A Detail-Free and Efficient Auction for Budget Constrained Bidders

Consider an auction for a divisible good where bidders have private budgets. Recent work by Dobzinski, Lavi, and Nisan (2012) shows there is no individually rational dominant strategy mechanism that implements a Pareto efficient outcome and satisfies weak budget balance when bidders have private budgets. My main result shows that when bidders have full-support beliefs over their rivals’ types, a clinching auction played by proxy-bidders implements a Pareto efficient outcome. The auction is not dominant strategy implementable, but it can be solved using two rounds of iterative deletion of weakly dominated strategies. The predictions do not require that bidders share a common prior and they place no restrictions on higher-order beliefs. The results are also extended to the sale of an indivisible good. JEL Classification: C70, D44, D47, D61, D82.