Double auctions with no-loss constrained traders

Abstract

Do hard budget constraints work in favour or against truth telling in double auctions? McAfee (1992) constructed a simple double auction mechanism (MDA), which is strategyproof and minimally inefficient, but may resort to dual prices, where the difference between prices is channelled as a surplus to the market maker, preventing MDA from achieving a balanced budget. We construct a variant of MDA in which no-loss constraints play a major positive role. Our variant of MDA is also strategyproof, as efficient as MDA but improves on it by achieving a balanced budget via always having a uniform price.