Optimal Incentives in Core-Selecting Auctions

Optimal Incentives in Core-Selecting Auctions Robert Day, School of Business, University of Connecticut Paul Milgrom, Dept of Economics, Stanford University August 25, 2010 Auctions that select core allocations with respect to reported values generate competitive levels of sales revenues at equilibrium and limit bidder incentives to use shills. Among core-selecting auctions, the ones that select bidder-optimal points in the core are efficient in minimizing the bidders’ incentives to misreport. Those auctions select the Vickrey outcome whenever that lies in the core and otherwise select points with higher than Vickrey revenues. Among core allocations, the points that minimize total seller revenue also minimize the sum of the gains that bidders can earn from unilateral deviations. Minimum-revenue core-selecting auctions have recently been planned or implemented for several high-stakes applications.