The Dynamic Pivot Mechanism
29 Pages Posted: 10 Aug 2008
Date Written: August 8, 2008
We consider truthful implementation of the socially efficient allocation in an independent private-value environment in which agents receive private information over time. We propose a suitable generalization of the pivot mechanism, based on the marginal contribution of each agent. In the dynamic pivot mechanism, the ex-post incentive and ex-post participation constraints are satisfied for all agents after all histories. In an environment with diverse preferences it is the unique mechanism satisfying ex-post incentive, ex-post participation and efficient exit conditions. We develop the dynamic pivot mechanism in detail for a repeated auction of a single object in which each bidder learns over time her true valuation of the object. We show that the dynamic pivot mechanism is equivalent to a modified second price auction.
Keywords: Pivot mechanisms, Dynamic mechanism design, Ex-post equilibrium, Marginal contribution, Multi-armed bandit, Bayesian learning
JEL Classification: C72, C73, D43, D83
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