second-best-mechanisms

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1、Second-BestMechanismsJeffreyElyJuly23,2009ThisworkislicensedundertheCreativeCommonsAttribution-NonCommercial-ShareAlike3.0License.JeffreyElySecond-BestMechanismsTheVCGmechanismistheOnlyEfficientMechanismSincetheVCGmechanismistheonlymechanismthatIMakestruthtellingadominantstrategyIImplement

2、stheutilitarianruleAndsincetheVCGmechanismyieldsabudgetdeficit,Thereisnobudgetbalanced,efficientmechanismforthissocialchoiceproblem.Okthen,the“first-best”isnotattainable.What’sthebestwecandowithabudget-balancedmechanism?(The“second-best.”)JeffreyElySecond-BestMechanismsBudgetBalancedMechani

3、smsFromnowon,wewillconsidermechanismswhichneverrunadeficit.Wewilltrytofindthebestamongsuchmechanisms.i.e.closesttoefficiency.JeffreyElySecond-BestMechanismsEspressoMachinePublicGoodExampleTwoindividuals,withwillingnesstopayv1,v2forapublicgood.Thecosttoproducethepublicgoodisc.Itisefficienttopr

4、oducethegoodwheneverv1+v2≥c.Butefficiencyisnotattainablewithoutabudgetdeficit.Aswelookforsecond-bestmechanisms,wenowcanchoosebothIThedecisionrule(inwhatcasestoproducethegood)IThetransferrule.JeffreyElySecond-BestMechanismsMechanismsAlternativesareon(thegoodisproduced)andoff(thegoodisnotpro

5、duced.)AmechanismisdescribedbytwofunctionsIThedecisionrule,denotedα(vˆ),whichspecifiesthealternative.IThetransferrule,denotedt(vˆ),whichspecifiesthetransferscheme.Theonlyfeasiblemechanismsarethosewitht1(vˆ)+t2(vˆ)≤50forallvˆ.Wealsowantourmechanismstobeincentivecompatible,thatiswewanttrut

6、htellingtobeadominantstrategy.JeffreyElySecond-BestMechanismsLookingforSecond-BestMechanismsThepublicgoodproblem.JeffreyElySecond-BestMechanismsLookingforSecond-BestMechanismsApictureofadecisionrule.Wewanttoseewhetheratransferrulecanbedesignedtomakethisanincentive-compatiblemechanism.Jeff

7、reyElySecond-BestMechanismsLookingforSecond-BestMechanismsSupposethat2announcesvˆ2.JeffreyElySecond-BestMechanismsLookingforSecond-BestMechanismsWhatshould1berequiredtocontributeifthegoodisproduced?Notethatthecontributioncannotdependon1’sannouncementvˆ1.JeffreyElySecond-BestMechanismsL