Implementation in economies with non-convex production technologies unknown to the designer

Implementation of marginal cost pricing equilibrium allocations with transfers in economies with increasing returns to scale

“…Until recently, most studies have been largely devoted to pure exchange models or economies with convex production possibility sets such as those in Hurwicz (1979), Schmeidler (1980), Hurwicz, Maskin, and Postlewaite (1995), Postlewaite and Wettstein (1989), Tian (1989Tian ( , 1992Tian ( , 1996Tian ( , 1999, Hong (1995), and Peleg (1996), Suh (1995), Yoshihara, (1999), Duggan (2003), among others. Recently, Tian (2009a) considered the problem of the incentive mechanism design for economies with non-convexities in production technologies. Tian (2009a) proposed specific wellbehaved mechanisms that implement various pricing equilibrium allocations such as loss-free pricing equilibrium allocations, average cost pricing equilibrium allocations, marginal (cost) pricing equilibrium allocations, and voluntary trading pricing equilibrium allocations in Nash equilibrium for general non-convex production technologies.…”

“…Recently, Tian (2009a) considered the problem of the incentive mechanism design for economies with non-convexities in production technologies. Tian (2009a) proposed specific wellbehaved mechanisms that implement various pricing equilibrium allocations such as loss-free pricing equilibrium allocations, average cost pricing equilibrium allocations, marginal (cost) pricing equilibrium allocations, and voluntary trading pricing equilibrium allocations in Nash equilibrium for general non-convex production technologies. However, all of these equilibrium principles in general do not result in Pareto efficient allocations.…”

“…The reason we are interested in implementing the MCPT equilibrium principle is that Pareto efficient allocations can be characterized by this equilibrium principle for production economies. The other equilibrium principles, such as loss-free pricing equilibrium, average cost pricing equilibrium, marginal (cost) pricing equilibrium, and voluntary trading pricing equilibrium principles considered in Tian (2009a), generally do not result in Pareto efficient allocations when increasing returns to scale or other more general forms of non-convexities are present. Pareto efficiency is a highly desirable property in designing an incentive compatible mechanism.…”