The Second-Price Auction Solves King Solomon's Dilemma

9 Pages Posted: 28 Aug 2006

Multiple version iconThere are 3 versions of this paper

Date Written: August 2006

Abstract

Consider the problem of allocating k identical, indivisible objects among n agents, where k is less than n. The planner's objective is to give the objects to the top k valuation agents at zero costs to the planner and the agents. Each agent knows the identity of those k agents, as well as her own valuation of the object. Modify the (k+1)st-price sealed-bid auction by introducing a small participation fee and the option (not) to participate in it. This strikingly simple mechanism (modified auction) implements the desired outcome in iteratively weakly undominated strategies.

Keywords: Solomon's problem, implementation, incomplete information, voluntary participation, iterative elimination of weakly dominated strategies, Olszewski's mechanism, entry fees

JEL Classification: C72, D61, D71, D82

Suggested Citation

Mihara, H. Reiju, The Second-Price Auction Solves King Solomon's Dilemma (August 2006). Available at SSRN: https://ssrn.com/abstract=926634 or http://dx.doi.org/10.2139/ssrn.926634

H. Reiju Mihara (Contact Author)

Kagawa University Library ( email )

Takamatsu, Kagawa 760-8525
Japan

HOME PAGE: http://www5.atwiki.jp/reiju/

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