112 Pages Posted: 5 Jan 2015 Last revised: 10 Jun 2016
Date Written: June 9, 2016
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: 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