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Abdul Quadir
Abstract
We consider a mechanism design problem over a connected graph in private value
environment where the type of an agent is a single number. The preference over transfers is quasi-linear for every agent. We give a complete characterization of dominant
strategy incentive compatible mechanisms for this problem. Further, by imposing a
suitable version of anonymity and non-bossiness along with dominant strategy incentive compatibility, we find that only mechanisms satisfying all these conditions are the
Groves mechanisms.
JEL Classification: D44
Keywords: spanning tree; implementability; top single crossing, generalized utility
maximizer; anonymity in utility.
An earlier version of this paper was circulated under the title Mechanism Design in Single Dimensional
Type Spaces. I am very grateful to two anonymous referees and associate editor for their helpful and extensive
comments and suggestions. I am indebted to my supervisor, Debasis Mishra, Arunava Sen, Siddharth
Chatterji, Sanket Patel and the participants of the ninth Economic Design Conference for fruitful discussions.
This paper constitutes the second chapter of my Ph.D thesis submitted at Indian Statistical Institute.
Institute of Social and Economic Research, Osaka University and BITS Pilani, Hyderabad Campus;
Email: quadir.sanabili@gmail.com
Introduction
We study a mechanism design problem over a connected graph in quasi-linear and private
value environment. The planner needs to use a subset of edges of the graph to connect to all
its vertices. For instance, consider a planner who wants to send data over a mobile network.
The nodes in the mobile network are different geographic locations and the planner must
send data to all such locations. These locations (nodes) on the network are connected by
edges which are communication links. Communication links are privately held by different
agents (firms), who incur costs when their links are used.
The cost of each agent is a private information. A mechanism consists of an allocation
rule and a payment rule for every agent. Our objective is to identify the set of all dominant
strategy incentive compatible mechanisms that can be designed in this environment. We
identify a rich class of allocation rules for this problem called generalized utility maximizers,
and show that there exist payment rules such that the generalized utility maximizers and the
corresponding payment rules are dominant strategy incentive compatible. Moreover, every
dominant strategy incentive compatible mechanism consists of an allocation rule which is a
generalized utility maximizer. 1
A generalized utility maximizer assigns a map, which we call a generalized utility function
(GUF), to every agent. A GUF assigns a real number to every profile of types. A generalized
utility maximizer chooses a subset of agents at every type profile such that (a) all the nodes
are connected and (b) the sum of generalized utilities of agents is maximized. We characterize
the generalized utility allocation rule by a form of the single crossing condition.
The connected graph model is a procurement model where mechanism designer is a buyer
and he would like to buy a set of goods or services that combine in a useful way. The
agents are sellers in this model. In the frugal mechanism design problem which is studied in
computer science literature, one of the famous problems is known as spanning tree auctions.
Given a network, the auctioneer or mechanism designer wants to buy a spanning tree. In this
strand of literature, the celebrated VCG mechanism has been explored extensively(Archer
and Tardos, 2002; Cary et al., 2008). Our objective in this paper is to characterize all the
dominant strategy incentive compatible mechanisms.
Another contribution of this paper is theoretical and pertains to a very fundamental
result of mechanism design. A benchmark result result for explicit characterization of implementable allocation rule in private value mechanism design in quasi-linear environments
is the Roberts affine maximizer theorem (Roberts (1979)). It considers general multidimensional type spaces with finite number of alternatives. A type of an agent is a vector in R|A|
where A is finite set of alternatives. Roberts (1979) showed that if there are at least three
alternatives and the type space is unrestricted (i.e. R|A| ), then every onto implementable
allocation rule is an affine maximizer. It can be easily shown that every affine maximizer
1
The well-known revenue equivalence result holds in this environment. Hence, identifying the allocation
rule of a dominant strategy incentive compatible mechanism also pins down the payment rules.
is implementable. The domain of our model is restricted. Hence Roberts affine maximizer
theorem does not apply here. Therefore, we intend to extend his result for single dimensional
restricted domain where an alternative exhibits a specific structure.
We sharpen our characterization by adding two reasonable axioms, a suitable version of
anonymity and non-bossiness, on top of incentive compatibility. We show that only dominant
strategy incentive compatible mechanisms are the Groves mechanisms, i.e., uses an efficient
allocation.
