Ex-post optimal knapsack procurement

Jarman, Felix ; Meisner, Vincent

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URL: https://ub-madoc.bib.uni-mannheim.de/37417
URN: urn:nbn:de:bsz:180-madoc-374173
Document Type: Working paper
Year of publication: 2015
The title of a journal, publication series: Working Paper Series
Volume: 15-02
Place of publication: Mannheim
Edition: Version Januar 2015
Publication language: English
Institution: Außerfakultäre Einrichtungen > Graduate School of Economic and Social Sciences - CDSE (Economics)
School of Law and Economics > VWL, Wirtschaftspolitik (Grüner)
MADOC publication series: Department of Economics > Working Paper Series
Subject: 330 Economics
Classification: JEL: D02 , D44 , D45 , D87 , H57,
Keywords (English): Mechanism Design , Knapsack , Budget, Procurement , Auction
Abstract: We consider a budget-constrained mechanism designer who wants to select an optimal subset of projects to maximize her utility. Project costs are private information and the value the designer derives from their provision may vary. In this allocation problem the choice of projects - both which and how many - is endogenously determined by the mechanism. The designer faces hard ex-post constraints: The participation and budget constraint must hold for each possible outcome while the mechanism must be implementable in dominant strategies. We derive the class of optimal mechanisms that are characterized by cutoff functions. These cutoff functions exhibit properties that allow an implementation through a descending clock auction. Only in the case of symmetric projects price clocks descend synchronously such that always the cheapest projects are executed. However, the asymmetric case, where values or costs are asymmetrically distributed, features a novel tradeoff between quantity and quality. Interestingly, this tradeoff mitigates the distortion due to the informational asymmetry compared to environments where quantity is exogenous.

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