  In this paper, we take a mechanism design approach to optimal assignment
problems with asymmetrically informed buyers. In addition, the surplus
generated by an assignment of a buyer to a seller may be adversely affected by
externalities generated by other assignments. The problem is complicated by
several factors. Buyers know their own valuations and externality costs but do
not know this same information for other buyers. Buyers also receive private
signals correlated with the state and, consequently, the implementation problem
exhibits interdependent valuations. This precludes a naive application of the
VCG mechanism and to overcome this interdependency problem, we construct a
two-stage mechanism. In the first stage, we exploit correlation in the firms
signals about the state to induce truthful reporting of observed signals. Given
that buyers are honest in stage 1, we then use a VCG-like mechanism in stage 2
that induces honest reporting of valuation and externality functions.
