Efficient allocation of a “prize”-King Solomon's dilemma

Abstract

A planner is interested in allocating an indivisible good (a “prize”) to one of many agents in the economy. His objective is to give the prize to the agent who values it most, without any payments being made by the recipient. The planner, however, does not know the identity of this agent, while the agents themselves do. This paper shows how the planner can construct simple, multistage mechanisms with a unique subgame perfect equilibrium outcome. At this outcome, the agent who values the prize most gets it without any transfer of money being made by any of the agents or the planner.