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  4. August 2014
  5. Optimal Project Selection Mechanisms

Optimal Project Selection Mechanisms

  • Talia Bar
  • Sidartha Gordon
American Economic Journal: Microeconomics
vol. 6, no. 3, August 2014
(pp. 227-55)
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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.

Citation

Bar, Talia, and Sidartha Gordon. 2014. "Optimal Project Selection Mechanisms." American Economic Journal: Microeconomics, 6 (3): 227-55. DOI: 10.1257/mic.6.3.227

Additional Materials

JEL Classification

  • D21 Firm Behavior: Theory
  • D82 Asymmetric and Private Information; Mechanism Design
  • O32 Management of Technological Innovation and R&D
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