Designing Core-Selecting Payment Rules: A Computational Search Approach

Abstract

Combinatorial auctions are regularly used to allocate resources worth billions of dollars. However, finding optimal payment rules for such auctions is still an open problem. To this end, we develop a new computational search framework for finding payment rules with desirable properties. We show that the rule most commonly used in practice, the quadratic rule, can be improved upon in terms of efficiency, incentives and revenue. Our best-performing rules are so-called large-style rules—that is, they provide better incentives to bidders with larger values. Ultimately, we identify two particularly well-performing rules and suggest that they be considered for practical implementation in place of the currently used rule.