How to allocate research (and other) subsidies

Ludwig Ensthaler; Thomas Giebe

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 find 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.

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Year of publication:	2011
Authors:	Ensthaler, Ludwig ; Giebe, Thomas
Publisher:	Mannheim [u.a.] : Sonderforschungsbereich/Transregio 15
Subject:	Mechanism Design \| Subsidies \| Budget \| Procurement \| Knapsack Problem \| Forschungsfinanzierung \| Research funding \| Beschaffung \| Mechanismus-Design-Theorie \| Mechanism design \| Liquiditätsbeschränkung \| Liquidity constraint \| Dienstleistungsqualität \| Service quality \| Produktdifferenzierung \| Product differentiation \| Ganzzahlige Optimierung \| Integer programming \| Spieltheorie \| Game theory \| Theorie \| Theory