Optimally Constraining a Bidder Using a Simple Budget
نویسنده
چکیده
I study a principal’s optimal choice of constraint for an agent participating in an auction (or auction-like allocation mechanism). I give necessary and sufficient conditions on the principal’s beliefs about the value of the item for a simple budget constraint to be the optimal contract. The results link the observed use of budget constraints to their use in models incorporating budgetconstrained bidders. Other implications of the model are that a general revenue equivalence result applies and that the optimal auction with budget-constrained bidders has a standard solution analogous to the one for classic models.
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