Dominant Strategy Incentive Compatibility Research Articles

Exploring the scope of neurometrically informed mechanism design

A basic goal in mechanism design is to construct mechanisms that simultaneously satisfy efficiency, voluntary participation, and dominant strategy incentive compatibility. Previous work has shown that this is impossible, unless the agents and planner have sufficient information about each other and common knowledge. These results have remained largely theoretical because the required information is generally not available in practical applications. However, recent work has shown that these limitations can be overcome in simple settings, using neurometric technologies that provide noisy signals of subjects' preferences that can be used in the mechanism design problem. Here we build on this work by carrying out two new experiments designed to test the extent to which these Neurometrically Informed Mechanisms (NIMs) can be applied to more complicated and realistic environments. We find robustness to large type and action space and to the degrees of loss and risk-aversion observed in most of our sample.

On Public Good Provision Mechanisms with Dominant Strategies and Balanced Budget

Consider a mechanism for the binary public good provision problem that is dominant strategy incentive compatible (DSIC), ex-post individually rational (EPIR), and ex-post budget balanced (EPBB). It is well known that if there are only two agents then any such mechanism must have a threshold (or fixed cost-sharing) form, in which there is a fixed threshold for each of the two agents such that the public good is not provided if there is an agent with a value below her threshold and is provided if all agents' values exceed their respective threshold. When there are more than two agents, there are mechanisms that are DSIC, EPIR, and EPBB that are not of the threshold form. We show that, nevertheless, mechanisms that maximize welfare subject to DSIC, EPIR, and EPBB must again have the threshold form and thus differ from known second-best Bayesian mechanisms. In an effort to better understand why this is so, we show that mechanisms that are DSIC, EPIR, EPBB and not of the threshold form ignore the report of some agent(s). Our results apply more generally to binary social choice problems with transfers, so we do not require anonymity.

Implementation in Weakly Undominated Strategies: Optimality of Second-Price Auction and Posted-Price Mechanism: Figure 1

We study the mechanism design problem of guaranteeing desirable performances whenever agents are rational in the sense of not playing weakly dominated strategies. We first provide an upper bound for the best performance we can guarantee among all feasible mechanisms. The bound is represented as the maximized value of the designer's objective subject to the inequality version of the standard envelope incentive conditions. We then prove the bound to be tight under certain conditions on the designer's prior over the agents' pay-off types in auction and bilateral-trade applications. In private-value auction and bilateral trade, the optimal mechanisms (a second-price auction and posted-price mechanism, respectively) satisfy dominant-strategy incentive compatibility, the classical notion of “robust” mechanisms. In an interdependent-value auction, we find that a second-price auction is optimal in revenue with interdependent values, which is neither dominant-strategy nor ex post incentive compatible, but satisfies the novel incentive compatibility introduced in this analysis.

Optimal Provision of Global Public Goods under Uncertainty: Strategic Transfers and Reservations in a Multilateral Treaty Obligation

This paper studies the formation and management of an international entity for promoting the provision of global public goods in a setup of international treaties on concessions and reservations. Based on the so-called Vienna Convention by which there can be a discrepancy between the original treaty obligation and the ratified one in the multi-lateral treaty implementation, we construct two-stage mechanisms for international treaties on global public goods; the concession stage and the ratification stage with reservations. We explicitly analyze the optimal reservation levels from the optimal mechanism when the countries face asymmetric information on the preference parameters to global public goods. Specifically, we characterize the environments where the optimal mechanism with dominant-strategy incentive-compatibility and ex-post participationconstraint in the literature of mechanism design exists. The result shows that the sophisticatedly calculated transfers in the principal of quid pro quo control the international concessions and reservations.

Implementation With Contingent Contracts

We study dominant strategy incentive compatibility in a mechanism design setting with contingent contracts where the payoff of each agent is observed by the principal and can be contracted upon. Our main focus is on the class of linear contracts (one of the most commonly used contingent contracts) which consist of a transfer and a flat rate of profit sharing. We characterize outcomes implementable by linear contracts and provide a foundation for them by showing that, in finite type spaces, every social choice function that can be implemented using a more general nonlinear contingent contract can also be implemented using a linear contract. We then qualitatively describe the set of implementable outcomes. We show that a general class of social welfare criteria can be implemented. This class contains social choice functions (such as the Rawlsian) which cannot be implemented using (uncontingent) transfers. Under additional conditions, we show that only social choice functions in this class are implementable.

A scalable and automatic mechanism for resource allocation in self-organizing cloud

Taking advantage of the huge potential of consumers’ untapped computing power, self-organizing cloud is a novel computing paradigm where the consumers are able to contribute/sell their computing resources. Meanwhile, host machines held by the consumers are connected by a peer-to-peer (P2P) overlay network on the Internet. In this new architecture, due to large and varying multitudes of resources and prices, it is inefficient and tedious for consumers to select the proper resource manually. Thus, there is a high demand for a scalable and automatic mechanism to accomplish resource allocation. In view of this challenge, this paper proposes two novel economic strategies based on mechanism design. Concretely, we apply the Modified Vickrey Auction (MVA) mechanism to the case where the resource is sufficient; and the Continuous Double Auction (CDA) mechanism is employed when the resource is insufficient. We also prove that aforementioned mechanisms have dominant strategy incentive compatibility. Finally, extensive experiment results are conducted to verify the performance of the proposed strategies in terms of procurement cost and execution efficiency.

