CFDP 1672R

The Dynamic Pivot Mechanism

Author(s): 

Publication Date: August 2008

Revision Date: December 2009

Pages: 30

Abstract: 

We consider truthful implementation of the socially efficient allocation in an independent private-value environment in which agents receive private information over time. We propose a suitable generalization of the pivot mechanism, based on the marginal contribution of each agent. In the dynamic pivot mechanism, the ex-post incentive and ex-post participation constraints are satisfied for all agents after all histories. In an environment with diverse preferences it is the unique mechanism satisfying ex-post incentive, ex-post participation and efficient exit conditions.

We develop the dynamic pivot mechanism in detail for a repeated auction of a single object in which each bidder learns over time her true valuation of the object. The dynamic pivot mechanism here is equivalent to a modified second price auction.

Keywords: 

Pivot mechanisms, Dynamic mechanism design, Ex-post equilibrium, Marginal contribution, Multi-armed bandit, Bayesian learning

JEL Classification Codes: C72, C73, D43, D83

See CFP: 1293