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A near Pareto optimal auction with budget constraints

Isa Hafalir, R. Ravi and Amin Sayedi

Games and Economic Behavior, 2012, vol. 74, issue 2, 699-708

Abstract: In a setup where a divisible good is to be allocated to a set of bidders with budget constraints, we introduce a mechanism in the spirit of the Vickrey auction. In the mechanism we propose, understating budgets or values is weakly dominated. Since the revenue is increasing in budgets and values, all kinds of equilibrium deviations from true valuations turn out to be beneficial to the auctioneer. We also show that ex-post Nash equilibrium of our mechanism is near Pareto optimal in the sense that all full winnersʼ values are above all full losersʼ values.

Keywords: Vickrey auctions; Budget constraints (search for similar items in EconPapers)
JEL-codes: D44 (search for similar items in EconPapers)
Date: 2012
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