The Best of Both Worlds: Asymptotically Efficient Mechanisms with a Guarantee on the Expected Gains-From-Trade


The seminal impossibility result of Myerson and Satterthwaite [1983] states that for bilateral trade, there is no mechanism that is individually rational (IR), incentive compatible (IC), weakly budget balanced, and efficient. This has led follow-up work on two-sided trade settings to weaken the efficiency requirement and consider approximately efficient simple mechanisms, while still demanding the other properties. The current state-of-the-art of such mechanisms for two-sided markets can be categorized as giving one (but not both) of the following two types of approximation guarantees on the gains from trade : a constant ex-ante guarantee, measured with respect to the second-best efficiency benchmark, or an asymptotically optimal ex-post guarantee, measured with respect to the first-best efficiency benchmark. Here the second-best efficiency benchmark refers to the highest gains from trade attainable by any IR, IC and weakly budget balanced mechanism, while the first-best efficiency benchmark refers to the maximum gains from trade (attainable by the VCG mechanism, which is not weakly budget balanced). In this paper, we construct simple mechanisms for double-auction and matching markets that simultaneously achieve both types of guarantees: these are ex-post IR, Bayesian IC, and ex-post weakly budget balanced mechanisms that 1) ex-ante guarantee a constant fraction of the gains from trade of the second-best, and 2) ex-post guarantee a realization-dependent fraction of the gains from trade of the first-best, such that this realization-dependent fraction converges to 1 (full efficiency) as the market grows large. We believe that mechanisms that not only provide a worst-case guarantee, but also provide a guarantee of performing very well on "easy instances" are appealing and more likely to be used. In our setting, we implement this agenda by postulating that "nice instances" are large-market instances, and we are able to achieve the best of both worlds: a guaranteed constant approximation on one hand, and asymptotic optimality when the markets are large on the other hand. We believe that presenting similar results in other settings is an interesting research direction.

Proceedings of the 2018 ACM Conference on Economics and Computation (EC)
Yang Cai
Yang Cai
Associate Professor