1.1
In our connected graph model, any allocation rule implementable by a dominant strategy
incentive compatible mechanism can be characterized by a simple monotonicity condition
(Myerson, 1981). Monotonicity is the following requirement; fixing the type of other agents
if an agent is chosen by the allocation rule at a type, then he continues to be chosen by the
allocation rule at a higher type.
While monotonicity is a simple condition to interpret and use, it is only an implicit
characterization of an implementable allocation rule. In contrast, our characterization of
generalized utility maximizer explicitly describes the parameters of the mechanism in these
problems. In other words, although monotonicity characterizes the dominant strategy incentive compatible mechanisms but it does not provide a functional form characterization of
implementable allocation rules.
Our characterization is in the spirit of a seminal contribution of Roberts (1979). Roberts
result holds in the multi-dimensional unrestricted type space with at least three alternatives.
The unrestricted type space is very crucial in Roberts theorem. Some extension of Roberts
theorem has been carried out in restricted domain (Mishra and Sen, 2012; Carbajal et al.,
2013; Mishra and Quadir, 2014). Two papers need special mention in this respect.
Mishra and Sen (2012) show the Roberts theorem for multi-dimensional open interval
with neutrality and implementability. They adopt a social welfare ordering approach for
their characterization. But we characterize our result more directly and we do not require
neutrality for our characterization. They consider multi-dimensional open interval for their
characterization but we consider single dimensional restricted domain. Moreover, we do not
require openness of type space for our characterization because we adopt different strategy
to establish our result.
Mishra and Quadir (2014) consider a single object auctions model in quasi-linear setting.
The alternative in their model is binary in nature while here the alternative is not binary
and exhibits a particular structure. They pursue the social welfare ordering approach like in
Mishra and Sen (2012) but we give a direct characterization with the help of an inter-agent
crossing condition. In fact, our result is the generalization of simple utility maximizer result
in Mishra and Quadir (2014).
The second result of the paper contributes to the growing literature of characterizing
3
the VCG (Vickrey, 1961; Clarke, 1971; Groves, 1973) mechanism considering some fairness
criterion like anonymity in utility along with some other axioms. For homogeneous goods
setting, Ashlagi and Serizawa (2011) show that a mechanism is anonymous in utility, dominant strategy incentive compatible, individually rational and has non-negative payments if
and only if it is the VCG mechanism. Mukherjee (2014) characterizes the same result as in
Ashlagi and Serizawa (2011) for single object auction setting but with fewer axioms, i.e he
does not require individual rationality and non-negative papment axioms for establishing his
result.
In this spirit, we have provided a characterization of the Groves 2 mechanisms using a
suitable version of anonymity, non-bossiness, and incentive compatibility. Like Mukherjee
(2014), we do not use individual rationality and non-negative payment for our characterization but we use one more axiom (i.e. non-bossiness) than him. In our model, the structure
of alternative poses new challenges which are not present in homogeneous setting. To overcome them, we are required to modify the anonymity in utility axiom and consider one more
axiom.
The rest of the paper is organized as follows. We consider the connected graph model
in section 2. We characterize the anonymous and efficient allocation rule in section 3 and
subsequently pins down the Groves mechanism.
The Groves mechanism is a class of dominant strategy mechanism which uses efficient allocation rule.
The VCG mechanism is one of the special mechanism of the Groves family.
Payments are allowed in this model. We define the payment function of an agent i N as a
mapping pi : V R. A mechanism is a tuple (f, p) where p = (p1 , p2 , . . . , pn ) is a collection
of payment functions. Net utility of an agent i N from the mechanism (f, p) when his true
type is vi and the reported profile is (vi0 , vi ) is
f (vi0 ,vi )
vi 1i
+ pi (vi0 , vi ),
where for every agent i N and for every spanning tree x X, we denote by 1xi to indicate
/ x.
if agent i is in the spanning tree x i.e., 1xi = 1 if i x and 1xi = 0 if i
Definition 1 An allocation rule f is implementable (in dominant strategies) if there exist
payment functions (p1 , p2 , . . . , pn ) such that for every agent i N and for every vi Vi
v i 1i
f (vi ,vi )
f (vi0 ,vi )
+ pi (vi , vi ) vi 1i
+ pi (vi0 , vi )
vi , vi0 Vi
2.1
We now provide a complete characterization of implementable allocation rules for the connected graph model. Unlike the monotonicity characterization, our characterization is in the
spirit of Roberts (1979) by describing the parameters of the mechanism explicitly.
