  While the classic Vickrey-Clarke-Groves mechanism ensures incentive
compatibility for a static one-shot game, it does not appear to be feasible to
construct a dominant truth-telling mechanism for agents that are stochastic
dynamic systems. The contribution of this paper is to show that for a set of
LQG agents a mechanism consisting of a sequence of layered payments over time
decouples the intertemporal effect of current bids on future payoffs and
ensures truth-telling of dynamic states by their agents, if system parameters
are known and agents are rational. Additionally, it is shown that there is a
"Scaled" VCG mechanism that simultaneously satisfies incentive compatibility,
social efficiency, budget balance as well as individual rationality under a
certain "market power balance" condition where no agent is too negligible or
too dominant. A further desirable property is that the SVCG payments converge
to the Lagrange payments, the payments corresponding to the true price in the
absence of strategic considerations, as the number of agents in the market
increases. For LQ but non-Gaussian agents the optimal social welfare over the
class of linear control laws is achieved.
