Understanding Mechanism Design - Part 2 of 3: The Vickrey-Clarke-Groves Mechanism

Researchers are conducting studies to understand the Vickrey-Clarke-Groves Mechanism. For this purpose, an ingenious class of mechanisms exists, known as the Vickrey– Clarke–Groves (VCG) mechanisms, after the three economists that contributed to them, including William Vickrey, Edward H. Clarke, and Theodore Groves. VCG mechanisms constitute a family of related formal approaches that enable researchers to select an outcome out of a set of possible candidate outcomes, implement the utilitarian social welfare function, and incentivize agents to tell the truth about their utilities. The e crux of the mechanism is that a player is taxed according to the loss of utility that their presence causes to others. This simple idea turns out to be remarkably powerful, for it causes the individual to declare its own utility truthfully, which is also what we want for the group’s maximization of true social welfare.