Beiträge zur Jahrestagung des Vereins für Socialpolitik 2015: Ökonomische Entwicklung - Theorie und Politik - Session: Procurement F14-V3
We consider a budget-constrained mechanism designer who wants to select an optimal subset of projects to maximize her utility. Project costs are private information and the value the designer derives from their provision may vary. In this allocation problem the choice of projects - both which and how many - is endogenously determined by the mechanism. The designer faces hard ex-post constraints: The participation and budget constraint must hold for each possible outcome while the mechanism must be implementable in dominant strategies. We derive the class of optimal mechanisms and show that it allows an implementation through a descending clock auction. Only in the case of symmetric projects, price clocks do descend synchronously such that always the cheapest projects are executed. The asymmetric case, where values or costs are asymmetrically distributed, features a novel tradeoff between quantity and quality. Interestingly, this tradeoff mitigates the distortion due to the informational asymmetry compared to environments where quantity is exogenous.