Ex-post optimal knapsack procurement

Jarman, Felix ; Meisner, Vincent

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URL: https://ub-madoc.bib.uni-mannheim.de/38873
URN: urn:nbn:de:bsz:180-madoc-388733
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 May 2015
Publication language: English
Institution: School of Law and Economics > VWL, Wirtschaftspolitik (Grüner 1999-)
MADOC publication series: Department of Economics > Working Paper Series
Subject: 330 Economics
Classification: JEL: D02 , D44 , D45 , D82 , H57,
Keywords (English): Mechanism Design , Knapsack , Budget , Procurement , Auction , Deferred Acceptance Auctions
Abstract: We consider a budget-constrained mechanism designer who selects an optimal set of projects to maximize her utility. A project's cost is private information and its value for the designer may vary. In this allocation problem, the selection of projects - both which and how many - is endogenously determined by the mechanism. The designer faces ex-post constraints: The participation and budget constraints must hold for each possible outcome while the mechanism must be implementable in dominant strategies. We derive the class of optimal mechanisms and show that it has a deferred acceptance auction representation. This feature guarantees an implementation with a descending clock auction. Only in the case of symmetric projects do price clocks descend synchronously such that the cheapest projects are executed. The case in which 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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