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Binomial menu auctions in government formation

Breitmoser, Yves (2011): Binomial menu auctions in government formation.

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Abstract

In a menu auction, players submit bids for all choices the auctioneer A can make, and A then makes the choice that maximizes the sum of bids. In a binomial menu auction (BMA), players submit acceptance sets (indicating which choices they would support), and A chooses the option that maximizes his utility subject to acceptance of the respective players. Monetary transfers may be implicit, but players may also bid by offering "favors" and the like. BMAs provide a unified representation of both monetary and non-monetary bidding, which I apply to model government formation. First, I analyze general BMAs, characterize the solution under complete information and establish outcome uniqueness (for both, sealed bid and Dutch formats). Second, in case monetary transfers are possible, BMAs are shown to implement VCG mechanisms. Finally, in case transfers are impossible, BMAs extend the model of proto-coalition bargaining and are specifically applied to government formation.

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