Strategy-Proofness, Investment Efficiency, and Marginal Returns: An Equivalence

112 Pages Posted: 5 Jan 2015 Last revised: 10 Jun 2016

John William Hatfield

University of Texas at Austin

Fuhito Kojima

Harvard University - Department of Economics

Scott Duke Kominers

Harvard University

Date Written: June 9, 2016

Abstract

We show that a mechanism induces an agent to make efficient ex ante investment choices if and only if it rewards that agent with his marginal surplus; additionally, for an ex post efficient mechanism, these properties are equivalent to strategy-proofness for the agent. Our results extend to settings with uncertainty; moreover, they have analogues for mechanisms that are only approximately efficient and approximately incentive compatible. Among other applications, our results imply both that under the worker-optimal stable mechanism, workers are incentivized to make efficient human capital investments before entering the labor market, and that uniform-price and double auctions induce approximately efficient investment in large markets.

Keywords: Strategy-proofness, Investment efficiency, Providing marginal rewards, Vickrey-Clarke-Groves mechanisms, Mechanism design

JEL Classification: C78, D44, D47, D82

Suggested Citation

Hatfield, John William and Kojima, Fuhito and Kominers, Scott Duke, Strategy-Proofness, Investment Efficiency, and Marginal Returns: An Equivalence (June 9, 2016). Becker Friedman Institute for Research in Economics Working Paper. Available at SSRN: https://ssrn.com/abstract=2544951 or http://dx.doi.org/10.2139/ssrn.2544951

John William Hatfield (Contact Author)

University of Texas at Austin ( email )

Austin, TX 78712
United States

Fuhito Kojima

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

Scott Duke Kominers

Harvard University ( email )

Rock Center, Harvard Business School
Soldiers Field
Boston, MA 02163
United States

HOME PAGE: http://www.scottkom.com/

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