Optimal Project Selection Mechanisms.

Summary 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.