Mechanism Design for Unicast Service on the Internet

In this report we construct two mechanisms that fully implement social welfare maximising allocation in Nash equilibria for the case of a single infinitely divisible good subject to multiple inequality constraints. The first mechanism achieves weak budget balance, while the second is an extension of the first, and achieves strong budget balance. One important application of this mechanism is unicast service on the Internet where a network operator wishes to allocate rates among strategic users in such a way that maximise overall user satisfaction while respecting capacity constraints on every link in the network. The emphasis of this work is on full implementation, which means that all Nash equilibria of the induced game result in the optimal allocations of the centralized allocation problem.