Efficient Division When Preferences are Private: Using the Expected Externality Mechanism
31 Pages Posted: 12 Apr 2019
Date Written: April 1, 2019
We study the problem of allocating multiple items to two agents whose cardinal preferences are private information. If money is available, Bayesian incentive compatibility and ex-ante Pareto efficiency can be achieved using the Expected Externality Mechanism (EEM). Absent money, under certain reasonable conditions, Bayesian incentive compatibility and ex-post Pareto efficiency remain achievable with a modified EEM that uses one good as a numeraire in lieu of money. We study this modified EEM’s properties and compare it with other allocation procedures.
Keywords: Expected Externality Mechanism, Object Allocation, Fair Division
JEL Classification: D82
Suggested Citation: Suggested Citation