Knitting and Ironing: Redistribution via Auctions
Mingshi Kang, Charles Zheng*
Date: 2019-05-04 10:45 am – 11:15 am
Last modified: 2019-04-14
Abstract
This paper considers the design of an auction-induced wealth transfer mechanism to maximize social surplus. Two items, one good, the other bad, are to be assigned to bidders who value money differently, and the taker of the bad is compensated with proceeds from the good. Transfers that improve social welfare occur indirectly when bidders who value money less buy the good, and those who value money more are paid to take the bad. We obtain the solution for the optimal mechanism given general type-distributions. We introduce a new concept, two-part operator, to integrate a bidder's endogenously bifurcated information rent in buying the good versus taking the bad. To solve the optimal mechanism problem, the