Auction Design with Fairness Concerns: Subsidies vs. Set-Asides

Mallesh Pai and Rakesh Vohra

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

Abstract: Government procurement and allocation programs often use subsidies and set-asides favoring small businesses and other target groups to address fairness concerns. These concerns are in addition to standard objectives such as efficiency and revenue. We study the design of the optimal mechanism for a seller concerned with efficiency, subject to a constraint to favor a target group. In our model, buyers' private values are determined by costly pre-auction investment. If the constraint is distributional, i.e. to guarantee that the target group wins `sufficiently often', then the constrained efficient mechanism is a flat subsidy. This is consistent with findings in the empirical literature. In contrast, if the constraint is to ensure a certain investment level by the target group, the optimal mechanism is a type dependent subsidy. In this case a set aside may be better than a flat or percentage subsidy.

Date: 2012-04-08
New Economics Papers: this item is included in nep-gth
References: Add references at CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.kellogg.northwestern.edu/research/math/papers/1548.pdf main text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nwu:cmsems:1548

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014. Contact information at EDIRC.
Bibliographic data for series maintained by Fran Walker ( this e-mail address is bad, please contact ).