DOI: 10.3982/ecta19559 ISSN: 0012-9682

Algorithmic Mechanism Design With Investment

Mohammad Akbarpour, Scott Duke Kominers, Kevin Michael Li, Shengwu Li, Paul Milgrom
  • Economics and Econometrics

We study the investment incentives created by truthful mechanisms that allocate resources using approximation algorithms. Some approximation algorithms guarantee nearly 100% of the optimal welfare in the allocation problem but guarantee nothing when accounting for investment incentives. An algorithm's allocative and investment guarantees coincide if and only if its confirming negative externalities are sufficiently small. We introduce fast approximation algorithms for the knapsack problem that have no confirming negative externalities and guarantees close to 100% for both allocation and investment.

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