Contingent Payment Mechanisms for Resource Utilization

TL;DR

This paper introduces contingent payment mechanisms (CP) that incentivize resource utilization by agents with uncertain values, maximizing social welfare through a dominant-strategy equilibrium and welfare-optimality.

Contribution

The paper proposes a new family of contingent payment mechanisms (CP) with proven welfare-optimality and dominance properties, extending to multiple resources and including a simulation study.

Findings

CP(W) maximizes expected welfare among simple, always-allocate mechanisms.

Contingent second-price mechanism maximizes resource utilization.

Mechanisms extend to multiple heterogeneous resources.

Abstract

We introduce the problem of assigning resources to improve their utilization. The motivation comes from settings where agents have uncertainty about their own values for using a resource, and where it is in the interest of a group that resources be used and not wasted. Done in the right way, improved utilization maximizes social welfare--- balancing the utility of a high value but unreliable agent with the group's preference that resources be used. We introduce the family of contingent payment mechanisms (CP), which may charge an agent contingent on use (a penalty). A CP mechanism is parameterized by a maximum penalty, and has a dominant-strategy equilibrium. Under a set of axiomatic properties, we establish welfare-optimality for the special case CP(W), with CP instantiated for a maximum penalty equal to societal value W for utilization. CP(W) is not dominated for expected welfare by any other mechanism, and second, amongst mechanisms that always allocate the resource and have a simple indirect structure, CP(W) strictly dominates every other mechanism. The special case with no upper bound on penalty, the contingent second-price mechanism, maximizes utilization. We extend the mechanisms to assign multiple, heterogeneous resources, and present a simulation study of the welfare properties of these mechanisms.