide this characterization for auctions in which the bidders have dominant strate- gies, and for those where the relevant equilibrium concept is Bayesian Nash. In both set-ups, the existence of these auctions hinges on the possibility of constructing lotteries with the correct properties. WE CONSIDER the situation in which an agent, the seller, possesses one indivisible unit of a good to which he attaches no value. But the good has value to a number of potential buyers, and its transfer to one of them would increase social welfare. In particular, the transfer to the buyer with the highest valuation maximizes social welfare. In this paper, we completely characterize environments in which the seller can design an auction that will enable him to capture for himself the full increase in social welfare induced by the transfer of the good to the bidder with the highest willingness to pay. If the seller had full information about the reservation prices of potential buyers, his optimal selling strategy would be very simple. He would announce a price equal or very close to the highest reservation value. The optimal strategy for the bidder with the highest evaluation would be to accept the offer. (Note that we are treating a situation in which the seller can commit himself to a price.) As a result of the exchange, the utility of the seller increases by the full amount of the increase in social welfare, and he has been able to fully extract the surplus. In many circumstances, however, a seller has only imperfect knowledge of the buyers' willingnesses to pay. In this case, he must find some mechanism, or auction, which will enable him to maximize his benefit from the sale of the object. The auction literature starts with this observation and shows how the seller can, by an astute choice of auction, extract the largest possible fraction of the surplus. In general, the literature has shown that this proportion is strictly less than one. In some circumstances, the bidders will have information about each other which is not available to the seller. For instance, in auctions for petroleum drilling rights, bidders know the results of geological tests which they haveread more
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Journal ArticleDOI
Optimal procurement and investment in new technologies under uncertainty
TL;DR: In this article , the authors study a buyer's optimal investment strategy for new technologies when costs evolve stochastically and are private information to the suppliers, and show how the asymmetric information on the stochastic variables optimally distorts technology choice and investment timing.
Book ChapterDOI
The Economics of Information and Public Policy
TL;DR: A lot of interesting insights have been derived from this approach, such as the role of Pigovian taxes to internalise externalities, the need for the Samuelson conditions to optimise the allocation of public goods, the insufficient power of linear taxes for dealing with the control of non convex technologies such as monopolies etc.
Posted Content
Partial yardstick regulation and collusion
Cécile Aubert,Jerome Pouyet +1 more
TL;DR: In this paper, the authors show that collusion-proofness can still be obtained, but is more costly than complete regulation, and that the regulator cannot benefit from the asymmetric information between firms, contrary to the complete regulation case.
Journal ArticleDOI
Mechanism design when players’ preferences and information coincide
TL;DR: It is shown that with arbitrarily small fines and arbitrarily noisy inspections, the social choice correspondence can be fully implemented (truth telling is the unique Nash equilibrium).
Posted Content
Relying on the Agent in Charge of Production for Project Evaluation
TL;DR: In this article, the optimal project choice when the principal relies on the agent in charge of production for project evaluation is studied, where the agent has private information about the production cost under each project but also about the signal regarding the pro-ability of the risky project.
References
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Journal ArticleDOI
Optimal Auction Design
TL;DR: Optimal auctions are derived for a wide class of auction design problems when the seller has imperfect information about how much the buyers might be willing to pay for the object.
Journal ArticleDOI
Characterization of Satisfactory Mechanisms for the Revelation of Preferences for Public Goods
Journal ArticleDOI
Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist when Demands are Interdependent
Jacques Cremer,Richard P. McLean +1 more
TL;DR: In this article, the optimal design of resource allocation mechanisms in the presence of asymmetric information was studied and sufficient conditions were provided under which the seller can extract the full surplus from the buyers in an "ex post Nash" equilibrium.
Journal ArticleDOI
Groves' scheme on restricted domains
TL;DR: In this article, it was shown that Groves' scheme is unique on restricted domains which are convex, in particular convex domains, and this generalizes earlier uniqueness results by Green and Laffont and Walker.
Journal ArticleDOI
Optimal contracts with public ex post information
TL;DR: In this paper, the authors derive necessary and sufficient conditions for a public ex post signal (s ∈ S) that is correlated with the risk-neutral seller's costs to render the initial information asymmetry inconsequential to the buyer.