Auction Design with Fairness Concerns: Subsidies vs. Set-Asides
AbstractGovernment procurement and allocation programs often use subsidies and set-asides favoring small businesses and other target groups to address fairness concerns. These concerns are in addition to standard objectives such as efficiency and revenue. We study the design of the optimal mechanism for a seller concerned with efficiency, subject to a constraint to favor a target group. In our model, buyers' private values are determined by costly pre-auction investment. If the constraint is distributional, i.e. to guarantee that the target group wins `sufficiently often', then the constrained efficient mechanism is a flat subsidy. This is consistent with findings in the empirical literature. In contrast, if the constraint is to ensure a certain investment level by the target group, the optimal mechanism is a type dependent subsidy. In this case a set aside may be better than a flat or percentage subsidy.
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Bibliographic InfoPaper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1548.
Date of creation: 08 Apr 2012
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- Rahul Deb & Mallesh Pai, 2013. "Symmetric Auctions," Working Papers tecipa-486, University of Toronto, Department of Economics.
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