Mechanism design with financially constrained agents and costly verification

Yunan Li ()
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Yunan Li: Department of Economics and Finance, City University of Hong Kong

Theoretical Economics, 2021, vol. 16, issue 3

Abstract: A principal distributes an indivisible good to budget-constrained agents when both valuation and budget are agents' private information. The principal can verify an agent's budget at a cost. The welfare-maximizing mechanism can be implemented via a two-stage scheme. First, agents report their budgets, receive cash transfers, and decide whether to enter a lottery over the good. Second, recipients of the good can sell it on a resale market but must pay a sales tax. Low-budget agents receive a higher cash transfer, pay a lower price to enter the lottery, and face a higher sales tax. They are also randomly inspected.

Keywords: Mechanism design; budget constraints; efficiency; costly verification (search for similar items in EconPapers)
JEL-codes: D45 D61 D82 H42 (search for similar items in EconPapers)
Date: 2021-07-22
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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