Work

AGV mechanism balances the budget with minimum total transfer variance

Year: 2025

Type: article

Abstract: Two mechanisms are equivalent if they share the same allocation rules and interim transfer rules, carrying incentive properties from one mechanism to the other. I prove the generalized d’Aspremont-Gérard-Varet (AGV) mechanism achieves minimal liquidity risk. It uniquely minimizes total transfer variance among all ex post budget-balanced mechanisms equivalent to an initial mechanism that balances the budget in expectation. Motivated by the contrast between ex ante and ex post fairness, I characterize the optimal mechanism minimizing payoff volatility. Finally, I show that in single-item auctions, a first-price auction with the optimal reserve price jointly maximizes expected revenue and minimizes revenue variance.

Source: Journal of Mathematical Economics

DOI: 10.1016/j.jmateco.2025.103208

Author: Toan Le

Institution: University of Oxford

Language: English

Topic: Auction Theory and Applications

Subfield: Management Science and Operations Research

Field: Decision Sciences

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $2,840

Funder: Faculty of Business and Economics, University of Melbourne