Job Market Paper

'Optimal Auction Design with Royalty Payments', 2023. (With Ian Ball)

Abstract: We study a dynamic mechanism design problem in which agents compete to obtain a license from the principal. The agents do not know their future profits from the license, but receive signals about them. If the license is allocated, profits are realized. The principal charges royalty payments based on reported profits and can audit the agent and charge limited penalties for misreports. We solve for the optimal auction. The winner of the license pays a linear royalty payment up to a threshold, beyond which royalties are flat and there is no auditing.