Working Paper: CEPR ID: DP5558
Authors: Philippe Jehiel; Benny Moldovanu
Abstract: We study the effects of allocative and informational externalities in (multi-object) auctions and related mechanisms. Such externalities naturally arise in models that embed auctions in larger economic contexts. In particular, they appear when there is downstream interaction among bidders after the auction has closed. The endogeneity of valuations is the main driving force behind many new, specific phenomena with allocative externalities: even in complete information settings, traditional auction formats need not be efficient, and they may give rise to multiple equilibria and strategic non-participation. But, in the absence of informational externalities, welfare maximization can be achieved by Vickrey-Clarke- Groves mechanisms. Welfare-maximizing Bayes-Nash implementation is, however, impossible in multi-object settings with informational externalities, unless the allocation problem is separable across objects (e.g. there are no allocative externalities nor complementarities) or signals are one-dimensional. Moreover, implementation of any choice function via ex-post equilibrium is generically impossible with informational externalities and multidimensional types.
Keywords: auctions; externalities; interdependent values
JEL Codes: D44; D82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| allocative externalities (D61) | auction efficiency (D44) |
| allocative externalities (D61) | multiple equilibria (D50) |
| allocative externalities (D61) | strategic non-participation (L39) |
| endogeneity of valuations (D46) | auction outcomes (D44) |
| absence of informational externalities (D89) | welfare maximization (D69) |
| informational externalities + non-separable allocation problem (D89) | welfare-maximizing Bayes-Nash implementation impossibility (D69) |