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

114 Pages Posted: 5 Jan 2015 Last revised: 5 May 2018

John William Hatfield

University of Texas at Austin

Fuhito Kojima

Harvard University - Department of Economics

Scott Duke Kominers

Harvard University

Date Written: May 4, 2018

Abstract

Drawing on classical insights from mechanism design, we show that ex post efficient mechanisms induce agents to make efficient ex ante investment choices if and 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 (May 4, 2018). 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
Boston, MA 02163
United States

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

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