On the generic (im)possibility of full surplus extraction in mechanism design

Aviad Heifetz, Zvika Neeman

Research output: Contribution to journalArticlepeer-review

Abstract

A number of studies, most notably Crémer and McLean (1985, 1988), have shown that in generic type spaces that admit a common prior and are of a fixed finite size, an uninformed seller can design mechanisms that extract all the surplus from privately informed bidders. We show that this result hinges on the nonconvexity of such a family of priors. When the ambient family of priors is convex, generic priors do not allow for full surplus extraction provided that for at least one prior in this family, players' beliefs about other players' types do not pin down the players' own preferences. In particular, full surplus extraction is generically impossible in finite type spaces with a common prior. Similarly, generic priors on the universal type space do not allow for full surplus extraction.

Original languageEnglish
Pages (from-to)213-233
Number of pages21
JournalEconometrica
Volume74
Issue number1
DOIs
StatePublished - Jan 2006
Externally publishedYes

Keywords

  • Face
  • Genericity
  • Information rents
  • Prevalence
  • Shyness
  • Surplus extraction
  • Universal type space

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