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

114 Pages Posted: 5 Jan 2015 Last revised: 10 Apr 2017

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

Classical insights from mechanism design imply that ex post efficient mechanisms induce agents to make efficient ex ante investment choices only if they are strategy-proof. For mechanisms that fail to be exactly strategy-proof and/or efficient, we derive a correspondence between the degree of failure of strategy-proofness and/or efficiency and the degree of failure to induce efficient investment. Our results extend to settings with uncertainty. Our results imply both that the worker-optimal stable mechanism incentivizes workers 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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