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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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    4. Jianxin Rong & Ning Sun & Dazhong Wang, 2019. "A New Evaluation Criterion for Allocation Mechanisms with Application to Vehicle License Allocations in China," The Journal of Mechanism and Institution Design, Society for the Promotion of Mechanism and Institution Design, University of York, vol. 4(1), pages 39-86, November.
    5. 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.
    6. Naoki Kojima, 2014. "Mechanism design to the budget constrained buyer: a canonical mechanism approach," International Journal of Game Theory, Springer;Game Theory Society, vol. 43(3), pages 693-719, August.
    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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