endogenous entry and self selection in private value auctions an experimental study this paper presents the results of an experimental study of endogenous entry in first price independent private value auctions n potential bidders simultaneously decide whether to participate in an auction or receive a known outside option in the second stage entrants submit bids after learning their own private values and the number of entrants an equilibrium model of heterogeneous risk averse bidders implies a self selection effect where bidding in the auction is lower with endogenous entry because only less risk averse bidders enter this effect is confirmed by the experiment we also observe excessive entry relative to the theoretical model

market efficiency and insider trading new evidence that corporate insiders earn profits from stock trading does not surprise most financial economists but that outsiders can earn abnormal returns by using pub licly available insider trading data constitutes a serious exception to stock market efficiency the authors show that this anomaly conti nues to exist despite the publication of studies attesting to its exi stence they suggest that the anomalous profits to outsiders are a ma nifestation of the size and earnings price ratio effects controlling for these factors reduces outsider profits by half the additional a ssumption of a 2 percent transactions cost makes outsider profits zer o or negative insider profits after an assumed 2 percent transactio ns cost are a moderate 3 percent per annum for annual holding period s copyright 1988 by the university of chicago

individual behavior and bidding heterogeneity in sealed bid auctions where the number of bidders is unknown i introduction most of the work in sealed bid auction theory and related experimental work has focused on the case in which the number of bidders is known this is of course not always the case in naturally occurring environments for instance construction firms submitting bids in a sealed bid procurement auction may not know exactly how many other firms have completed the costly process of preparing and submitting a bid until bidding has closed there is a body of theory to address environments with an unknown number of bidders mcafee and mcmillan 1987 matthews 1987 harstad kagel and levin 1990 krishna 2002 1 the purpose of this article is to provide theoretical considerations and analysis of a large data set of individual bids from laboratory sealed bid auction markets in which buyers have some information about the number of rivals but not certainty 2 according to the received theory the availability of information about the number of rivals as expected directly affects bidding and therefore seller revenue in first price fp auctions but should not affect bidding in the second price sp auctions although bidding own valuation is optimal in sp auctions regardless of the number of bidders the majority of previous experimental work on auctions with known number of bidders has shown systematic deviation kagel 1995 while a few studies report coincidence with theory see isaac and james 2000b for an extended discussion earlier work on fp auctions with known number of bidders indicated systematic overbidding compared to risk neutral equilibrium risk aversion has been suggested as one of the possible explanations for observed overbidding cox roberson and smith 1982 dyer kagel and levin 1989 is the only previous experimental study looking at individual bidding in auctions where the number of bidders is unknown and their design is different from this study they look at fp auctions with restricted auction size of either six or three participants and ask subjects to submit three bids two bids for contingent bidding procedure and one bid for noncontingent bidding procedure subjects submit all three bids simultaneously and do not know at the time which procedure will be used they find overbidding in this environment compared to risk neutral nash equilibrium although we test for deviation from risk neutral bidding strategy in a more general setting our study also addresses a broader set of questions previous studies of open bid ascending silent auctions suggested that there may have been revenue loss to the sellers by bidders guarding their higher valued items that is remaining physically proximate to the bidding stations isaac and schnier 2005 the possibility that guarding was at the root of the revenue reductions was investigated by isaac and schnier 2006 who replaced the open bid ascending silent auctions with both fp and sp sealed bid auctions which is the environment studied in this article their paper reported on the aggregate revenue effects of the switch to sealed bid auctions but did not look at individual behavior it is clear that such analysis of individual bidding behavior must be informed by theories of bidding with an unknown number of rivals because such is the reality facing bidders in a multiple sealed bid silent auction context in addition data from a noncomputerized experiment closely approximating field auctions allows the analysis of possible behavioral adjustments in the field for example the attempt to guard the item and count the number of bidders such an analysis is presented in this article 3 our analysis of fp auctions contributes to the discussion about the causes of heterogeneous deviation of individual bidding from risk neutral theory cox roberson and smith 1982 and cox smith and walker 1988 reported heterogeneous bidding above risk neutral equilibrium in fp auctions for mechanisms with fixed number of bidders and palfrey and pevnitskaya 2008 for auctions with endogenous entry where the number of bidders was known at the time of submitting a bid