Define a generalized utility function (GUF) for agent i as a mapping ui : V R.
A GUF assigns a real number to every valuation profile. We impose the following condition
on the collection of GUFs (u1 , u2 , . . . , un ).
A cut of a graph is the partitioning of the nodes of the graph into two parts. Formally,
a cut in the graph G = (M, N ) is the partitioning of the nodes (S, M \ S) with S 6= and
S 6= M . Let the set of edges crossing this cut be N (S). At a valuation profile (vi , vi ), an
edge is called the heavy edge of a cut if it has the highest weight 3 among all edges crossing
this cut of the graph.
Definition 3 The GUFs (u1 , u2 , . . . , un ) satisfy top single crossing if for every i N ,
for every vi Vi , for every vi , vi0 Vi with vi > vi0 , for some cut of the graph (S 0 , M \ S 0 )
such that i N (S 0 ) and ui (vi0 , vi ) maxkN (S 0 )\{i} uk (vi0 , vi ), there exists a cut (S, M \ S)
such that i N (S) and ui (vi , vi ) > maxkN (S)\{i} uk (vi , vi ).
3
The highest weight here is equal to the value of the highest general utility function defined at (vi , vi ).
The top single crossing condition requires that for every valuation profile of other agents,
if agent i is one of the heavy edges in some cut when his valuation is vi0 , then it must be
unique heavy edge for some cut when his valuation is increased to vi .
The standard inter-agent crossing condition that is used in the literature is single crossing which implies top single crossing.
Definition 4 GUFs (u1 , . . . , un ) satisfy single crossing if for every i, j N , for every
vi Vi , for every vi , vi0 Vi with vi > vi0 , we have ui (vi , vi ) ui (vi0 , vi ) > uj (vi , vi )
uj (vi0 , vi ).
A GUF ui is increasing if for every vi Vi and for every vi , vi0 Vi with vi > vi0 , we
have ui (vi , vi ) > ui (vi0 , vi ).
Lemma 1 If GUFs (u1 , u2 , . . . , un ) satisfy single crossing, then they satisfy top single crossing.
Proof : Consider an agent i N and a cut of the graph (S, M \ S) such that i N (S).
Let vi , vi0 Vi with vi > vi0 and ui (vi0 , vi ) maxkN (S)\{i} uk (vi0 , vi ). By single crossing, we
have ui (vi , vi ) ui (vi0 , vi ) > uj (vi , vi ) uj (vi0 , vi ) for all j 6= i. Since this is true for all
j 6= i, this is also true for the cut (S, M \ S) such that i N (S) and
ui (vi , vi ) ui (vi0 , vi ) > uj (vi , vi ) uj (vi0 , vi ) for all j N (S).
(1)
(2)
Adding Equations 1 and 2, we have ui (vi , vi ) > uj (vi , vi ) for all j N (S)\{i}. Thus, there
exists a cut (S, M \ S) such that i N (S) and we have ui (vi , vi ) > maxkN (S)\{i} uk (vi , vi ).
We now introduce a class of implementable allocation rules.
Definition 5 An allocation rule f is a generalized utility maximizer if there exist
GUFs (u1 , u2 , . . . , un ) satisfying top single crossing such that for every v V , f (v)
P
arg max iN ui (vi , vi )1xi .
xX
A generalized utility maximizer considers the connected graph G = (M, N ) and at every
valuation profile (vi , vi ) assigns a weight ui to the edge owned by agent i. Then, it selects
the maximum weight spanning tree of this weighted graph. In other words, it selects a
spanning tree which maximizes the sum of generalized utility functions. In fact, a maximum
weight spanning tree consists of the heavy edges from different cut of the graph if we apply
Prims algorithm. If there are more than one heavy edges at some cut of the graph, anyone
of them will be picked in the maximum weight spanning tree.
6
Note that the utility in GUF has nothing to do with the utility in a mechanism. It is an
artificial construct used by the mechanism designer.
The generalized utility maximizer includes a rich class of allocation rules. The following
examples illustrate this.
