ex ante incentive efficient trading mechanisms without the private valuation restriction abstract the private valuation assumption found in most trading mechanism design papers rules out markets whose valuation structure generates externalities between traders this paper characterizes the set of ex ante incentive efficient trading mechanisms for a large class of markets that do admit such externalities and for bilateral trade markets establishes the impossibility of a first best solution across a class of trading problems employing uniform priors and linear valuation structures this paper also compares levels of market efficiency for varying numbers of traders

individually rational budget balanced mechanisms and allocation of surplus abstract we investigate the issue of implementation via individually rational ex post budget balanced bayesian mechanisms we show that all decision rules generating a nonnegative expected social surplus are implementable via such mechanisms if and only if the probability distribution of the agents type profiles satisfies two conditions the well known condition of cremer and mclean 1988 full extraction of the surplus in bayesian and dominant strategy auctions econometrica 56 1247 1257 and the identifiability condition introduced in this paper we also show that these conditions are necessary for ex post efficiency to be attainable with budget balance and individual rationality and that the expected social surplus in these mechanisms can be distributed in any desirable way lastly we demonstrate that like cremer mclean condition the identifiability condition is generic if there are at least three agents

robustly coalition proof incentive mechanisms for public good provision are voting mechanisms and vice versa we study the relation between mechanism design and voting in public good provision if incentive mechanisms must satisfy conditions of robust coalition proofness as well as robust incentive compatibility the participants contributions to public good provision can only depend on the level of the public good that is provided and that level can only depend on the population shares of people favouring one level over another for a public good that comes as a single indivisible unit the outcome depends on whether or not the share of votes in favour of provision exceeds a specified threshold with more provision levels for the public good more complicated mechanisms can be used but they still involve the counting of votes rather than any measurement of the participants willingness to pay the article thus provides a foundation for the use of voting mechanisms

balanced bayesian mechanisms in the transferable utility case a number of authors have identified conditions on beliefs that guarantee the existence of bayesian incentive compatible mechanisms with balanced transfers we present a new easy to interpret condition and we show that it is strictly more general than all the other conditions found in the literature we also study conditions guaranteeing the bayesian implementability of all social decision rules with balanced budget mechanisms

foundations of dominant strategy mechanisms wilson 1987 criticizes applied game theory s reliance on common knowledge as sumptions in reaction to wilson s critique the recent literature of mechanism design has adopted the goal of finding detail free mechanisms in order to eliminate this re liance in practice this has meant restricting attention to simple mechanisms such as dominant strategy mechanisms however there has been little theoretical foundation for this approach in particular it is not clear the search for an optimal mechanism that does not rely on common knowledge assumption would lead to simpler mechanisms rather than more complicated ones this paper tries to fill the void in the context of an expected revenue maximizing auctioneer we investigate some foundations for using simple dominant strategy auctions

efficiency and mechanisms with no regret can we always design a game form so that all its bayesian equilibrium outcomes are either interim individually rational efficient or interim envy free efficient in asymmetric information economies we show that the answer is no given that such games exist in complete information economies can this gap be filled by games that leak information endogenously without enlarging the equilibrium set we adopt two approaches first we introduce a theory of cheap play as a natural model of such games the second is an extreme approach that adopts an ex post viewpoint neither yields a possibility result information leakage does not recover efficiency this paper addresses the following question in any domain of asymmetric information economies is it always possible to design a game form so that all its equilibrium outcomes are either interim individually rational efficient or interim fair envy free efficient our first result is that with bayesian equilibrium as the solution concept we can never design such a game form in a wide domain of economies the impossibility result persists even if there were strong restrictions on the information structure guaranteeing incentive compatibility of all allocation rules from the nash implementation literature maskin 1977 hurwicz et al 1984 we know that such games exist in complete information economies our first result indicates the cost in terms of social welfare imposed on society by the presence of information asymmetry this raises a natural question can the gap between the positive results under complete information and the negative ones under incomplete information be bridged by devising game forms that leak information endogenously in an equilibrium of such a game the players optimality calculations are conditioned on the newly acquired information superficially it appears that such games may yield a solution to the problem of nonexistence of efficient mechanisms information leakage is a mixed blessing since typically it would require pre play communication which tends to enlarge the set of equilibria our negative findings using bayesian equilibrium were primarily due to the presence of too many equilibria in every conceivable game form clearly we need a game form that