bidder preferences among auction institutions i introduction auctions have become a pervasive method of exchange in the online world as each day thousands of auctions take place online and this trade volume totals to billions of dollars worth of goods per year 1 this large volume of auction transactions implies the existence of a large number of sellers competing for buyers the obvious implication is that the competition among the sellers for the pool of potential buyers can be fierce and any competitive edge a seller can find could be important one such competitive edge a seller might exploit is using an auction design that attracts bidders away from their competitors when designing a real auction or modeling a theoretical one the entry decision of prospective bidders is rarely considered most auction analysis is performed assuming that a certain number of bidders will participate for certain or perhaps that the number of bidders is unknown and randomly determined it should be clear however that the most crucial part of a successful auction is encouraging as many bidders as possible to participate in general this should be expected to have a positive effect on revenue at least in noncommon value environments and in certain types of auctions it may help combat the possibility of bidder collusion because there are typically competing auctions available for similar goods or even outside options that bidders can pursue when auctions are for unique goods it is important to understand how the aspects of an auction format can effect the entry decision of a bidder consider a bidder who is faced with the choice of entering one of two auctions for similar or even identical objects how does this bidder make the decision of which auction to enter the obvious answer is that the bidder will enter into the auction that maximizes his or her expected utility so long as that expected utility is greater than some reservation value the real question then is how are these expected utilities constructed profit from participating in the auction is an obvious argument there are also a number of environmental considerations that might effect this decision that would be difficult to account for precisely such as the reputation and trustworthiness of the auctioneer quality of the advertisement for the auction and things of this nature it is also possible that the format of the auction itself can have an impact on the preferences of the bidder this latter point will be the issue of this study the particular focus will be looking at bidder preferences between the two most common standard auction formats used in the field the sealed bid first price will be abbreviated as just the sealed bid auction and the ascending or english auction the other reason we are interested in comparing these two auction formats rather than the ascending and second price or first price and descending is that it seems reasonable to expect bidders to have preferences between the two due to the strategic differences between them such differences lead to substantial differences in terms of the difficulty of deciding how to bid and also in the possibility that an outcome leads to a bidder experiencing some form of regret regret may occur in a first price auction when a bidder loses to a bid that is below his value as he may think that if only he had bid higher he could have won although such feelings of regret may be considered irrational that does not preclude their existence such a scenario should not reasonably occur in an ascending auction if one considers the situation of a bidder choosing between two auctions that differ only in regard to whether the auction is being conducted according to an ascending or sealed bid format it is not immediately obvious which would be the most preferred even assuming a standard symmetric independent private values environment were all bidders risk neutral then of course revenue equivalence would hold and the bidders would be indifferent

auctioning many divisible goods we study the theory and practical implementation of auctioning many divisible goods with multiple related goods price discovery is important not only to reduce the winner s curse but more importantly to simplify the bidder s decision problem and to facilitate the revelation of preferences in the bids simultaneous clock auctions are especially desirable formats for auctioning many divisible goods we examine the properties of these auctions and discuss important practical considerations in applying them jel d44

insider trading as a signal of private information there is substantial evidence that insider trading is present around corporate announcements and that this insider trading is motivated by private information using real estate investment trusts that choose to reappraise themselves as our sample we establish that the appraisals contain information but find no market response to the public announcement of this information in these appraisals we consider two possible explanations for this inconsistency the first that the appraisal information is not highlighted in earnings reports and hence remains unobserved and the second that insiders trade on the appraisal information in the time that elapses between the appraisal and its public announcement we find strong support for the second hypothesis with insiders buying selling after they receive favorable unfavorable appraisal news especially for negative appraisals we also find that positive negative appraisals and net insider buying selling elicit significant positive negative abnormal returns during the appraisal period article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

equilibrium in auctions with entry the authors model entry incentives in auctions with risk neutral bidders and characterize a symmetric equilibrium in which the number of entrants is stochastic the presence of too many potential bidders raises coordination costs that detract from welfare the authors show that the seller and society can benefit from policies that reduce market thickness i e the relative abundance of buyers their analysis extends well known revenue equivalence and ranking theorems but also demonstrates that variations in the auction environment affect optimal policies e g reservation prices in ways not anticipated by models that ignore entry copyright 1994 by american economic association

