Allocating Common-Value Goods

Abstract

We study a simple problem of allocating common-value goods. The designer seeks to allocate the goods to as many unit-demand agents as possible without monetary transfers, while agents, who possess partial private information about the goods, are willing to receive them only when the goods are of high value. Mechanisms screen each agent's private information using the information of other agents, and in doing so shape what agents learn from other agents about the value of the goods. The optimal mechanism can be summarized by two parameters: one adjusts the allocation probability, while the other governs the amount of learning induced by allocation. Although the designer prefers to allocate the goods, the optimal mechanism excludes some agents and, as a result, may withhold allocation even when all agents would be willing to receive them. The optimal mechanism has the same structure even when payments are available, but it may not exclude any agent and may involve strictly positive payments that are decreasing in allocation.