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SSRN Electronic Journal
Article . 2017 . Peer-reviewed
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EconStor
Research . 2017
Data sources: EconStor
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Mechanisms with Referrals: VCG Mechanisms and Multilevel Mechanisms

VCG Mechanisms and Multilevel Mechanisms
Authors: Lee, Joosung;

Mechanisms with Referrals: VCG Mechanisms and Multilevel Mechanisms

Abstract

We study mechanisms for environments in which only some of the agents are directly connected to a mechanism designer and the other agents can participate in a mechanism only through the connected agents' referrals. Agents' network connections are private information, which can be strategically concealed by avoiding making referrals; while the mechanism designer wants to elicit the agents' private information about both payoff types and network connections. The set of feasible allocations is endogenously determined by the actual participants induced by referrals. In such an environment with a varying population, we define a VCG mechanism as a benchmark for an efficient mechanism. It is incentive compatible and individually rational, but it generically runs a deficit as it requires too much compensation for referrals. Alternatively as a budget-surplus mechanism, we introduce a multilevel mechanism, in which each agent is compensated by the agents who would not be able to participate without her referrals. Under a multilevel mechanism, we show that fully referring one's acquaintances is a dominant strategy and agents have no incentive to under-report their payoff type if the social welfare is submodular. As applications, a single-item auction and a public good provision game are studied. We show that a multilevel mechanism guarantees a revenue higher than any standard auction. In a public good provision game, a principal can achieve an efficient and budget-balanced allocation through a multilevel mechanism if the agents have a binary preference on the public good.

Related Organizations
Keywords

Mechanism Design, Multilevel Mechanism, Reward Scheme, Incentive Compatibility, ddc:330, Budget Feasibility, Referral Program, D82, D71, C72, VCG Mechanism

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    popularity
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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
5
Average
Average
Average
bronze