entry into auctions an experimental analysis this paper investigates entry decisions into rst and second price auctions using an experimental design to extract information on willingness to pay to enter wte we nd that subjects tend to overpay to enter both auction formats in particular if the subjects believe they will be bidding against bidders following the risk neutral nash strategy their wte is greater than the optimal risk neutral amount 97 of the time for rst price auctions fpa and 90 for second price auctions spa if they believe that they are bidding against subjects who bid as do the other subjects they submit a wte that is too high 92 of the time for fpa and 69 of the time for spa we also nd in line with previous studies signicant overbidding in both the fpa and spa we then investigate whether introducing risk aversion ra or joy of winning joy can explain the joint observation of over entry and overbidding in particular using bid data alone we structurally estimate three models one allowing ra only one allowing for joy only and one allowing for both ra and joy while a model with joy alone overestimates wte we nd that ra alone can explain 38 of wte but a model with both ra and joy where ra is estimated using fpa bids and joy is estimated using spa bids can explain 65 of wte moreover joy appears to explain nearly all of the of the male wte but only 44 of the female wte

ambiguous solicitation ambiguous prescription we conduct a two phase laboratory experiment separated by several weeks in the first phase we conduct urn games intended to measure ambiguity aversion on a representative population of undergraduate students in the second phase we invite the students back with four different solicitation treatments varying in the ambiguity of information regarding the task and the payout of the laboratory experiment we find that those who return do not differ from the overall pool with respect to their ambiguity version however no solicitation treatment generates a representative sample the ambiguous task treatment drives away the ambiguity averse disproportionally and the detailed task treatment draws in the ambiguity averse disproportionally

using first price auctions to sell heterogeneous licenses abstract this paper considers three alternative ways to sell heterogeneous licenses via a first price format when there is single unit demand it has been suggested that incorporating a first price element may bolster competition in this case klemperer paul d 2002 what really matters in auction design journal of economic perspectives 16 169 189 in a controlled laboratory setting we compare the performance of the simultaneous first price auction the sequential first price auction and the simultaneous descending auction with that of the simultaneous ascending auction the experiments involve several bidding environments of varying complexity we find that the simultaneous ascending auction achieves the highest levels of efficiency but also has drawbacks i its revenues are low and variable ii per license profits vary and iii the incidence of winner s curse outcomes is high seller s revenues are highest when the licenses are sold in a sequential first price auction in decreasing order of quality

auctions with a stochastic number of bidders abstract auction theory is generalized by allowing the number of bidders to be stochastic in a first price sealed bid auction with bidders having constant absolute risk aversion the expected selling price is higher when the bidders do not know how many other bidders there are than when they do know this thus the seller should conceal the number of bidders if he can moreover a bidder s ex ante expected utility is the same whether or not there is a policy of concealing the number of bidders concealment therefore pareto dominates announcement with risk neutral bidders the optimal auction is the same whether or not the bidders know who their competitors are

understanding overbidding in second price auctions an experimental study we present results from second price private value auction spa experiments where bidders may receive noisy signals about their opponentsvalue such signals change biddersperception about the strengthof their opponent and the relationship between biddersperception of their opponent and overbidding provides a novel channel to understand overbidding in spa we found that small and medium overbids are more likely to occur when bidders perceive their rivals to have similar values supporting a modifiedjoy of winninghypothesis but large overbids are more likely to occur when bidders believe their opponents to have much higher values consistent with thespite hypothesis second price private value auctions spas are the most easily understood auction format from a theoretical point of view 1 in standard private value auction models of fully rational bidders with standard preferences bidding one s own value is a weakly dominant strategy this theoretical prediction holds irrespective of biddersrisk atti tudes the number of rival bidders symmetry in the value distributions and so on in laboratory experiments however subjects are found to exhibit a consistent pattern of overbidding kagel et al 1987 found that the actual bids are on average 11 above the dominant strategy bids kagel and levin 1993 found that about 62 of all bids in their five bidder spa sessions exceed the bidder s value while only 8 of all bids were below it both kagel and levin 1993 and harstad 2000 further reported that experience has only a small effect in reducing overbidding in spa an important related finding is that overbidding in english auctions a mechanism that is strategically equivalent to the spa in the case of private values is known to be a short term phenomenon that subjects quickly learn not to undertake kagel and levin 1993 thus any explanation for the prevalence and persistence of overbidding in the spa must also explain its rarity in the english auction given the robustness of the findings of overbidding in spa it is surprising that economists have little understanding of why it happens kagel et al 1987 conjectured that bidding above one s own value in a spa is based on the illusion that it improves the probability of winning with little cost because the winner only pays the second highest bid 2 moreover they argue that overbidding is sustainable because bidders still on average earn positive profits and because the negative feedback from overbidding is a weak mechanism in the spa for example if a bidder overbids in a spa by 10 above her value it is quite possible that she does not win at all and thus does not experience

