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Selling to a principal and a budget-constrained agent

Author

Listed:
  • Debasis Mishra

    (Indian Statistical Institute, Delhi)

  • Kolagani Paramahamsa

    (Indian Statistical Institute, Delhi)

Abstract

We analyze a model of selling a single object to a principal-agent pair who want to acquire the object for a firm. The principal and the agent have different assessments of the object's value to the firm. The agent is budget-constrained while the principal is not. The agent participates in the mechanism, but she can (strategically) approach the principal for decision-making. We derive the revenue-maximizing mechanism in a two-dimensional type space (values of the agent and the principal). We show that below a threshold budget, a mechanism involving two posted prices and three outcomes (one of which involves randomization) is the optimal mechanism for the seller. Otherwise, a single posted price mechanism is optimal.

Suggested Citation

  • Debasis Mishra & Kolagani Paramahamsa, 2022. "Selling to a principal and a budget-constrained agent," Discussion Papers 22-02, Indian Statistical Institute, Delhi.
    • Handle: RePEc:alo:isipdp:22-02
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    References listed on IDEAS

    as
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    3. Bikhchandani, Sushil & Mishra, Debasis, 2022. "Selling two identical objects," Journal of Economic Theory, Elsevier, vol. 200(C).
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    More about this item

    Keywords

    budget constraint; posted price; multidimensional mechanisms; behavioral mechanism design;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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