First-price auction implements efficient investments

Publication Type:
Journal Article
Citation:
Economics Letters, 2017, 159 pp. 198 - 200
Issue Date:
2017-10-01
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© 2017 Elsevier B.V. This note shows that the first-price auction fully implements efficient investments when agents make not only ex ante but also ex post investments. The essential assumptions of our model are that (i) each agent can invest before and after participating in the auction under the same cost function and (ii) the cost functions are common knowledge among agents. In any equilibrium of our model, the most efficient agent always wins and makes the efficient level of investment.
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