Worst-case optimal redistribution of VCG payments in multi-unit auctions

For allocation problems with one or more items, the well-known VickreyClarke-Groves (VCG) mechanism (aka. Clarke mechanism, Generalized Vickrey Auction) is efficient, strategy-proof, individually rational, and does not incur a deficit. However, it is not (strongly) budget balanced: generally, the agents’ payments will sum to more than 0. We study mechanisms that redistribute some of the VCG payments back to the agents, while maintaining the desirable properties of the VCG mechanism. Our objective is to come as close to budget balance as possible in the worst case (so that we do not require a prior). For auctions with multiple indistinguishable units in which marginal values are nonincreasing, we derive a mechanism that is optimal in this sense. We also derive an optimal mechanism for the case where we drop the non-deficit requirement. We show that if marginal values are not required to be nonincreasing, then the original VCG mechanism is worst-case optimal. Finally, we show how these results can also be applied to reverse auctions.