Experimental Economics

, Volume 20, Issue 4, pp 973–1006 | Cite as

An experiment on auctions with endogenous budget constraints

  • Lawrence M. Ausubel
  • Justin E. Burkett
  • Emel Filiz-OzbayEmail author
Original Paper


We perform laboratory experiments comparing auctions with endogenous budget constraints. A principal imposes a budget limit on a bidder (an agent) in response to a principal-agent problem. In contrast to the existing literature where budget constraints are exogenous, this theory predicts that tighter constraints will be imposed in first-price auctions than in second-price auctions, tending to offset any advantages attributable to the lower bidding strategy of the first-price auction. Our experimental findings support this theory: principals are found to set significantly lower budgets in first-price auctions. The result holds robustly, whether the principal chooses a budget for human bidders or computerized bidders. We further show that the empirical revenue difference between first- and second-price formats persists with and without budget constraints.


Auctions Endogenous budget constraint Principal-agent problem 

JEL Classification

D44 C91 



We thank the National Science Foundation (Grant SES-09-24773) for its support. We are grateful to our colleagues, Erkut Ozbay and Peter Cramton, for valuable discussions, to Kristian Lopez-Vargas for his assistance in programming the experiment, and to seminar participants at Carnegie Mellon-Tepper School of Business, the ESEI Market Design Conference at CERGE-EI, and the 2012 North-American ESA Conference for their helpful comments.

Supplementary material

10683_2017_9520_MOESM1_ESM.docx (216 kb)
Supplementary material 1 (DOCX 216 kb)


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Copyright information

© Economic Science Association 2017

Authors and Affiliations

  • Lawrence M. Ausubel
    • 1
  • Justin E. Burkett
    • 2
  • Emel Filiz-Ozbay
    • 1
    Email author
  1. 1.Department of EconomicsUniversity of MarylandCollege ParkUSA
  2. 2.Department of EconomicsWake Forest UniversityWinston-SalemUSA

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