consistent estimation of cross sectional models in event studies event studies often include cross sectional regressions of announcement effects on exogenous variables if the event is voluntary and investors are rational then standard ols and gls estimators are inconsistent consistent ml estimators are constructed for a cross sectional model of horizontal mergers relating announcement effects to exgeneous characteristics of firms and industries the ols and ml estimates differ dramatically for bidders but not for targets the evidence suggests that managers of bidders but not targets have valuable private information about the potential synergies from proposed mergers article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

ranking auctions with risk averse bidders this paper ranks first and second price independent value auctions with risk averse bidders when entry is endogenous unless bidders exhibit decreasing absolute risk aversion dara the fixed n ranking of first price over second price is sustained however when bidders exhibit dara we show that the effect of entry sometimes reverses the ranking we discuss how elements of the auction environment such as the relative magnitude of entry costs the number of potential bidders and the degree of risk aversion affect the ranking journal of economic literatureclassification numbers d44 d82 c72

optimal auctions revisited in symmetric privately known values oral auctions with costly entry for bidders the seller can do no better than by committing ex ante to a reservation price and entry fees or subsidies which result in no fewer and at most one more bidders than a reservation price equal to the seller s value would in the absence of entry fees or subsidies journal of economic literature classification numbers d44 c72

self selection and market power in risk sharing contracts abstract although the theory of optimal contracts and the principal agent model are now well established in the literature empirical support for this theory has been mixed at best we use economic experiments to test contract theory and assess the empirical relevance of two possible confounding factors that may explain why the theory has not received stronger empirical support first parameters of interest may be biased if agents self select into projects with differing risk profiles based on risk preferences second differing levels of market power on either side of the market could shift contract terms in ways contrary to theoretical predictions in general we find support for classical contract theory augmented to accommodate market power and self selection based on risk preferences we also find evidence for a third confound in the form of the characteristics of agents not party to the transaction affecting the terms of the contract

robustness of bidder preferences among auction institutions i introduction the answer to the question of how bidders choose to enter one auction versus an alternative competing auction is important to understand in providing a complete picture of the nature of endogenous entry decisions into auctions the issue of how a bidder chooses which among alternative auctions to enter as well as whether to enter an auction at all is of substantial importance to auctioneers attempting to attract bidders to their auctions there is a growing literature addressing issues in endogenous entry in auctions there are several papers such as engelbrecht wiggans 1993 pevnitskaya 2004 and palfrey and pevnitskaya 2008 that consider the decision of whether to enter an auction or not and study the effect of endogenous entry on bidding behavior there is a much larger group for example harstad 1990 engelbrecht wiggans 1993 levin and smith 1994 mcafee 1993 and mcafee and mcmillan 1987 that considers competition between auctioneers in which the auctioneers are competing along some characteristic such as entry price we consider the case in which auctioneers may be competing with each other based on the choice of auction mechanism our interest is in the degree to which the auction mechanism itself might impact the entry decisions of potential bidders of course there would be a direct pecuniary impact of the mechanism in that bidders should be more likely to enter auction mechanisms that they believe allow them to get lower prices but there may be other cognitive issues in regard to the structure of the mechanism that may also impact the choice behavior in ivanova stenzel and salmon iss 2004a we introduced an experimental design aimed at eliciting and measuring preferences subjects might possess for different auction institutions and applied the design to testing bidder preferences between ascending a dynamic mechanism and sealed bid first price a static mechanism auctions it seems reasonable to expect bidders to have preferences between these two auction mechanisms due to the strategic differences between them in a first price auction the winner pays a price equal to his own bid whereas in the ascending auction he pays a price that is an increment above the second highest bid these differences might result in difficulty of deciding how to bid and in the possibility of experiencing some form of regret 1 the design involved having subjects make a choice between entering into a two bidder sealed bid first price auction versus a two bidder ascending auction each with different entry prices by varying the entry prices we could measure the subjects willingness to pay for either auction our main finding in the paper was that while subjects exhibited strong preferences for the ascending auction at equal entry prices they were not willing to pay up to the expected profit difference between the two auctions to participate in an ascending auction thus they ended up entering the supposedly less preferred sealed bid first price auction even in situations in which they would expect to make a higher net surplus including the cost of the entry fee by entering into the ascending auction instead that paper proposed one possible answer to the puzzle that involved assuming that bidders were risk averse in their bidding behavior and then risk averse to the same degree in their auction choice behavior this explanation worked because neither risk averse nor approximately risk neutral bidders should be expected to pay much to enter into an ascending auction instead of a sealed bid first price auction just as we observed in the experiment for the most risk averse bidders this is because while they bid the highest in the first price auction and therefore expected little surplus in the event that they win they consequently end up winning with higher probability than less risk averse bidders this is a trade off risk a verse bidders are willing to accept and consequently it is easy to show that highly risk averse bidders should not be willing to pay much to get into the more lucrative though risky ascending auction

