Mechanism design with budget constraints and a population of agents

Michael Richter

Games and Economic Behavior, 2019, vol. 115, issue C, 30-47

Abstract: This paper finds welfare- and revenue-maximizing mechanisms for assigning a divisible good to a population of budget-constrained agents who have independently distributed private valuations and budgets without unit-demand. Both optimal mechanisms feature a linear price for the good. The welfare-maximizing mechanism additionally has a uniform lump-sum transfer to all agents and a higher linear price than the revenue-maximizing mechanism. This transfer increases welfare because it ameliorates the key difficulty in the aforementioned setting: agents with high valuations cannot purchase an efficient amount of the good due to their budget constraints. Finally, in an extension, I relax the independence between valuations and budgets. In an online appendix, I consider production and large finite markets.

Keywords: Mechanism design; Welfare maximization; Revenue maximization; Budget constraints; Continuum economy (search for similar items in EconPapers)
JEL-codes: D44 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:115:y:2019:i:c:p:30-47

DOI: 10.1016/j.geb.2019.02.009

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