How to allocate Research (and other) Subsidies

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

Abstract: A budget-constrained buyer wants to purchase items from a short-listed 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 ?nd that simultaneous take-it-or-leave-it offers are optimal. Hence, somewhat surprisingly, ex-postcompetition is not required to implement optimality. Finally, we discuss the problem in a detail free setting.

Keywords: Mechanism Design; Subsidies; Budget; Procurement; Knapsack Problem (search for similar items in EconPapers)
JEL-codes: D21 D44 D45 D82 (search for similar items in EconPapers)
Date: 2011-03
New Economics Papers: this item is included in nep-cta
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Working Paper: How to allocate Research (and other) Subsidies (2010)
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