Endogenous budget constraints in auctions

In prior literature, bidders' budget constraints have been shown to change revenue and efficiency rankings among auction formats. These results, however, are based on the implicit assumption that the nature of the budget constraint is unaffected by auction rules. I extend the standard symmetric model of auctions for a single good to include principals that optimally constrain their bidder to mitigate an agency problem between the two. I show that the outcomes of the first- and second-price auctions generally agree with those from auction models without budget constraints with the exception that the first-price auction is shown to be more efficient when signals are affiliated.