dynamic yardstick mechanisms abstract this paper shows that the inability of principals to commit to long term contracts is irrelevant when dealing with several agents whose private information is correlated this sharply contrasts with the dynamics of contracting without such correlation the paper also explores what limitations on yardstick mechanisms can justify the use of long term contracts we found that the inability of a principal to commit not to renegotiate long term contracts is without consequence even if there is a bound on transfers that an agent can be asked to pay in contrast short term contracting fails to implement the commitment solution with constraints on transfers second absent current yardstick the possibility of using correlated mechanisms in the future allows the principal to implement the first best with a renegotiation proof long term contract whereas this cannot be achieved with short term contracting

approximation in mechanism design with interdependent values abstract this paper studies the revenue maximization problem in environments wherein buyers have interdependent values and correlated types we show that 1 when the system of feasible sets is a matroid and buyer valuations satisfy a single crossing condition the generalized vickrey clarke groves mechanisms with lazy reserves vcg l are ex post incentive compatible and ex post individually rational 2 if in addition the valuation distribution satisfies a generalized monotone hazard rate condition the vcg l mechanism with conditional monopoly reserves is approximately optimal then we construct an ascending auction that implements the truth telling equilibrium of a vcg l mechanism in ex post equilibrium finally we discuss the connection between the vcg l mechanisms and greedy algorithms studied in lehmann et al 2002 and deferred acceptance auctions studied in milgrom and segal 2014 and the impact of competition by proving a bulow and klemperer 1996 type result

common fallacies in the debate on the transition to a market economy fallacies and other lessons leszek balcerowicz words and the concepts they express exert a powerful influence on political debate and policy decisions in transition economies in this introductory essay the principal architect of the first radical reform programme in europe after the fall of the berlin wall develops a lexicon of common fallacies in the political debate and introduces many of the main themes of the volume one common fallacy is that of country specificity ukraine is different what worked or did not work elsewhere is not relevant here some countries may indeed have specific economic problems viz the huge military industrial sector in ukraine but economic theory is clear about which policies are best for basic problems macroeconomic stabilization as the appropriate response to hyperinflation price liberalization and liberalization of supply are the prescribed therapy for massive shortages etc so there are useful lessons to be learned from prior experience by the same token erroneous interpretation of those experiences can give credence to mistaken policy arguments for example the argument that whatever has been done before in the west must be right is itself clearly wrong similarly balcerowicz argues that china s success does not prove the universal merits of gradualism the agricultural reforms of the late 1970s in china were in practice surprisingly radical the essay identifies many other pitfalls in reasoning about transition experience several having to do with the failure to apply ceteris paribus reasoning for example the fall in output in 1991 in all the countries connected with the former soviet union including finland was caused in large part by the collapse of their trade with the union and certainly not exclusively by the policies they followed there are numerous other examples

designing a private industry government auctions with endogenous market structure abstract this paper considers government mechanisms for auctioning production rights in which both the winners and the market structure doupoly dual sourcing monopoly sole sourcing or government owned production are a function of the bids in designing the optimal mechanism the government considers the tradeoffs among consumer surplus producer surplus and revenue under incomplete information doupoly is implemented less frequently and government production more frequently than under complete information when bidders are symmetric the optimal mechanism can be implemented as a modified second price auction applications to privatization deregulation and defense procurement are discussed

tight revenue bounds with possibilistic beliefs and level k rationality mechanism design enables a social planner to obtain a desired outcome by leveraging the players rationality and their beliefs it is thus a fundamental but yet unproven intuition that the higher the level of rationality of the players the better the set of obtainable outcomes in this paper we prove this fundamental intuition for players with possibilistic beliefs a model long considered in epistemic game theory specifically we define a sequence of monotonically increasing revenue benchmarks for single good auctions g0 g1 g2 where each gi is defined over the players beliefs and g0 is the second highest valuation i e the revenue benchmark achieved by the second price mechanism we 1 construct a single interim individually rational auction mechanism that without any clue about the rationality level of the players guarantees revenue gk if all players have rationality levels k 1 and 2 prove that no such mechanism can guarantee revenue even close to gk when at least two players are at most level k rational

