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The efficiency of resource allocation mechanisms for budget-constrained users

Caragiannis, Ioannis and Voudouris, Alexandros (2021) 'The efficiency of resource allocation mechanisms for budget-constrained users.' Mathematics of Operations Research, 46 (2). pp. 503-523. ISSN 0364-765X

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We study the effciency of mechanisms for allocating a divisible resource. Given scalar signals submitted by all users, such a mechanism decides the fraction of the resource that each user will receive and a payment that will be collected from her. Users are self-interested and aim to maximize their utility (defined as their value for the resource fraction they receive minus their payment). Starting with the seminal work of Johari and Tsitsiklis [Mathematics of Operations Research, 2004], a long list of papers studied the price of anarchy (in terms of the social welfare - the total users’ value) of resource allocation mechanisms for a variety of allocation and payment rules. Here, we further assume that each user has a budget constraint that invalidates strategies that yield a payment that is higher than the user’s budget. This subtle assumption, which is arguably more realistic, constitutes the traditional price of anarchy analysis meaningless as the set of equilibria may change drastically and their social welfare can be arbitrarily far from optimal. Instead, we study the price of anarchy using the liquid welfare benchmark that measures effciency taking budget constraints into account. We show a tight bound of 2 on the liquid price of anarchy of the well-known Kelly mechanism and prove that this result is essentially best possible among all multi-user resource allocation mechanisms. This comes in sharp contrast to the no-budget setting where there are mechanisms that considerably outperform Kelly in terms of social welfare and even achieve full effciency. In our proofs, we exploit the particular structure of worst-case games and equilibria, which also allows us to design (nearly) optimal two-player mechanisms by solving simple differential equations.

Item Type: Article
Uncontrolled Keywords: resource allocation; liquid welfare; price of anarchy
Divisions: Faculty of Science and Health
Faculty of Science and Health > Computer Science and Electronic Engineering, School of
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 17 Apr 2020 13:27
Last Modified: 23 Sep 2022 19:39

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