Informational Size and Efficient Auctions

We develop an auction model for the case of interdependent values and multidimensional signals in which agents' signals are correlated. We provide conditions under which a modification of the Vickrey auction which includes payments to the bidders will result in an "ex post" efficient outcome. Furthermore, we provide a definition of informational size such that the necessary payments to bidders will be arbitrarily small if agents are sufficiently informationally small. Copyright 2004 The Review of Economic Studies Ltd.