the effectiveness of english auctions abstract we study the performance of the english auction under different assumptions about the seller s degree of bayesian sophistication we define the effectiveness of an auction as the ratio between the expected revenue it generates for the seller and the expected valuation of the object to the bidder with the highest valuation total surplus we identify tight lower bounds on the effectiveness of the english auction for general private values environments and for private values environments where bidders valuations are non negatively correlated for example when the seller faces 12 bidders who the seller believes have non negatively correlated valuations whose expectations are at least as high as 60 of the maximal possible valuation an english auction with no reserve price generates an expected price that is more than 80 of the value of the object to the bidder with the highest valuation

patents and cumulative innovation causal evidence from the courts cumulative innovation is central to economic growth do patent rights facilitate or impede such follow on innovation this paper studies the effect of removing patent protection through court invalidation on the subsequent research related to the focal patent as measured by later citations we exploit random allocation of judges at the u s court of appeal for the federal circuit to control for the endogeneity of patent invalidation we find that patent invalidation leads to a 50 percent increase in subsequent citations to the focal patent on average but the impact is highly heterogeneous patent rights appear to block follow on innovation only in the technology fields of computers electronics and medical instruments moreover the effect is entirely driven by invalidation of patents owned by large patentees that triggers entry of small innovators suggesting that patents may impede the democratization of innovation

how attractive is central eastern europe for risk capital investors abstract this paper addresses the attractiveness of central eastern european countries for risk capital investors by the construction of a tailored composite measure based on a survey among institutional investors we define six key drivers that determine an emerging country s attractiveness for this type of investment using 42 socio economic data series as proxies for these six key drivers we benchmark the central eastern european countries with eu 15 norway and switzerland and identify six tier groups of country attractiveness we highlight socio economic strengths and weaknesses of central eastern europe and provide guidelines for policy improvements to attract more risk capital funding to spur innovation entrepreneurship employment competitiveness and growth in the emerging region

the macroeconomic determinants of private equity investment a european comparison a strong private equity pe market is a cornerstone for commercialization and innovation in modern economies however substantial differences exist in the relative amounts raised and invested in pe across european countries we investigate the macroeconomic determinants of pe investment in europe focusing on the comparison between central and eastern european cee and western european countries our estimations are based on a data set running from 2001 to 2011 that covers 16 countries applying robust estimation techniques we identify a robust set of determinants of pe activity in both regions we find similarities as well as differences in the driving forces of pe investments in western european and cee countries our results suggest that economic activity the inflation rate equity market capitalization unit labour costs the unemployment rate as well the the institutional and legal environment are significant determinants of pe activity

an optimal auction for complements abstract this paper considers the optimal selling mechanism for complementary items when buyers are perfectly symmetric the optimal procedure is to bundle the items and run a standard auction in general however bundling the items is not necessarily desirable and the standard auctions do not maximize revenue moreover the optimal auction allocation may not be socially efficient since the auction must discriminate against bidders who have strong incentives to misrepresent their true preferences journal of economic literature classification number d44

vertical contracting with informational opportunism we consider vertical contracting arrangements between a manufacturer and a retailing network when retailers have private information and the organization is run through bilateral contracts we highlight a new form of informational opportunism arising when the manufacturer manipulates information learned separately in each relationship we characterize the set of allocations robust to such opportunism by means of simple ex post incentive compatibility constraints those constraints limit the manufacturer s ability to use yardstick competition among retailers they simplify contracts and restore a rent efficiency trade off even with correlated information we show that sell out contracts are optimal under a wide range of circumstances

