Spring 2011 Seminar Series

DATE: Febrary 17th
LOCATION: E62-550
TIME: 4:15pm
Reception immediately following in the same room

SPEAKER:
Rakesh Vohra

TITLE
Optimal Auctions with Budget Constraints

ABSTRACT
We consider an environment where potential buyers of an indivisible good have liquidity constraints, in that they cannot pay more than their `budget' regardless of their valuation. A buyer's valuation for the good as well as her budget are her private information. We derive constrained-efficient and revenue maximizing auctions for this setting. In general, the optimal auction requires Œpooling¹ both at the top and in the middle despite the maintained assumption of a monotone hazard rate. Further, the auctioneer will never find it desirable to offer lump sum subsidies to bidders with low budgets.On a technical note, our analysis is based on the `reduced form¹ representation of auctions, which enables one to exploit a polymatroid representation of auctions. This polymatroid representation is useful in other applications, time permitting, that will be outlined.

 

This is joint work with Mallesh Pai.