Example 1
Consider the following graph of three edges in Figure 1,
a
e1
e3
e2
Proof : Consider a generalized utility maximizer f and let (u1 , u2 , . . . , un ) be the corresponding GUFs satisfying top single crossing. Fix an agent i N and vi Vi . Let
vi , vi0 Vi with vi > vi0 . Suppose i f (vi0 , vi ). This implies that i must be one of the heavy
edges for some cut (S 0 , M \ S 0 ). By the top single crossing, there exists a cut (S, M \ S) such
that i N (S) and ui (vi , vi ) > maxkN (S)\{i} uk (vi , vi ). Hence, i is the unique heavy edge
of the cut (S, M \ S). Since a maximum weight spanning tree must choose a heavy edge
from every cut, i f (vi , vi ).
Our main result shows that generalized utility maximizers are the only implementable
allocation rule in the connected graph model.
Theorem 1 An allocation rule is implementable if and only if it is a generalized utility
maximizer.
Proof : Lemma 2 showed that every GUF maximizer is implementable. To prove the conf (v ,v )
verse, suppose f is implementable. Fix an agent i and vi Vi . If 1i i i = 0, then define
f (v ,v )
fi (vi ) := sup {vi : vi Vi }. Else, define fi (vi ) := inf {vi Vi : 1i i i = 1}. Since Vi is a
bounded interval, fi is well-defined. Further, since f is implementable and hence monotone,
for every agent i N , for every vi Vi and for every vi Vi if vi fi (vi ), we have
1fi (vi ,vi ) = 1 and for every vi > fi (vi ) we have 1fi (vi ,vi ) = 0.
Define for every i N and for every (vi , vi ),
ui (vi , vi ) := vi fi (vi ).
By definition, for all i f (vi , vi ), we have ui (vi , vi ) = vi fi (vi ) 0 and for all
P
i
/ f (vi , vi ), we have ui (vi , vi ) 0. Hence, we have f (vi , vi ) arg max
ui (vi , vi )1xi .
xX iN
Now, we prove that the GUFs (u1 , u2 , . . . , un ) as constructed above satisfy top single
crossing. Fix an agent i N and vi , vi0 Vi with vi > vi0 . Consider vi Vi and a cut of the
graph (S 0 , M \ S 0 ) such that i N (S 0 ). Let ui (vi0 , vi ) maxkN (S 0 )\{i} uk (vi0 , vi ). By the
construction of the GUF ui , we have ui (vi , vi ) = vi fi (vi ) > vi0 fi (vi ) = ui (vi0 , vi ).
Hence, ui (vi , vi ) > ui (vi0 , vi ). This implies that ui is an increasing function. We know
that ui (vi0 , vi ) maxkN (S 0 )\{i} uk (vi0 , vi ) for the cut (S 0 , M \ S 0 ) of the graph. Suppose
i f (vi0 , vi ), then we have ui (vi0 , vi ) 0. Suppose i
/ f (vi0 , vi ), then some other agent
j N (S 0 ) , we have j f (vi0 , vi ) (this is because every spanning tree must choose at least
one edge from every cut). This implies that ui (vi0 , vi ) uj (vi0 , vi ) 0. Therefore, for both
the cases, we have ui (vi0 , vi ) 0. Since ui is increasing, we have ui (vi , vi ) > ui (vi0 , vi ) 0.
This implies that vi < fi (vi ) and hence i f (vi , vi ).
P
Since f (vi , vi ) arg max
ui (vi , vi )1xi , i belongs to the maximum weight spanning
xX iN
tree chosen by f at valuation profile (vi , vi ). This implies that there exists a cut (S, M \ S)
2.2
In Theorem 1, we characterize only the implementable allocation rules. However, this also
characterizes the set of dominant strategy incentive compatible mechanisms by using the
revenue equivalence principle.
Definition 6 An allocation rule f satisfies revenue equivalence if for every (p1 , . . . , pn ) and
(p01 , . . . , p0n ) that implement f , we have for every i N and for every vi Vi , a mapping
hi : Vi R such that
p0i (vi , vi ) = pi (vi , vi ) + hi (vi )
for all vi Vi .
Revenue equivalence holds in our model since Vi is connected for every i N (Nisan, 2007;
Heydenreich et al., 2009).
An implication of revenue equivalence is that identifying one payment rule that implements an allocation rule also identifies the entire class of payment rules (upto an additive constant). Given an implementable allocation rule f (a generalized utility maximizer), define for
every i N and for every (vi , vi ), pi (vi , vi ) = 0 if i
/ f (vi , vi ) and pi (vi , vi ) = fi (vi )
if i f (vi , vi ) where fi is as defined in the proof of Theorem 15 . It is easy to verify that
this payment rule implements f if f is monotone. By the revenue equivalence principle, we
can characterize the entire class of payment rules which implement monotone allocation rule
f.