independent private value auctions bidder behaviour in first second and third price auctions with varying numbers of bidders the symmetric equilibrium of third price auctions is characterized it makes a number of contrasting predictions relative to firms and second price auctions bids exceed private values the marginal effects on bids of an increase in private values is greater than one increasing numbers of bidders reduces bids and risk aversion requires bidding below the risk neutral nash equilibrium in the experiment bidders do not always satisfy the point predictions of the theory however the game theoretic models correctly anticipate at least directionally the important effects of the price rule changes copyright 1993 by royal economic society

selecting public goods institutions who likes to punish and reward we study the link between individual attitudes toward uncertainty on the one hand and preferences over as well as behavior within various public goods institutions on the other hand we incentive compatibly elicit preferences over voluntary contribution mechanisms with and without reward and punishment options and then randomly assign subjects to play in one of the four institutions we find that payoffs are significantly greater when punishment is allowed but that only a small minority of participants prefers such an environment somewhat surprisingly preferences over institutions are generally independent of individual characteristics conversely individual characteristics including institutional preferences are significantly predictive of behavior in the public goods game for instance risk averse individuals preemptively punish more often this suggests that when studying sanctions and rewards it is important to consider individual attitudes toward risk and uncertainty although they may not affect the original selection into institutions

the high low divide self selection by values in auction choice abstract most prior theoretical and experimental work involving auction choice has assumed bidders find out their value after making a choice of which auction to enter we examine whether or not bidders knowing their value prior to making a choice of which among multiple alternative auction formats to enter impacts their choice decision and or the outcome of the auctions the results show a strong impact on auction choice subjects with low values choose the first price sealed bid auction more often while subjects with high values choose the ascending auction more often the number of bidders in each auction revenue efficiency and average bidder surplus all end up equalized

equilibrium bid functions for auctions with an uncertain number of bidders abstract the number of rivals may be unknown when a bidding strategy is formulated in an auction in a symmetric model with risk neutral bidders holding independent information we obtain explicit equilibrium bidding functions for first price and second price auctions with uncertainty about the number of rivals five auctions are revenue equivalent first price and second price auctions each with the number of bidders known or uncertain and english auctions

super experienced bidders in first price common value auctions rules of thumb nash equilibrium bidding and the winner s curse super experienced bidders have learned to overcome the winner s curse but still earn less than 50 of nash equilibrium profits subjects deviate from the complicated nash strategy employing piecew

nonlinear contracts zero profits and moral hazard contracts that base payments on an ex post variable are examined it is shown that a quadratic contract form may elicit truthful responses from auction participants and offer zero expected profits to the winning bidder but not eliminate adverse incentives ex post a general impossibility theorem is proven this theorem establishes that regardless of functional form no contract can offer zero expected profits and resolve the ex post moral hazard problem copyright 1987 by the review of economic studies limited

investment and insider trading within a dynamic environment this paper introduces an inside trader to an economy where rational but uninformed traders choose between investment projects with different levels of insider trading when inside information has little value in future investment decisions insider trading distorts investment towards assets with less private information imposing net welfare costs on the economy when an insider s private information is valuable in making future investment decisions the net social benefit of inside trading can be positive the resulting increases in investment efficiency due to more informative prices is enough to compensate for the distortion induced by the inside trader when insiders receive private information more than once insiders may trade to reveal their private information at the beginning of their relationship with the firm this has two effects i more information is revealed in equilibrium and ii there is less chance than an uninformed agent will have to trade with the insider both these effects reduce the investment inefficiencies associated with insider trading as a consequence uninformed liquidity traders prefer to trade in a market with a long term insider this improvement in investment efficiency leads to a pareto improvement both the uninformed traders and the insider are made better off if the insider receives information more than once

bidding for incomplete contracts an empirical analysis of adaptation costs abstract procurement contracts are often renegotiated because of changes that are required after their execution using highway paving contracts we show that renegotiation imposes significant adaptation costs reduced form regressions suggest that bidders respond strategically to contractual incompleteness and that adaptation costs are an important determinant of their bids a structural empirical model compares adaptation costs to bidder markups and shows that adaptation costs account for 7 5 14 percent of the winning bid markups from private information and market power the focus of much of the auctions literature are much smaller by comparison implications for government procurement are discussed jel d44 d82 d86 h57 l13 l74 r42

