Balanced Ranking Mechanisms

TL;DR

This paper introduces a new auction mechanism that is symmetric, incentive compatible, budget-balanced, and highly likely to allocate to the highest valued agent, demonstrating the limits of efficiency in such settings.

Contribution

It constructs a novel mechanism that is symmetric, incentive compatible, budget-balanced, and nearly always allocates to the top bidder, showing the boundaries of possible outcomes in this model.

Findings

Allocates to highest valued agent with over 99% probability when at least 14 agents are present

Mechanism is symmetric, incentive compatible, and ex-post individually rational

Proves the mechanism's optimality within a restricted class of ranking mechanisms

Abstract

In the private values single object auction model, we construct a satisfactory mechanism - a symmetric, dominant strategy incentive compatible, and budget-balanced mechanism. Our mechanism allocates the object to the highest valued agent with more than 99% probability provided there are at least 14 agents. It is also ex-post individually rational. We show that our mechanism is optimal in a restricted class of satisfactory ranking mechanisms. Since achieving efficiency through a dominant strategy incentive compatible and budget-balanced mechanism is impossible in this model, our results illustrate the limits of this impossibility.