Why running an auction will solve the problem

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Reference no: EM132198064

Question: Suppose that the schedule coordinator a College hires you as a consultant. The problem consists in allocating two classrooms to two academic departments, Economics and Mathematics. One classroom (call it A) has a blackboard, and the other (call it B) a projector. Each department needs one and only one classroom, and each prefers a classroom with blackboards to a classroom with a projector.

(a) Henceforth, suppose that the college cares about efficiency. What does efficiency mean here?

(b) Suppose you and the coordinator can observe the departments' valuations for each classroom. Explain the coordinator, in plain simple english, how to allocate the classrooms.

(c) Henceforth, assume that valuations for the classrooms are independent and private to each academic department. Explain the coordinator, in plain simple english, why running an auction will solve her problem.

(d) Suppose that the academic departments cannot use money to compete for each classroom. Propose an alternative instrument that could replace the use of money (be creative!).

(e) Given your answer in (d), propose an auction. In particular, specify a bidding format, bidding process, and allocation rules.

(f) In this context, explain the coordinator, in plain english, what a dominant strategy is and what truthful bidding means.

(g) Suppose the coordinator asks you whether your proposed auction would elicit the departments' valuations for the classrooms. In other words, would truthful bidding be a dominant strategy? If so, explain the coordinator, in plain english, why this is so. If not, give an example to the coordinator why truthful bidding cannot be dominant.

(h) (Extra credit) Suppose the coordinator is not too convinced with your simple answer in (g). Using simple math, show the coordinator why she should believe you.

(i) Finally, given your proposed auction, what would be the final allocation of classrooms?

Reference no: EM132198064

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