BAYESIAN AND WEAKLY ROBUST FIRST BEST MECHANISMS - CHARACTERIZATIONS

We investigate the possibility of designing efficient mechanisms that are consistent with voluntary participation. We present two main results. First, we characterize the class of Bayesian mechanisms that are ex post efficient, interim individually rational, and ex post budget balancing. Second, we characterize the class of dominant strategy mechanisms that are ex post efficient and ex post individually rational, but only ex ante budget balancing. Both our characterizations have simple and intuitive interpretations. The designer can implement a first best outcome if and only if the sum of the non-distortionary charges she can impose on agents covers the deficit created by giving each agent the total gains from trade. (C) 1994 Academic Press, Inc.