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Subsidies, Knapsack Auctions and Dantzig's Greedy Heuristic

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Author Info
Ludwig Ensthaler
Thomas Giebe

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Abstract

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.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.97540.de/dp880.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 880.

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Length: 8 p.
Date of creation: 2009
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Handle: RePEc:diw:diwwpp:dp880

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Related research
Keywords: Auctions; Subsidies; Market Design; Knapsack Problem;

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Find related papers by JEL classification:
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
D45 - Microeconomics - - Market Structure and Pricing - - - Rationing; Licensing

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References listed on IDEAS
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  1. Thomas Giebe & Tim Grebe & Elmar Wolfstetter, 2005. "How to Allocate R&D (and Other) Subsidies: An Experimentally Tested Policy Recommendation," Discussion Papers 108, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
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  2. Siegel, Donald S, et al, 2003. " Policies Promoting Innovation in Small Firms: Evidence from the U.S. and U.K," Small Business Economics, Springer, vol. 20(2), pages 121-27, March. [Downloadable!] (restricted)
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This page was last updated on 2009-11-26.

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