  We consider a combinatorial auction model where preferences of agents over
bundles of objects and payments need not be quasilinear. However, we restrict
the preferences of agents to be dichotomous. An agent with dichotomous
preference partitions the set of bundles of objects as acceptable} and
unacceptable, and at the same payment level, she is indifferent between bundles
in each class but strictly prefers acceptable to unacceptable bundles. We show
that there is no Pareto efficient, dominant strategy incentive compatible
(DSIC), individually rational (IR) mechanism satisfying no subsidy if the
domain of preferences includes all dichotomous preferences. However, a
generalization of the VCG mechanism is Pareto efficient, DSIC, IR and satisfies
no subsidy if the domain of preferences contains only positive income effect
dichotomous preferences. We show the tightness of this result: adding any
non-dichotomous preference (satisfying some natural properties) to the domain
of quasilinear dichotomous preferences brings back the impossibility result.
