Working Paper 99-09

Department of Economics

University of North Carolina, Chapel Hill

http://www.unc.edu/depts/econ









Simple Strategy-Proof Approximately

Walrasian Mechanisms.¤



Department of Economics Working Paper 99-09



Alexander Kovalenkov

Department of Economics

Gardner Hall, CB#3305

Chapel Hill, NC 27599-305, U.S.A.



This version: December 1999



Key words: Walrasian Mechanism, large economies, incomplete

information, implementation, strategy-proofness.





Abstract



This paper provides an indirect analysis of the incentive properties of the Walrasian mechanism. It presents mechanisms under which truth-telling is a dominant strategy in finite exchange economies (in contrast to the Walrasian mechanism) and whose outcomes (generically) approximate Walrasian ones for large economies. These mechanisms provide new insights on the well-known trade-off ¤ between efficiency and incentive compatibility in finite economies.



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¤This paper previously was distributed as a typescript called "On a "folk" strategy-proof approximately Walrasian mechanism." I gratefully acknowledge the encouragement and very helpful comments from Salvador Barberà; without them this research would not have taken place. In addition, I am indebted to Birgit Grodal, Peter Hammond, Matt Jackson, Alejandro Manelli, Andreu Mas-Colell, Herakles Polemarchakis, and David Wettstein for very helpful remarks. All remaining errors are my own responsibility. This research was undertaken with support from the European Union's Tacis ACE Programme 1995. At that time, the author was in the IDEA Ph.D. Program of the Autonomous University of Barcelona. Support by DGICYT grant PB92-590 is acknowledged. I am also very grateful to the Center in Political Economy (Washington University in St. Louis) for a fellowship and for the excellent conditions to work which I was enjoying there in Winter 1998.