We study the design of an auction for a license. Each agent has a signal about his future profit from winning the license. If the license is allocated, the winner can be charged a flexible royalty based on the profits he reports. The principal can audit the winner, at a cost, and charge limited penalties. We solve for the auction that maximizes revenue, net auditing costs. In this auction, the winner pays linear royalties up to a cap, beyond which there is no auditing. A more optimistic bidder pays more upfront in exchange for a lower royalty cap.
No takes yet. Share an insight, caveat, or question.
Ball et al. (2024) studied this question.
Synapse has enriched 5 closely related papers on similar clinical questions. Consider them for comparative context: