Strategy-Proof Allocation Mechanisms

An allocation mechanism is a function mapping agents’ preferences into final allocations. For example, the competitive allocation mechanism calculates market-clearing prices to select a feasible, Pareto optimal, final allocation that varies with agents’ preferences. This simple view, however, of the mechanism as a map from preferences to final allocations is inadequate because it ignores agents’ propensity to maximize. The problem is that each agent can misrepresent his preferences in reporting them to the mechanism because they are private to him and not verifiable. Therefore, he will tend to misrepresent whenever he realizes that misreporting his true preferences will result in a more preferable allocation than a truthful report. If, as is the case with the competitive mechanism, agents do have incentives to misrepresent their preferences, then the resulting allocation is optimal only with respect to their reported preferences, not to their true preferences.