To see this, suppose for every cut (S, M \ S), there is an edge j N (S) \ {i} such that j f (vi , vi ),
then we can remove i from f (vi , vi ) and the resulting graph will still be a spanning tree. This contradicts
the fact that f (vi , vi ) is a spanning tree.
5
This sort of payment is also mentioned in Nisan (2007).
e1 = 5
e2 = 3
e5 = 1
e3 = 4
e4 = 2
vi 1xi
for all x X
iN
iN
Note that we can have more than one efficient allocation rule if agents do not have distinct
valuations.
Definition 8 A mechanism (f, p) is anonymous in utility if for every v = (v1 , v2 , . . . , vn ),
for every i, j N and for every v 0 such that vi0 = vj , vj0 = vi , vk0 = vk for all k
/ {i, j}, we
have
f (v 0 )
f (v)
vi0 1i
+ pi (v 0 ) = vj 1j + pj (v)
and
vj0 1j
f (v 0 )
+ pj (v 0 ) = vi 1i
f (v)
+ pi (v).
Anonymity in utility implies that if two agents exchange their valuations, then their net
utilities are also exchanged.
To show incompatibility, we need the following lemmas which are consequence of anonymity
in utility and incentive compatibility. We neither impose the restriction of individual rationality nor non-negative payment to establish the incompatibility. Hence, this incompatibility
does arise because of the axioms of incentive compatibility and anonymity in utility.
Lemma 3 If a mechanism (f, p) is incentive compatible, then for every i N , for every
f (v 0 ,v )
f (v ,v )
v V and for every vi0 Vi with 1i i i = 1i i i , we have pi (vi0 , vi ) = pi (vi , vi ).
It is a well-know result in the literature. We give its proof in Appendix B.
Lemma 4 Let (f, p) be an anonymous in utility and incentive compatible mechanism. For
f (v ,v ,v
)
any i, j N , vi Vi , vj Vj and vij Vij with vi < vj if 1i i j ij = 1, then
0
1fj (vi ,vj ,vij ) = 1 when vi0 = vj .
Proof : Consider an anonymous in utility and incentive compatible mechanism (f, p). Fix
f (v ,v ,v
)
i, j N , vi Vi , vj Vj , vij Vij with vi < vj and denote vi0 = vj . Suppose 1i i j ij =
1.
f (v 0 ,v )
Incentive compatibility implies that f is monotone. Therefore, we have 1i i i = 1 by
monotonicity. Thus, pi (vi0 , vj , vij ) = pi (vi , vj , vij ) by Lemma 3. Assume for contradiction
f (v 0 ,v ,v
)
that 1j i j ij = 0. Since vi0 = vj , by anonymity in utility we have
f (vi0 ,vi )
vi0 1i
+ pi (vi0 , vi ) = vj 1j
f (v 0 ,v
(3)
f (v 0 ,v 0 ,vij )
vj0 1i
11
(4)
f (v 0 ,v 0 ,vij )
f (v 0 ,v ,v
(5)
Since 1j i j
= 1j i j ij , pj (vi0 , vj0 , vij ) = pj (vi0 , vj , vij ) by Lemma 3. Therefore, from
Equations 3 and 5, we have vi = vi0 , a contradiction.
)
Now, we use these lemmas and show that anonymity in utility, incentive compatibility and
efficiency are incompatible. Consider the following example which shows this incompatibility.
Example 4
Consider the graph in Figure 3 with four nodes and five edges. The numbers on edges are
valuations of agents. Let v = (5, 2, , 3, 2, 2).
a
e1 = 5
e2 = 2
e5 = 2
e3 = 3
e4 = 2
Example 5
Consider the graph in Figure 3. Suppose that at some valuation profile (v1 , v2 , v3 , v4 , v5 ),
f (v1 , v2 , v3 , v4 , v5 ) = {e1 , e2 , e4 }. Now, consider another valuation profile after exchanging
the valuation of agent 3 with agent 4, i.e., (v1 , v2 , v4 , v3 , v5 ). By anonymity in allocation, we
have to choose edge e3 in the allocation rule at this new valuation profile. Now, we have
f (v1 , v2 , v5 , v4 , v3 ) = {e1 , e2 , e3 } at this new valuation profile. But it is not a spanning tree.