group buying on the web a comparison of price discovery mechanisms web based group buying mechanisms are being widely used for both business to business b2b and business to consumer b2c transactions we survey currently operational online group buying markets and then study this phenomenon using analytical models we build on the literatures in information economics and operations management in our analytical model of a monopolist offering web based group buying under different kinds of demand uncertainty we derive the monopolist s optimal group buying schedule under varying conditions of heterogeneity in the demand regimes and compare its profits with those that obtain under the more conventional posted price mechanism we further study the impact ofproduction postponement by endogenizing the timing of the pricing and production decisions in a two stage game between the monopolist and buyers our results have implications for firms choice of price discovery mechanisms in e markets and for the scheduling of production and pricing decisions in the presence and absence of scale economies of production

learning about the future and dynamic efficiency we analyze the conditions under which an efficient allocation of resources is achievable in a dynamic private values setting where the designer gradually learns about the distribution of agents values as an application consider the sequential allocation of scarce spectrum to emerg ing technologies whenever a new technology appears a benevolent designer is faced with a problem should he allocate a valuable chunk of spectrum right now while forfeiting for a long period of time the option of allocating it to a possibly superior future technology it makes sense to assume here that current firms have a better knowledge of their technological prow ess than the designer and that the designer s assessment of future technological possibilities is improved by observing the current technology if technology owners are strategic we show below that the learning process about the future disturbs the ability to extract the information necessary for efficient decision making another good example is hiring by an organization that fills positions at different hierarchy levels over time while all candidates prefer higher level positions some aspect of their ability to perform the needed tasks at each level is privately known to the candidates if contracts with current employees are difficult to adjust the designer must carefully compare the quality of present candidates which can serve as a signal about the market to the expected quality of candidates that may become available in the future finally consider a firm allocating franchises in a country where it did not operate before and where contractual clauses or other impediments prevent reallocation during a significant period of time local potential franchisees may have some superior information regarding future prof itability in the respective market and hence the elicitation of private information is crucial for a franchisor that is supposed to get a share of the future profits

optimal use of correlated information in mechanism design when full surplus extraction may be impossible we study the mechanism design problem when the principal can condition the agent s transfers on the realization of ex post signals that are correlated with the agent s types cremer and mclean econometrica 53 1985 345 361 56 1988 1247 1257 mcafee and reny econometrica 60 2 1992 395 421 and riordan and sappington j econ theory 45 1988 189 199 studied situations where the signals are such that full surplus can be extracted from every agent type we study optimal utilization of the signals when there are fewer signals than types and the riordan and sappington conditions do not always hold for some special cases we show the level of surplus that can be extracted and identify the agent types who obtain rent

efficient auctions and interdependent types we consider the efficient allocation of a single good with interdependent values in a quasi linear environment we present an approach to modeling interdependent preferences distinguishing between payoff types and belief types and report a characterization of when the efficient allocation can be partially bayesian implemented on a finite type space the characterization can be used to unify a number of sufficient conditions for efficient partial implementation in this classical auction setting we report how a canonical language for discussing interdependent types developed in a more general setting by bergemann morris and takahashi 2011 applies in this setting and note by example that this canonical language will not allow us to distinguish some types in the payoff type belief type language

search costs and equilibrium price dispersion in auction markets abstract a leading explanation for price dispersion in posted price markets is search costs we incorporate this insight into a model of competing second price auctions similar to ebay by doing so we extend the narrow literature on competing auctions to capture price dispersion and grow the already large literature on price dispersion to include auctions we provide evidence on search costs and price dispersion using data collected from ebay identifying search costs by exploiting a discontinuity in the visibility of auctions due to ebay s search tool

regulation competition and liberalization in many countries throughout the world regulators are struggling to determine whether and how to introduce competition into regulated industries this essay examines the complexities involved in the liberalization process while stressing the importance of case specific analyses this essay distinguishes liberalization policies that generally are procompetitive from corresponding anticompetitive liberalization policies

financial development and economic growth views and agenda this critique argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive first order relationship between financial development and economic growth the body of work would push even most skeptics toward the belief that the development of financial markets and institutions is a critical and inextricable part of the growth process and away from the view that the financial system is an inconsequential sideshow responding passively to economic growth many gaps remain however and the paper highlights areas in acute need of additional research