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Mechanism design with budget constraints and a population of agents

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  • Richter, Michael

Abstract

This paper finds welfare- and revenue-maximizing mechanisms for assigning a divisible good to a population of budget-constrained agents who have independently distributed private valuations and budgets without unit-demand. Both optimal mechanisms feature a linear price for the good. The welfare-maximizing mechanism additionally has a uniform lump-sum transfer to all agents and a higher linear price than the revenue-maximizing mechanism. This transfer increases welfare because it ameliorates the key difficulty in the aforementioned setting: agents with high valuations cannot purchase an efficient amount of the good due to their budget constraints. Finally, in an extension, I relax the independence between valuations and budgets. In an online appendix, I consider production and large finite markets.

Suggested Citation

  • Richter, Michael, 2019. "Mechanism design with budget constraints and a population of agents," Games and Economic Behavior, Elsevier, vol. 115(C), pages 30-47.
    • Handle: RePEc:eee:gamebe:v:115:y:2019:i:c:p:30-47
    DOI: 10.1016/j.geb.2019.02.009
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    Cited by:

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    5. Holzer, Jorge & McConnell, Kenneth, 2023. "Extraction rights allocation with liquidity constraints," Resource and Energy Economics, Elsevier, vol. 71(C).
    6. Carbajal, Juan Carlos & Mu'alem, Ahuva, 2020. "Selling mechanisms for a financially constrained buyer," Games and Economic Behavior, Elsevier, vol. 124(C), pages 386-405.
    7. Ghosh, Gagan, 2021. "Simultaneous auctions with budgets: Equilibrium existence and characterization," Games and Economic Behavior, Elsevier, vol. 126(C), pages 75-93.

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    More about this item

    Keywords

    Mechanism design; Welfare maximization; Revenue maximization; Budget constraints; Continuum economy;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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