risk attitudes randomization to treatment and self selection into experiments randomization to treatment is fundamental to statistical control in the design of experiments however randomization implies some uncertainty about treatment condition and individuals differ in their preferences towards taking on risk since human subjects often volunteer for experiments or are allowed to drop out of the experiment at any time if they want to it is possible that the sample observed in an experiment might be biased because of the risk of randomization on the other hand the widespread use of a guaranteed show up fee that is non stochastic may generate sample selection biases of the opposite direction encouraging more risk averse samples into experiments we directly test these hypotheses that risk attitudes play a role in sample selection our results suggest that randomization bias does affect the overall level of risk aversion in the sample we observe but that it does not affect the demographic mix of risk attitudes in the sample we show that the common use of non stochastic show up fees can generate samples that are more risk averse than would otherwise have been observed

what insiders know about future earnings and how they use it evidence from insider trades abstract this paper provides evidence that insiders possess and trade upon knowledge of specific and economically significant forthcoming accounting disclosures as long as 2 years prior to the disclosure stock sales by insiders increase three to nine quarters prior to a break in a string of consecutive increases in quarterly earnings insider stock sales are greater for growth firms before a longer period of declining earnings and when the earnings decline at the break is greater consistent with avoiding an established legal jeopardy there is little abnormal selling in the two quarters immediately prior to the break

numerical analysis of asymmetric first price auctions abstract we propose numerical algorithms for solving first price auction problems where bidders draw independent valuations from heterogeneous distributions the heterogeneity analyzed in this work is what might naturally emerge when subsets of distributionally homogeneous bidders collude bid functions and expected revenues are calculated for two special cases extensions to more general asymmetric first price auctions are discussed journal of economic literature classification numbers d44 c63 c72 d82

designed to fail the medicare auction for durable medical equipment we examine the theoretical properties of the auction for medicare durable medical equipment two unique features of the medicare auction are 1 winners are paid the median winning bid and 2 bids are nonbinding we show that median pricing results in allocation inefficiencies as some high cost firms potentially displace low cost firms as winners further the auction may leave demand unfulfilled as some winners refuse to supply because the price is set below their cost we also introduce a model of nonbinding bids that establishes the rationality of a lowball bid strategy employed by many bidders in the actual medicare auctions and recently replicated in caltech experiments we contrast the median price auction with the standard clearing price auction where each firm bids true costs as a dominant strategy resulting in competitive equilibrium prices and full efficiency jel d44 i11 h57

theory and misbehavior of first price auctions comment glenn harrison s recent 1989 article in this review has provoked the loudest debate yet heard among experimental economists his critique of the james cox vernon smith and james walker 1983a b 1985a b 1988 henceforth csw laboratory studies of first price sealed bid auctions with independent and private values in my view raises a fundamental methodological issue that is well worth debating and the csw research program deserves further discussion in this short comment i confine myself to what i see as the most important issues and do not try to address all evidence relevant to the ongoing debate first i summarize harrison s central argument very briefly after pointing out two shortcomings in harrison s specific analysis of csw i propose a methodological reconciliation finally and with some trepidation since my own experience with the auction data is relatively slight i suggest an alternative approach to understanding the anomalies discovered by csw

tax reform from the gradient projection viewpoint abstract this paper examines the problems of gradual tax reform desirable small moves of the tax system are determined using the principles of the well known gradient projection algorithm three classical models of public finance are considered for each of them a continuous time dynamic process is exhibited along which the social welfare function increases until convergence to local second best extrema although the selection of trajectories according to the gradient projection method has some arbitrariness it leads to intuitively and economically appealing rules such as a tax reform analog of the classical optimal taxation result on production efficiency

existence of monotone equilibrium in first price auctions with private risk aversion and private initial wealth in this paper we study the existence of monotone equilibrium in first price auctions where bidders have a three dimensional private type i e their private values degrees of risk aversion and initial wealth bidders utility functions belong to the class of constant relative risk aversion crra or constant absolute risk aversion cara the bidders types are independent across bidders while a bidder s private value initial wealth and degree of risk aversion are allowed to be correlated we show that a monotone equilibrium always exists in a general setting allowing for asymmetric bidders moreover with symmetric bidders a symmetric monotone equilibrium strategy must exist a bidder s equilibrium strategy increases with bidders private values and degrees of risk aversion when bidders have crra utility equilibrium bids decrease with initial wealth when bidders have cara utility equilibrium bids are invariant to initial wealth

