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Subsidies, Knapsack Auctions and Dantzig's Greedy Heuristic

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Author Info

  • Ludwig Ensthaler
  • Thomas Giebe

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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Bibliographic Info

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
Date of revision:
Handle: RePEc:diw:diwwpp:dp880

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Related research

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

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