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Auctions With Type-Dependent and Negative Externalities: The Optimal Mechanism
Social Science Research Network
We analyze optimal auction design in the presence of negative externalities. We assume that externalities are a function of both the valuation of the agent who suffers it and the valuation of the agent who obtains the good. This introduces two technical difficulties: the reservation utility of each bidder becomes type-dependent and the equilibrium utility is not necessarily increasing in the agent's valuation. We characterize the properties of the optimal mechanism when externalities aredoi:10.2139/ssrn.1031532 fatcat:a7a6ofeuzbhjxhhas4kldoulcu