Simulating the effectiveness of an alternative salary auction mechanism

Abstract

This research simulates the effectiveness of an alternative auction mechanism for Assignment Incentive Pay (AIP) that has the potential for reducing the U.S. Department of Defense's (DoD's) cost. A recent student thesis studying the application of salary auctions and matching an an assignment setting determined that there arer two major complications in an assignment auction which affect the incentive of bidders to submit a truthful valuation of the jobs. An alternative auction mechanism that combined elements of both auction theory and matching was proposed to overcome these complications. This study further defines this alternative auction mechanism and presents a simulation setup for testing the effectiveness of the mechanism. Simulation is carried out and the mechanism evaluated based on defined operational performance and efficiency measures. The objective of this thesis is to evaluate the benefits of the alternate auction mechanism to DoD.