Journal of Mechanism and Institution Design ISSN: 2399-844X(Print), 2399-8458(Online) DOI:10.22574/jmid.2016.12.004 AN ASCENDING MULTI-ITEM AUCTION WITH FINANCIALLY CONSTRAINED BIDDERS Gerard van der Laan VU University, The Netherlands glaan@feweb.vu.nl Zaifu Yang University of York, United Kingdom zaifu.yang@york.ac.uk ABSTRACT Several heterogeneous items are to be sold to a group of potentially budget­constrained bidders. Every bidder has private knowledge of his own valuation of the items and his own budget. Due to budget constraints, bidders may not be able to pay up to their values and typically no Walrasian equilibrium exists. To deal with such markets, we propose the notion of‘equilibrium under allotment’ and develop an ascending auction mechanism that always finds such an equilibrium assignment and a corresponding system of prices in finite time. The auction can be viewed as a novel generalization of the ascending auction of Demange et al.(1986) from settings without financial constraints to settings with financial constraints. We examine various strategic and efficiency properties of the auction and its outcome. Keywords : Ascending auction, budget constraint, equilibrium under allotment. JEL Classification Numbers : D44. 1. INTRODUCTION A uctions are typically the most efficient mechanism for the allocation of private goods and have been used since antiquity for the sale of a variety We are deeply grateful to Tommy Andersson for his detailed comments and also to many participants at various seminars and meetings for their helpful feedback. The current paper is a revision of the Tinbergen Institute Discussion Paper TI 2008-017/1 in the year of 2008. Copyright c Gerard van der Laan, Zaifu Yang /(), 2016, 109–149. Licensed under the Creative Commons Attribution-NonCommercial License.0, http://creativecommons.org.