Dynamic Marginal Contribution Mechanism

31 Pages Posted: 17 Jul 2007

See all articles by Dirk Bergemann

Dirk Bergemann

Yale University - Cowles Foundation - Department of Economics; Yale University - Cowles Foundation

Juuso Valimaki

Helsinki School of Economics; University of Southampton - Division of Economics

Abstract

We consider truthful implementation of the socially efficient allocation in a dynamic private value environment in which agents receive private information over time. We propose a suitable generalization of the Vickrey-Clarke-Groves mechanism, based on the marginal contribution of each agent. In the marginal contribution mechanism, the ex post incentive and ex post participations constraints are satisfied for all agents after all histories. It is the unique mechanism satisfying ex post incentive, ex post participation and efficient exit conditions.

We develop the marginal contribution mechanism in detail for a sequential auction of a single object in which each bidders learn over time her true valuation of the object. We show that a modified second price auction leads to truthtelling.

Keywords: Vickrey-Clarke-Groves mechanism, Pivot mechanism, Ex post equilibrium, Marginal contribution, Multi-armed bandit, Bayesian learning

JEL Classification: C72, C73, D43, D83

Suggested Citation

Bergemann, Dirk and Valimaki, Juuso, Dynamic Marginal Contribution Mechanism. Cowles Foundation Discussion Paper No. 1616. Available at SSRN: https://ssrn.com/abstract=1000925

Dirk Bergemann (Contact Author)

Yale University - Cowles Foundation - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States
203-432-3592 (Phone)
203-432-2128 (Fax)

HOME PAGE: http://www.econ.yale.edu/~dirk/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Juuso Valimaki

Helsinki School of Economics ( email )

P.O. Box 21210
Helsinki 00100, 00101
Finland

University of Southampton - Division of Economics ( email )

Southampton, SO17 1BJ
United Kingdom
+44 23 8059 3263 (Phone)

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