Interim Efficient Mechanism Design with Interdependent Valuations

We consider the class of Bayesian environments with one-dimensional private signals and interdependent valuations. For these environments, we fully characterize the set of interim efficient mechanisms which satisfy interim incentive compatibility and interim individual rationality constraints. In these mechanisms, the allocation rules assign probability one to an alternative that maximizes the sum of all agents’ virtual valuations that are defined for these economic settings and transfer functions are defined depending on agents’ welfare weights. This set of mechanisms is compelling since interim efficient mechanisms are the best in the sense that there is no other incentive compatible and individually rational mechanism that is preferred by each agent. JEL classification numbers: C72, D44, D61