Now, we introduce our version of anonymity that we call restricted anonymity. A permutation of the set of agents is a map : N N such that it is one-to-one and onto.
Denote by (v) = (v(1) , . . . , v(n) ) the valuation vector of agents after the permutation.
Given allocation rule f , for every v V we say that a permutation is valid at v if (f (v))
f (v)
f (v)
is a spanning tree where we denote by (f (v)) = (1(1) , . . . , 1(n) ), the collection of edges.
Note that (f (v)) need not be a spanning tree.
Definition 9 An allocation rule f is restricted anonymous if for every v V such that
(v) is a valid permutation and v 6= (v), we have f ((v)) = (f (v)).
This says that if agent i exchanges his valuation with the valuation of agent j, then their
allocations are also exchanged if this allocation exchange does form a spanning tree. This
implies that the identity of agents does not matter.
We also need the following non-bossiness condition for our characterization.
Definition 10 An allocation rule f is non-bossy if for every i N , for every vi Vi
f (v 0 ,v )
f (v ,v )
and for every vi , vi0 Vi with 1i i i = 1i i i , we have f (vi , vi ) = f (vi0 , vi ).
This assumption requires that if an agent cannot change his allocation in the allocation rule
by changing his valuation, then he should not be able to change the allocation of other agents.
Now, we present a proposition that helps us in characterizing the Groves mechanism.
As our definition indicates that we only consider the non-bossiness in allocation. We are
not considering non-bossiness in outcome as first proposed by Satterthwaite and Sonnenschein (1981).
Proposition 1 If an allocation rule is implementable, non-bossy and, restricted anonymous, then it is an efficient allocation rule.
Proof : We use the following lemmas to prove the proposition. The proofs of the lemmas
are in Appendix B.
Lemma 5 A maximum weight spanning tree contains at least one heavy edge for every cut
of the graph. Moreover, every edge in a maximum weight spanning tree is a heavy edge for
some cut.
We call a cut loose at v if f (v) does not choose any heavy edge from the cut.
13
Lemma 6 For every valuation profile v V and for any loose cut (S, M \S) at v if i N (S)
and i f (vi , vi ), there exists j N (S) such that j is a heavy edge and f (v) \ {i} {j} is
a spanning tree.
Consider an allocation rule f which is implementable, non-bossy and, restricted anonymous. Picking an efficient allocation is equivalent to picking a maximum weight spanning
tree for this problem. We know by Lemma 5 that a maximum weight spanning tree is the
collection of heavy edges of different cuts of the graph. Therefore, if we can show that an
allocation rule f contains a heavy edge of every cut, then we are done.
If the valuations of all the agents are the same, then we are trivially done. Else, consider
valuation profile (vi , vi ). Consider a cut of the graph (S, M \ S). Assume for contradiction
that no heavy edge of the cut (S, M \ S) is chosen by allocation rule f at valuation profile
(vi , vi ). Let i be one of the heavy edges of the cut (S, M \ S). Thus, i
/ f (vi , vi ). For f to
be a spanning tree at (vi , vi ), there must be an edge j N (S) such that j is not a heavy
edge and j f (v).
We can apply permutation at v in the cut (S, M \ S), if there exists an edge j N (S)
such that j is not heavy edge and permutation of the valuation of agent j with the valuation
of agent i is valid. By Lemma 6 such an edge j N (S) exists and it is not one of the heavy
edges.
Since i is a heavy edge, suppose vi = > vj = . Since j f (vi = , vj = , vij )
and > , by monotonicity j f (vi = , vj0 = , vij ) for vj0 = . By non-bossiness,
i
/ f (vi = , vj0 = , vij ).
/ f (vi0 =
By restricted anonymity, we have i f (vi0 = , vj0 = , vij ) where vi0 = and j
, vj0 = , vij ). Since < , we have i f (vi = , vj0 = , vij ) by monotonicity. But this
contradicts the fact that i
/ f (vi = , vj0 = , vij ). Hence, f must select one of the heavy
edges from every cut of the graph. By Lemma 5, this is a maximum weight spanning tree.
Using revenue equivalence and Proposition 1, we can now characterize the Groves mechanisms with appropriate tie-breaking rule.
