Mechanism Design Based on the Change of Environment Parameter Spaces: Application to State-Owned Land Auction in China

Abstract

This paper discusses implementation conditions based on the Bayesian equilibrium, in which different parameter spaces are affected by controlled variables chosen by mechanism designers and a theoretical foundation to discuss the change in design for parameter spaces under the bi-variable scenario is provided. Then we provide sufficient and necessary conditions of mechanism duality when the goal function remains unchanged which is applied in state-owned land auction mechanisms in China. The results show that when players strategically choose their action, the mechanisms of limited housing price auction and of limited land price auction are dual equivalent while the government’s revenue is maximized. The key difference between the efficiency of the market mechanism and that of the non-market mechanism lies in the tradeoff between the government’s interests and consumers’ benefits.