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Financing infrastructure under budget constraints


  • GAUTIER, Axel
  • MITRA, Manipushpak


In this paper we consider the problem of financing infrastructure when the regulator faces a budget constraint. The optimal budget-constrained mechanism satisfies four properties. The first property is bunching at the top, that is the more efficient firms produce the same quantity irrespective of their costs. The second property is separability of less efficient firms. The third property is that the mechanism is a third best one, that is, the optimal budget constrained output is strictly lower than the second best output for any given type. Finally, if the budget constraint is too strong, then we have full bunching.

Suggested Citation

  • GAUTIER, Axel & MITRA, Manipushpak, 2003. "Financing infrastructure under budget constraints," CORE Discussion Papers 2003037, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2003037

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    References listed on IDEAS

    1. Monteiro, Paulo K. & Page Jr., Frank H., 1998. "Optimal selling mechanisms for multiproduct monopolists: incentive compatibility in the presence of budget constraints," Journal of Mathematical Economics, Elsevier, vol. 30(4), pages 473-502, November.
    2. Che, Y.K. & Gale, I.,, 1994. "The Optimal Mechanism for Selling to Budget-Constrained Consumers," Working papers 9415, Wisconsin Madison - Social Systems.
    3. Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December.
    4. Axel Gautier, 2004. "Regulation under Financial Constraints," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 75(4), pages 645-656, December.
    5. Laffont, Jean-Jacques & Robert, Jacques, 1996. "Optimal auction with financially constrained buyers," Economics Letters, Elsevier, vol. 52(2), pages 181-186, August.
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    More about this item


    regulation; asymmetric information; budget constraint;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation


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