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Optimal Project Selection Mechanisms

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  • Talia Bar

    (University of Connecticut)

  • Sidartha Gordon

    (Département d'économie)

Abstract

We study mechanisms for selecting up to m out of n projects. Project managers’ private information on quality is elicited through transfers. Under limited liability, the optimal mechanism selects projects that maximize some function of the project’s observable and reported characteristics. When all reported qualities exceed their own project-specific thresholds, the selected set only depends on observable characteristics, not reported qualities. Each threshold is related to (i) the outside option level at which the cost and benefit of eliciting information on the project cancel out and (ii) the optimal value of selecting one among infinitely many ex ante identical projects.

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Paper provided by Sciences Po Departement of Economics in its series Sciences Po Economics Discussion Papers with number 2013-08.

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Date of creation: Jul 2013
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Handle: RePEc:spo:wpecon:info:hdl:2441/7o52iohb7k6srk09n8t49coi7

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Keywords: adverse selection; information acquisition; mechanism design; project selection; limited liability; R&D.;

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  1. Moore, John, 1985. "Optimal Labour Contracts When Workers Have a Variety of Privately Observed Reservation Wages," Review of Economic Studies, Wiley Blackwell, vol. 52(1), pages 37-67, January.
  2. Mookherjee, Dilip & Reichelstein, Stefan, 1992. "Dominant strategy implementation of Bayesian incentive compatible allocation rules," Journal of Economic Theory, Elsevier, vol. 56(2), pages 378-399, April.
  3. Scott Stern, 2004. "Do Scientists Pay to Be Scientists?," Management Science, INFORMS, vol. 50(6), pages 835-853, June.
  4. Richard A. Lambert, 1986. "Executive Effort and Selection of Risky Projects," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 77-88, Spring.
  5. Shin, Dongsoo, 2008. "Information acquisition and optimal project management," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 1032-1043, July.
  6. Che, Yeon-Koo & Gale, Ian, 2000. "The Optimal Mechanism for Selling to a Budget-Constrained Buyer," Journal of Economic Theory, Elsevier, vol. 92(2), pages 198-233, June.
  7. Manelli, Alejandro M & Vincent, Daniel R, 1995. "Optimal Procurement Mechanisms," Econometrica, Econometric Society, vol. 63(3), pages 591-620, May.
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