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Title:Financing Infrastructure under Budget Constraint PDF Logo
Authors:Gautier, Axel
Mitra, Manipushpak
Issue Date:2002
Series/Report no.:Bonn econ discussion papers 2002,15
Abstract:In this paper we consider the problem of financing infrastructure when the regulator faces a budget constraint. The optimal budget-constrained mechanism satisfies four properties. The first property is bunching at the top, that is the more efficient firms produce the same quantity. The second property is self-selection for the less efficient firms. The third property is that the mechanism is a third best one. In other words, as long as the budget-constraint is binding, the optimal output is strictly lower than the second best output for any given type. Finally, if the budget constraint is too strong, then we have a full bunching solution.
Asymmetric Information
Budget Constraint
Document Type:Working Paper
Appears in Collections:Bonn Econ Discussion Papers, Bonn Graduate School of Economics (BGSE), Universität Bonn

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