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

John William Hatfield; Fuhito  Kojima; Scott Duke Kominers

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Working Paper | 2015

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

by John William Hatfield, Fuhito Kojima and Scott Duke Kominers

Abstract

We show that a mechanism induces an agent to make efficient ex ante investment choices if and only if it rewards that agent with his marginal surplus; additionally, for an ex post efficient mechanism, these properties are equivalent to strategy-proofness for the agent. Our results extend to settings with uncertainty; moreover, they have analogs for mechanisms that are only approximately efficient and approximately incentive compatible. Among other applications, our results imply both that under the worker-optimal stable mechanism, workers are incentivized to make efficient human capital investments before entering the labor market, and that second-price auctions induce efficient bidder participation.

Keywords: Strategy-proofness; Investment efficiency; Providing marginal rewards; Vickrey-Clarke-Groves mechanisms; Mechanism design; Market Design; Human Capital;

Language: English

Format: Print

SSRN

Citation:

Hatfield, John William, Fuhito Kojima, and Scott Duke Kominers. "Strategy-Proofness, Investment Efficiency, and Marginal Returns: An Equivalence." Working Paper, January 2015.

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

Abstract

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