Optimally constraining a bidder using a simple budget

Justin Burkett

Theoretical Economics, 2016, vol. 11, issue 1

Abstract: I study a principal's optimal choice of constraint for an agent participating in an auction (or auction-like allocation mechanism). I give necessary and sufficient conditions on the principal's beliefs about the value of the item for a simple budget constraint to be the optimal contract. The results link the observed use of budget constraints to their use in models incorporating budget-constrained bidders. Other implications of the model are that a general revenue equivalence result applies and that the optimal auction with budget-constrained bidders has a standard solution analogous to the one for classic models.

Keywords: Budget constraints; auctions; mechanism design (search for similar items in EconPapers)
JEL-codes: D44 D47 D82 D86 (search for similar items in EconPapers)
Date: 2016-01-30
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Citations: View citations in EconPapers (10)

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