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The Complete Idiot's Guide to Game Theory by Edward Rosenthal, Ph.D., Edward C. Rosenthal

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Limitations of Mechanism Design

You’ve now seen a couple of examples of mechanism design and its promise. But before moving on to the next topic, I have to make sure I don’t promise too much. You might recall that the technology-sharing example analyzed earlier in this chapter had some drawbacks. It turns out that these drawbacks are inescapable in mechanism design.

Efficiency vs. Budgeting

You might remember that in the VCG auction example, players needed to make payments to one another to compensate for the losses that each player might cause the others when entering into the game. In auctions, the money to pay for the items, as well as the “transfer” payments, comes from the players themselves. But in some VCG situations the money ends ...

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