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Mechanism Design: Applications

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Now · Beyond Auctions

Mechanism Design: Applications

Beyond Auctions

Mechanism design applies wherever information is private:
  • Matching markets (college admissions, organ donation)
  • Public goods provision (voting on projects)
  • Regulation (designing rules for natural monopolies)
  • Social choice (voting mechanisms)

Key Results

ResultStatement
Revelation PrincipleAny social choice function implementable in some equilibrium is truthfully implementable in a direct revelation mechanism
Myerson-SatterthwaiteNo efficient, budget-balanced, individually rational mechanism exists for bilateral trade
Myerson's Optimal AuctionWith independent private values, the optimal auction is a second-price auction with a reserve price

Myerson's Optimal Auction

Optimal reserve price rr solves:
r=v0+1−F(r)f(r)r = v_0 + \frac{1 - F(r)}{f(r)}
Where v0v_0 is the seller's value, FF is the distribution of bidders' values. Join Discord PreviousAuctions & Mechanism DesignNextCooperative Games
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