Subsidies, Knapsack Auctions and Dantzigâ€™s Greedy Heuristic
Ludwig Ensthaler and
Thomas Giebe ()
Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich
A budget-constrained buyer wants to purchase items from a shortlisted set. Items are differentiated by quality and sellers have private reserve prices for their items. Sellers quote prices strategically, inducing a knapsack game. The buyerâ€™s problem is to select a subset of maximal quality. We propose a buying mechanism which can be viewed as a game theoretic extension of Dantzigâ€™s greedy heuristic for the classic knapsack problem. We use Monte Carlo simulations to analyse the performance of our mechanism. Finally, we discuss how the mechanism can be applied to award R&D subsidies.
Keywords: Auctions; Subsidies; Market Design; Knapsack Problem (search for similar items in EconPapers)
JEL-codes: D21 D43 D44 D45 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:trf:wpaper:254
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