Discussion Papers on Economics,
University of Southern Denmark, Department of Economics

Abstract: Consider a market for a resource under disequilibrium prices where suppliers and demanders are privately informed about their optimal supply and consumption levels. Strategy-proof market clearing mechanisms give suppliers and demanders dominant strategy incentives to truthfully reveal this information. We describe the class of strategy-proof and efficient mechanisms responding well to changes in supplies and demands, as formalized by the "replacement principle" (Thomson, 2007). Since no symmetry or anonymity conditions are imposed, these mechanisms can implement a wide array of distributional objectives in both indivisible and divisible resource allocation situations. These mechanisms apply to allocation problems involving network constraints modeling necessary conditions for a transfer of the resource from a supplier to a demander.

Keywords: Strategy-proofness; Replacement principle; Network constraints; Indivisible resourcces

JEL-codes: C70; D47; D61; D63

29 pages, March 6, 2014

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