Online ascending auctions for gradually expiring items

We consider dynamic auction mechanisms for the allocation of multiple items. Items are identical, but have different expiration times, and each item must be allocated before it expires. Buyers are of dynamic nature, and arrive and depart over time. Our goal is to design mechanisms that maximize the social welfare. We begin by showing that dominant-strategy incentive-compatibility cannot be used in this case, since any such auction cannot obtain any constant fraction of the optimal social welfare. We then design two auctions that perform well under a wide class of “semi-myopic” strategies. For every combination of such strategies, the auction is associated with a different algorithm (or allocation rule), and so we have a family of “semi-myopic” algorithms. We show that any algorithm in this family obtains at least 1/3 of the optimal social welfare. We also provide some game-theoretic justification for acting in a semi-myopic way. We suggest a new notion of “Set-Nash” equilibrium, where we cannot pinpoint a single best-response strategy, but rather only a set to which best-response strategies belong. We show that our auctions have a Set-Nash equilibrium which is all semi-myopic.

A mechanism design approach to allocating central government funds among regional development agencies

To allocate central government funds among regional development agencies, we look for mechanisms that satisfy three important criteria: efficiency, (individual and coalitional) strategy proofness (a.k.a. dominant strategy incentive compatibility), and fairness. We show that only a uniform mechanism satisfies all three. We also show that all efficient and strategy proof mechanisms must function by assigning budget sets to the agencies and letting them freely choose their optimal bundle. In choosing these budget sets, the agencies’ private information has to be taken into account in a particular way. The only way to additionally satisfy a weak fairness requirement (regions with identical preferences should be treated equally) is to assign all agencies the same budget set, as does the uniform mechanism. Finally and maybe more importantly, we show that the central government should not impose constraints on how much to fund an activity (e.g. by reserving some funds only for a particular activity): otherwise, there are no efficient, strategy proof and fair mechanisms, no matter how small these constraints are.

The Incompatibility of Pareto Optimality and Dominant-Strategy Incentive Compatibility in Sufficiently-Anonymous Budget-Constrained Quasilinear Settings

We analyze the space of deterministic, dominant-strategy incentive compatible, individually rational and Pareto optimal combinatorial auctions. We examine a model with multidimensional types, nonidentical items, private values and quasilinear preferences for the players with one relaxation; the players are subject to publicly-known budget constraints. We show that the space includes dictatorial mechanisms and that if dictatorial mechanisms are ruled out by a natural anonymity property, then an impossibility of design is revealed. The same impossibility naturally extends to other abstract mechanisms with an arbitrary outcome set if one maintains the original assumptions of players with quasilinear utilities, public budgets and nonnegative prices.

Optimal multi-unit combinatorial auctions

The current art in optimal combinatorial auctions is limited to handling the case of a single unit each of multiple items, with each agent bidding on exactly one bundle (single minded bidders). This paper extends the current art by proposing an optimal auction for buying multiple units of multiple items when the bidders are single minded. We develop a procurement auction that minimizes the cost of procurement while satisfying Bayesian incentive compatibility and interim individual rationality. Under appropriate regularity conditions, this optimal auction also satisfies dominant strategy incentive compatibility. The results presented here hold true for equivalent forward auction settings as well. For the two item, multi-unit procurement auction, we design an optimal auction in the presence of the single minded bidders offering volume discounts.

Incentive compatible mechanisms for decentralised Supply Chain Formation

In this paper, we consider a decentralised supply chain formation problem for multi-echelon supply chains when the managers of the individual echelons are rational and intelligent. At each echelon, there is a choice of service providers and the specific problem we solve is that of determining a cost-optimal mix of service providers so as to achieve a desired level of end-to-end delivery performance. In this paper, we develop a mechanism design framework for addressing this problem and propose two incentive compatible mechanisms: Supply Chain Formation - Dominant Strategy Incentive Compatibility (SCF-DSIC) and Supply Chain Formation - Bayesian Incentive Compatibility (SCF-BIC). We illustrate the efficacy of the proposed methodology using the example of a three echelon manufacturing supply chain.

Weak Monotonicity Characterizes Deterministic Dominant-Strategy Implementation

We characterize dominant-strategy incentive compatibility with multidimensional types. A deterministic social choice function is dominant-strategy incentive compatible if and only if it is weakly monotone (W-Mon). The W-Mon requirement is the following: If changing one agent's type (while keeping the types of other agents fixed) changes the outcome under the social choice function, then the resulting difference in utilities of the new and original outcomes evaluated at the new type of this agent must be no less than this difference in utilities evaluated at the original type of this agent.

Achieving the first best in sequencing problems

Abstract. In a sequencing problem with linear time cost, Suijs (1996) proved that it is possible to achieve first best. By first best we mean that one can find mechanisms that satisfy efficiency of decision, dominant strategy incentive compatibility and budget balancedness. In this paper we show that among a more general and natural class of sequencing problems, sequencing problems with linear cost is the only class for which first best can be achieved.