Ex-Post Incentive Compatible and Individually Rational Assignments in Housing Markets with Interdependent Values

Abstract

This paper presents a model of housing markets with interdependent values. Here, we introduce private information on the quality of a house (i.e., high or low), which is known only to the initial owner. Interdependency means that the ex-post preference of an agent depends on the private information of the other agents with regard to the quality of houses. We prove that the no-trade rule is the only one that satisfies ex-post incentive compatibility and ex-post individual rationality. This result differs significantly from that of the private values model in which there exist non-trivial strategy-proof and individually rational rules.