Subsidies, Knapsack Auctions and Dantzig’s Greedy Heuristic

A budget-constrained buyer wants to purchase items from a shortlisted set. Items are differentiated by quality and sellers have private reserve prices for their items. Sellers quote prices strategically, inducing a knapsack game. The buyer’s problem is to select a subset of maximal quality. We propose a buying mechanism which can be viewed as a game theoretic extension of Dantzig’s greedy heuristic for the classic knapsack problem. We use Monte Carlo simulations to analyse the performance of our mechanism. Finally, we discuss how the mechanism can be applied to award R&D subsidies

Subsidies, Knapsack Auctions and Dantzig's Greedy Heuristic

A budget-constrained buyer wants to purchase items from a shortlisted set. Items are differentiated by quality and sellers have private reserve prices for their items. Sellers quote prices strategically, inducing a knapsack game. The buyer's problem is to select a subset of maximal quality. We propose a buying mechanism which can be viewed as a game theoretic extension of Dantzig's greedy heuristic for the classic knapsack problem. We use Monte Carlo simulations to analyse the performance of our mechanism. Finally, we discuss how the mechanism can be applied to award R&D subsidies.Auctions, Subsidies, Market Design, Knapsack Problem

A dynamic auction for multi-object procurement under a hard budget constraint

We present a new dynamic auction for procurement problems where payments are bounded by a hard budget constraint and money does not enter the procurer's objective function

How to allocate Research (and other) Subsidies

A budget-constrained buyer wants to purchase items from a short-listed set. Items are differentiated by observable quality and sellers have private reserve prices for their items. The buyer’s problem is to select a subset of maximal quality. Money does not enter the buyer’s objective function, but only his constraints. Sellers quote prices strategically, inducing a knapsack game. We derive the Bayesian optimal mechanism for the buyer’s problem. We ?nd that simultaneous take-it-or-leave-it offers are optimal. Hence, somewhat surprisingly, ex-postcompetition is not required to implement optimality. Finally, we discuss the problem in a detail free setting

How to allocate Research (and other) Subsidies

A budget-constrained buyer wants to purchase items from a shortlisted set. Items are differentiated by observable quality and sellers have private reserve prices for their items. The buyer’s problem is to select a subset of maximal quality. Money does not enter the buyer’s objective function, but only his constraints. Sellers quote prices strategically, inducing a knapsack game. We derive the Bayesian optimal mechanism for the buyer’s problem. We find that simultaneous takeit-or-leave-it offers are optimal. Hence, somewhat surprisingly, ex-post competition is not required to implement optimality. Finally, we discuss the problem in a detail free setting.Mechanism Design, Subsidies, Budget, Procurement, Knapsack Problem JEL Classification Numbers: D21, D44, D45, D82

How to allocate Research (and other) Subsidies

A budget-constrained buyer wants to purchase items from a short-listed set. Items are differentiated by observable quality and sellers have private reserve prices for their items. The buyer’s problem is to select a subset of maximal quality. Money does not enter the buyer’s objective function, but only his constraints. Sellers quote prices strategically, inducing a knapsack game. We derive the Bayesian optimal mechanism for the buyer’s problem. We ?nd that simultaneous take-it-or-leave-it offers are optimal. Hence, somewhat surprisingly, ex-postcompetition is not required to implement optimality. Finally, we discuss the problem in a detail free setting.Mechanism Design; Subsidies; Budget; Procurement; Knapsack Problem

Hidden Skewness

We provide laboratory evidence that people neglect skewness resulting from compound shocks.skewness, belief biases, binomial tree

Hidden Skewness

We provide laboratory evidence that people neglect skewness resulting from compound shocks.Skewnes, belief biases, binomial tree

Innovation Contests with Entry Auction

We consider procurement of an innovation from heterogeneous sellers. Innovations are random but depend on unobservable effort and private information. We compare two procurement mechanisms where potential sellers first bid in an auction for admission to an innovation contest. After the contest, an innovation is procured employing either a fixed prize or a first-price auction. We characterize Bayesian Nash equilibria such that both mechanisms are payoff-equivalent and induce the same efforts and innovations. In these equilibria, signaling in the entry auction does not occur since contestants play a simple strategy that does not depend on rivals' private information