an algorithm for ramsey pricing by multiproduct public firms under incomplete information abstract we consider the problems facing a regulatory authority charged with the responsibility of regulating a multiproduct public firm the regulatory constraint arises in the form of a break even profit constraint a price vector which maximizes social welfare subject to this break even constraint is commonly referred to as a ramsey price vector this paper describes in a general equilibrium framework a regulatory procedure which converges to a ramsey price vector this procedure could be applied to a natural monopoly in a contestable market situation in which the regulator and the firm cooperate to implement ramsey pricing as a limit pricing strategy to prevent incursions from potential entrants

auctions with anticipated regret theory and experiment this paper demonstrates theoretically and experimentally that in first price auctions overbidding with respect to the risk neutral nash equilibrium might be driven from anticipated loser regret felt when bidders lose at an affordable price different information structures are created to elicit regret bidders know they will learn the winning bid if they lose loser regret condition or the second highest bid if they win winner regret condition or they will receive no feedback regarding the other bids bidders in loser regret condition anticipated regret and significantly overbid however bidders in the winner regret condition did not anticipate regret jel d44

theory and misbehavior of first price auctions recent experimental evidence appears to reject simple nash equilibrium models of bidding behavior in first price auctions the author presents a methodological critique of this evidence existing tests have concentrated on deviations of subjects from predictions in the message space of the action bid deviations the author suggests that it is more natural to evaluate subject behavior in expected payoff space he concludes that the evidence against the simple models is not significant enough to warrant their rejection copyright 1989 by american economic association

when should sellers use auctions the simultaneous bid auction is a standard method for sellers to solicit offers from buyers a simple alternative is for a seller to ask buyers to make offers sequentially if it is costly for buyers to participate the sequential mechanism will tend to be more efficient than the simultaneous auction because later potential buyers can condition their participation decisions on earlier bids however the sequential mechanism s greater efficiency may not produce higher revenues because while the possibility of deterring later potential entrants can lead early bidders to bid aggressively the fact that later firms might be deterred will tend to reduce revenues the relative revenue performance of the mechanisms will therefore depend on whether the threat of potential future competition which can raise bids in the sequential mechanism is more valuable to the seller than actual competition which will tend to be greater in the simultaneous auction the relative revenue performance of these alternative mechanisms has direct implications for how assets should be sold in the case of how to structure the sale of corporations this question has attracted attention from practitioners and commentators since the delaware supreme court s 1986 revlon decision charged a board overseeing the sale of a company with the duty of getting the best price for the stockholders revlon v mcandrews and forbes holdings 1986 in practice

an explanation of anomalous behavior in models of political participation this paper characterizes behavior with noisy decision making for models of political interaction characterized by simultaneous binary decisions applications include voting participation games candidate entry the volunteer s dilemma and collective action problems with a contribution threshold a simple graphical device is used to derive comparative statics and other theoretical properties of a quantal response equilibrium and the resulting predictions are compared with nash equilibria that arise in the limiting case of no noise many anomalous data patterns in laboratory experiments based on these games can be explained in this manner

revenue equivalence revisited the conventional wisdom in the auction design literature is that first price sealed bid auctions tend to make more money while ascending auctions tend to be more efficient we re examine these issues in an environment in which bidders are allowed to endogenously choose in which auction format to participate our findings are that more bidders choose to enter the ascending auction than the first price sealed bid auction and this extra entry is enough to make up the revenue difference between the formats consequently we find that both formats raise approximately the same amount of revenue they also generate efficiency levels and bidder earnings that are roughly equivalent across mechanisms though the earnings in the ascending might be slightly higher

the cms auction experimental studies of a median bid procurement auction with nonbinding bids we report on the experimental results of simple auctions with i a median bid pricing rule and ii non binding bids winning bids can be withdrawn the two central pillars of the competitive bidding program designed by the centers for medicare medicaid services cms comparisons between the performance of the cms auction and the performance of the excluded bid auction reveal the problematic nature of the cms auction the cms auction fails to generate competitive prices of goods and fails to satisfy demand in all proposed efficiency measures we find the excluded bid auction significantly outperforms the cms auction

