Pareto efficient combinatorial auctions: dichotomous preferences without quasilinearity

TL;DR

This paper explores the limitations and possibilities of designing Pareto efficient, strategy-proof, and individually rational combinatorial auction mechanisms without assuming quasilinear preferences, focusing on dichotomous preferences.

Contribution

It characterizes conditions under which a generalized VCG mechanism can achieve desirable properties in non-quasilinear dichotomous preference domains.

Findings

No Pareto efficient, DSIC, IR mechanism exists with all dichotomous preferences.

A generalized VCG mechanism works for positive income effect dichotomous preferences.

Adding non-dichotomous preferences reintroduces impossibility results.

Abstract

We consider a combinatorial auction model where preferences of agents over bundles of objects and payments need not be quasilinear. However, we restrict the preferences of agents to be dichotomous. An agent with dichotomous preference partitions the set of bundles of objects as acceptable} and unacceptable, and at the same payment level, she is indifferent between bundles in each class but strictly prefers acceptable to unacceptable bundles. We show that there is no Pareto efficient, dominant strategy incentive compatible (DSIC), individually rational (IR) mechanism satisfying no subsidy if the domain of preferences includes all dichotomous preferences. However, a generalization of the VCG mechanism is Pareto efficient, DSIC, IR and satisfies no subsidy if the domain of preferences contains only positive income effect dichotomous preferences. We show the tightness of this result: adding any non-dichotomous preference (satisfying some natural properties) to the domain of quasilinear dichotomous preferences brings back the impossibility result.