Abstract
We consider a social cost minimization problem with equality and inequality constraints in which a central coordinator allocates infinitely divisible goods to self-interested $N$ firms under information asymmetry. We consider the Vickrey-Clarke-Groves (VCG) mechanism and study its connection to an alternative mechanism based on market clearing-price. Under the considered set up, we show that the VCG payments are equal to the path integrals of the vector field of the market clearing prices, indicating a close relationship between the VCG mechanism and the “clearing-price” mechanism. We then discuss its implications for the electricity market design and also exploit this connection to analyze the budget balance of the VCG mechanism.
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