Optimal and Efficient Mechanisms with Budget Constrained Buyers
59 Pages Posted: 27 Dec 2017
Date Written: October 15, 2017
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: Suggested Citation