How to allocate Research (and other) Subsidies

Ludwig Ensthaler and Thomas Giebe

Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science

Abstract: A budget-constrained buyer wants to purchase items from a shortlisted set. Items are differentiated by observable quality and sellers have private reserve prices for their items. The buyer’s problem is to select a subset of maximal quality. Money does not enter the buyer’s objective function, but only his constraints. Sellers quote prices strategically, inducing a knapsack game. We derive the Bayesian optimal mechanism for the buyer’s problem. We find that simultaneous takeit-or-leave-it offers are optimal. Hence, somewhat surprisingly, ex-post competition is not required to implement optimality. Finally, we discuss the problem in a detail free setting.

Keywords: Mechanism Design; Subsidies; Budget; Procurement; Knapsack Problem JEL Classification Numbers: D21; D44; D45; D82 (search for similar items in EconPapers)
Date: 2010-12-16
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Working Paper: How to allocate Research (and other) Subsidies (2011)
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