publicity requirements in public procurement evidence from a regression discontinuity design abstract we document whether and how publicizing a public procurement auction causally affects entry and the costs of procurement we run a regression discontinuity design analysis on a large database of italian procurement auctions auctions with a value above the threshold must be publicized in the regional official gazette and two provincial newspapers we find that the increased publicity requirement induces more entry and higher winning rebates which reduces the costs of procurement and rationalizes public spending the evidence suggests that the number of bidders is the channel through which publicity affects rebates increased publicity also selects different winners it increases the likelihood that the winner hails from outside the region of the public administration and that the winner is a large company such companies tend to win repeated auctions gaining market share publicity seems to have no adverse effect on the ex post renegotiations of the works as measured by the percent of works delivered with delay or that are subcontracted estimates are robust to alternative measures of publicity alternative model specifications different sample selections to a falsification analysis at simulated thresholds and to the possibility that firms learn about auctions from a web based for profit information provider

an investigation of the average bid mechanism for procurement auctions in a procurement context it can be quite costly for a buyer when the winning seller underestimates the cost of a project and then defaults on the project midway through completion the average bid auction is one mechanism intended to help address this problem this format involves awarding the contract to the bidder who has bid closest to the average of the bids submitted we compare the performance of this mechanism with the standard low price mechanism to determine how successful the average bid format is in preventing bidder losses as well as its impact on the price paid by the buyer we find the average bid mechanism to be more successful than expected because surprisingly bidding behavior remains similar between the average bid and low price auctions we provide an explanation for the bidding behavior in the average bid auction that is based on subjects having problems processing signals near the extremes of the distribution this paper was accepted by teck hua ho behavioral economics

increasing competition and the winner s curse evidence from procurement we assess empirically the effects of the winner s curse which in common value auctions counsels more conservative bidding as the number of competitors increases first we construct an econometric model of an auction in which bidders preferences have both common and private value components and propose a new monotone quantile approach which facilitates estimation of this model second we estimate the model using bids from procurement auctions held by the state of new jersey for a large subset of these auctions we find that median procurement costs rise as competition intensifies in this setting then asymmetric information overturns the common economic wisdom that more competition is always desirable

the risk preferences of u s executives in this paper i elicit risk attitudes of u s executives by calibrating a subjective option valuation model for option exercising data 1996 to 2008 yielding approximately 65 000 values of relative risk aversion rra for almost 7 000 executives the observed behavior is generally consistent with moderate risk aversion and a median mean rra close to one three values are validated for chief executive officers ceos by testing theory based predictions on the influence of individual characteristics on risk preferences such as gender marital status religiosity and intelligence senior managers such as ceos presidents and chairpersons of the boards of directors are significantly less risk averse than non senior executives rra heterogeneity is strongly correlated with sector membership and firm level variables such as size performance and capital structure alternative factors influencing option exercises are tested for their influence on rra values this paper was accepted by brad barber finance

high bids and broke winners abstract this paper analyzes auctions where budget constrained bidders have options to declare bankruptcy it predicts a bidding equilibrium that changes discontinuously in a borrowing rate available to bidders when the borrowing rate is above a threshold high budget bidders win and the likelihood of bankruptcy is low when the borrowing rate is below the threshold the winner is the most budget constrained bidder and is most likely to declare bankruptcy this result explains the high bids and broke winners anomaly in the c block fcc spectrum auction based on its equilibrium analysis the paper proves that a seller can profit from offering to finance the highest bidder at a below market interest rate even with default risk journal of economic literature classification numbers d44 d45 d82 g33 l96

optimal departures from marginal cost pricing focuses on departures from marginal cost pricing optimal allocation or resources level of tax revenue that will be collected by the government theorems developed for resource allocation ebsco

medicare part d are insurers gaming the low income subsidy design this paper shows how in medicare part d insurers gaming of the subsidy paid to low income enrollees distorts premiums and raises the program cost using plan level data from the first five years of the program i find multiple instances of pricing strategy distortions for the largest insurers instrumental variable estimates indicate that the changes in a concentration index measuring the manipulability of the subsidy can explain a large share of the premium growth observed between 2006 and 2011 removing this distortion could reduce the cost of the program without worsening consumer welfare

the winner s curse reserve prices and endogenous entry empirical insights from ebay auctions internet auctions have recently gained widespread popularity and are one of the most successful forms of electronic commerce we examine a unique data set of ebay coin auctions to explore the determinants of bidder and seller behavior we begin by documenting a number of empirical regularities in our data set of ebay auctions next we specify and estimate a structural econometric model of bidding on ebay using our parameter estimates from this model we measure the extent of the winner s curse and simulate seller revenue under different reserve prices