An experiment on auctions with endogenous budget constraints

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

DOI: 10.1007/s10683-017-9520-9

Cite this article as:
Ausubel, L.M., Burkett, J.E. & Filiz-Ozbay, E. Exp Econ (2017). doi:10.1007/s10683-017-9520-9

Abstract

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.

Keywords

Auctions Endogenous budget constraint Principal-agent problem 

JEL Classification

D44 C91 

Supplementary material

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

Funding information

Funder NameGrant NumberFunding Note
National Science Foundation (US)
  • SES-09-24773

Copyright information

© Economic Science Association 2017

Authors and Affiliations

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

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