Selling to a principal and a budget-constrained agent

Debasis Mishra () and Kolagani Paramahamsa ()
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Debasis Mishra: Indian Statistical Institute, Delhi
Kolagani Paramahamsa: Indian Statistical Institute, Delhi

Discussion Papers from 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.

Keywords: budget constraint; posted price; multidimensional mechanisms; behavioral mechanism design (search for similar items in EconPapers)
JEL-codes: D82 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2022-07
New Economics Papers: this item is included in nep-cta, nep-des and nep-mic
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