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Technical Note—Dynamic Mechanism Design with Capacity Constraint

Author

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  • Wei He

    (Department of Economics, The Chinese University of Hong Kong, Shatin, New Territories, Hong Kong)

Abstract

We study a project assignment problem, where a principal needs to assign multiple projects to an agent. The agent is privately informed about the cost, which could be high or low. The agent’s type evolves stochastically over time. We fully characterize the optimal mechanism via a sequence of deadlines and show that the presence of the capacity constraint reduces the principal’s payoff and delays the assignment of projects. In particular, as the number of projects increases, the limit optimal contract may be strictly bounded away from the optimal contract when there are infinitely many projects, and the principal’s payoff may be strictly below that in the setting without the capacity constraint.

Suggested Citation

  • Wei He, 2023. "Technical Note—Dynamic Mechanism Design with Capacity Constraint," Operations Research, INFORMS, vol. 71(5), pages 1610-1618, September.
    • Handle: RePEc:inm:oropre:v:71:y:2023:i:5:p:1610-1618
    DOI: 10.1287/opre.2023.2449
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