Definition 11 A mechanism (f, p) is a Groves mechanism if for every v V , f is an
P
f (v ,v )
efficient allocation rule and for every i N pi (vi , vi ) = j6=i vj 1j i i + hi (vi ), where
hi : Vi R is any function.
We can not characterize the above version of the Groves mechanisms with the above
axioms. In fact, when the agents have identical valuations, then we encounter the problem
that our axioms may not satisfy efficiency. To overcome this problem, we use the tie-breaking
rule, e1 e2 , . . . , en in a consistent way. Consistent way means that if edges ei , ej , ek
form a cycle where i > j > k and have the same valuations, then edges ek and ej will be
picked from these edges. We call this tie-breaking rule as the priority tie-breaking rule.6
6
I am very grateful to one of the anonymous referees who raises this issue.
14
Now if we use this tie-breaking rule in defining the Groves mechanisms, then we have Groves
mechanisms with priority tie-breaking rule.
Now, we state the main result of this section.
Theorem 2 A mechanism (f, p) is incentive compatible where f is non-bossy and restricted
anonymous if and only if it is the Groves mechanisms with priority tie-breaking rule.
Proof : By Proposition 1, every allocation rule satisfying implementability, non-bossiness
and, restricted anonymity must be an efficient allocation rule. By revenue equivalence (Holmstrom, 1979), the only efficient incentive compatible mechanisms are the Groves mechanisms
with priority tie-breaking rule.
Remark 1: Note that we do not require the assumption of individual rationality and nonnegative payment for our characterization but we use non-bossiness. While in the literature,
for homogeneous setting environment which is very close to our model Ashlagi and Serizawa
(2011) use individual rationality, non-negative payment, anonymous in utility and incentive
compatibility to characterize a similar result to ours. But Mukherjee (2014) does not use
individual rationality and non-negative payment for characterizing the similar result to ours
in single object auction setting.
Remark 2: The requirements of incentive compatibility of mechanism and allocation rule
satisfying restricted anonymity is crucial for proving Proposition 1. We can easily construct
examples showing that they are independent. As far as the non-bossiness axiom is concerned,
we can not establish its independence for proving efficient allocation rule.
Conclusion
Appendix
Proof of Lemma 3
Consider an incentive compatible mechanism (f, p) and choose v V , vi , vi0 Vi and i N
f (v 0 ,v )
f (v ,v )
with 1i i i = 1i i i . Consider vi as true value of agent i, then by incentive compatibility
15
we have
vi 1i
f (vi ,vi )
f (vi0 ,vi )
+ pi (vi , vi ) vi 1i
+ pi (vi0 , vi )
(6)
vi0 1i
+ pi (vi0 , vi ) vi0 1i
f (vi ,vi )
+ pi (vi , vi )
(7)
From equation 6, we have pi (vi , vi ) pi (vi0 , vi ) and from equation 7, we have pi (vi , vi )
pi (vi0 , vi ). Hence, we have pi (vi0 , vi ) = pi (vi , vi ).
Proof of Lemma 5
Consider a a cut of the graph (S, M \ S) and a spanning tree x. Let N (S) be the set of all
edges that cross the cut (S, M \ S). Suppose no edge from this cut is chosen in spanning
tree x, i.e., x {N (S)} = . But this is not possible because the remaining set of edges
x \ {N (S)} cannot span all the vertices of the graph. Hence, we have to choose at least one
edge from every cut of the graph.
Now suppose no heavy edge from the cut (S, M \ S) is chosen in x. Then, some edge
j N (S) such that j is not a heavy edge and j x. Now delete edge j and include one of
the heavy edges, we will get a spanning tree. We can do this for every cut of the graph and
get a spanning tree which is a collection of heavy edges of different cuts.
Proof of Lemma 6
Consider a valuation profile v and a loose cut (S, M \ S). Since (S, M \ S) is a loose cut, no
heavy edge of this cut belongs to f (v). For f to be a spanning tree at v, we have to choose
at least one edge k N (S) such that k f (vi , vi ). By definition k is not a heavy edge.
Let i be one of the heavy edges of (S, M \ S). Now, if we add edge i to the spanning tree
chosen by f at v, it will create a cycle, i.e., f (v) {i} is a cycle. Since f (v) {i} is a cycle,
there exists an edge j N (S) \ {i} such that j f (v) and j is part of the cycle. Thus, if
we remove j, we have f (v) \ {j} {i} which is a spanning tree.
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