Micro Theory Work in Progress

Title: Optimal Allowance with Limited Auditing Capacity (with Albin Erlanson)

We analyze the mechanism-design problem of a principal allocating amounts of a perfectly divisible good to $n$ agents, each of whom desires as much of the good as possible. The principal has an ideal allocation for each agent, which is private information held by that agent. The principal has access to an auditing technology that allows her to perfectly uncover the private information of any $k$ ($<n$) of the agents. We present a tractable approach to solve for the principal's optimal mechanism. Agents may either accept a default amount or make an arbitrarily precise request. Agents submitting precise requests are audited randomly, with penalties for requesting more than their ideal allocation and rewards for requesting less.