Optimal and Efficient Mechanisms with Budget Constrained Buyers

59 Pages Posted: 27 Dec 2017

See all articles by Alex Boulatov

Alex Boulatov

HSE Moscow; University of Houston - C.T. Bauer College of Business

Sergei Severinov

University of British Columbia; National Research University Higher School of Economics

Date Written: October 15, 2017

Abstract

The paper characterizes both the optimal (revenue-maximizing) and constrained-efficient (surplus maximizing) mechanisms for allocating a good to buyers who face budget constraints. With unequal budgets, this problem is that of asymmetric optimal mechanism design. Both the optimal and efficient mechanisms belong to one of two classes. When the budget differences are small, the mechanism discriminates only between high-valuation types for whom the budget constraint is binding.

All low valuations buyers are treated symmetrically despite budget differences. When budget differences are sufficiently large, the mechanism discriminates in favor of buyers with small budgets when the valuations are low, and in favor of buyers with larger budgets when the valuations are high.

Keywords: mechanism design, optimal mechanism, efficient mechanism, budget constraints, auctions, private values

JEL Classification: C72, D44, D82

Suggested Citation

Boulatov, Alex and Severinov, Sergei, Optimal and Efficient Mechanisms with Budget Constrained Buyers (October 15, 2017). Available at SSRN: https://ssrn.com/abstract=3093325 or http://dx.doi.org/10.2139/ssrn.3093325

Alex Boulatov

HSE Moscow ( email )

26 Shabolovka
Moscow
Russia

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States
713-743-4618 (Phone)

Sergei Severinov (Contact Author)

University of British Columbia ( email )

2329 West Mall
Vancouver, British Columbia BC V6T 1Z4
Canada

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

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