recap-ho_002

# recap-ho_002 - VCG mechanism Final Exam Econ 100B recap...

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Unformatted text preview: VCG mechanism Final Exam Econ 100B recap Exchange Course Recap VCG mechanism Final Exam Econ 100B recap Exchange Today • Practice with VCG mechanism • A few final (exam) words • Course recap • Some practice exchange problems VCG mechanism Final Exam Econ 100B recap Exchange Applying the VCG mechanism To close the budget gap, UCSB proposes to tear down Manzanita Village and sell it to Katy Perry for \$10 million. Katy would actually be willing to pay \$14 million for the land so she could build her Candyland Mansion. The 500 students living in these dorms would be willing to pay \$10000 each to keep their ocean view (everyone else is indifferent). If the administration uses a VCG mechanism to decide, will the plan be approved and who will pay what taxes? • Katy’s net valuation: \$4 million • Total student valuation: 500(- 10000) = -\$5 million • Overall valuation = -\$1 million ⇒ reject plan • Who is pivotal? Not Katy. Students? •-\$1 million net value ⇒ no individual student is responsible for pushing the net value into negative territory. No one is pivotal, no one pays any taxes! VCG mechanism Final Exam Econ 100B recap Exchange Now you try it! Now suppose that Katy’s willingness-to-pay is instead \$14,995,000. If the administration uses a VCG mechanism to decide, will the plan be approved and who will pay what taxes? Clicker vote : A) Plan is now approved, no taxes B) Plan rejected, each student pays tax of \$5000 C) Plan approved, Katy pays tax of \$5000 D) Plan rejected, one student pays tax of \$5000 VCG mechanism Final Exam Econ 100B recap Exchange Now you try it! Now suppose that Katy’s willingness-to-pay is instead \$14,995,000. If the administration uses a VCG mechanism to decide, will the plan be approved and who will pay what taxes? Clicker vote : A) Plan is now approved, no taxes B) Plan rejected, each student pays tax of \$5000 C) Plan approved, Katy pays tax of \$5000 D) Plan rejected, one student pays tax of \$5000 All students identical ⇒ same tax, must internalize the \$5000 externality for each VCG mechanism Final Exam Econ 100B recap...
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## This note was uploaded on 12/26/2011 for the course ECON 100B taught by Professor Kilenthong during the Fall '08 term at UCSB.

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recap-ho_002 - VCG mechanism Final Exam Econ 100B recap...

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