An experiment on auctions with endogenous budget constraints

Lawrence M. Ausubel (), Justin Burkett and Emel Filiz-Ozbay
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Lawrence M. Ausubel: University of Maryland

Experimental Economics, 2017, vol. 20, issue 4, No 11, 973-1006

Abstract: Abstract We perform laboratory experiments comparing auctions with endogenous budget constraints. A principal imposes a budget limit on a bidder (an agent) in response to a principal-agent problem. In contrast to the existing literature where budget constraints are exogenous, this theory predicts that tighter constraints will be imposed in first-price auctions than in second-price auctions, tending to offset any advantages attributable to the lower bidding strategy of the first-price auction. Our experimental findings support this theory: principals are found to set significantly lower budgets in first-price auctions. The result holds robustly, whether the principal chooses a budget for human bidders or computerized bidders. We further show that the empirical revenue difference between first- and second-price formats persists with and without budget constraints.

Keywords: Auctions; Endogenous budget constraint; Principal-agent problem (search for similar items in EconPapers)
JEL-codes: C91 D44 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (7)

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DOI: 10.1007/s10683-017-9520-9

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