empirical implications of equilibrium bidding in first price symmetric common value auctions this paper studies federal auctions for wildcat leases on the outer continental shelf from 1954 to 1970 these are leases where bidders privately acquire at some cost noisy but equally informative signals about the amount of oil and gas that may be present we develop tests of rational and equilibrium bidding in a common values model that are implemented using data on bids and ex post values we also use data on tract location and exposr values to test the comparative static prediction that bidders may bid less aggressively in common value auctions when they expect more competition we find that bidders are aware of the winner s curse and their bidding is largely consistent with equilibrium

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

auctioning incentive contracts this paper draws a remarkably simple bridge between auction theory and incentive theory it considers the auctioning of an indivisible project among several fi rms the firms have private information about their future cost at th e bidding stage and the selected firm ex post invests in cost reduct ion the authors show that 1 the optimal auction can be implemented by a dominant strategy auction that uses information about both the first bid and the second bid 2 the winner faces a linear incenti ve contract 3 the fixed transfer to the winner decreases with his announced expected cost and increases with the second lowest announce d expected cost and 4 the share of cost overruns borne by the winn er decreases with the winner s announced expected cost copyright 1987 by university of chicago press

consumer expenditures and inequality an analysis based on decomposition inequality in u s consumption expenditures is examined using the lerman and yitzhaki covariance method for decomposing the gini coefficient by factors from the decomposition nonparametric estimates of elasticities with respect to total expenditures are derived using data from the 1987 u s consumer expenditure interview survey the overall gini based on total annual consumption expenditures is 0 33 consistent with parametric expenditure elasticities the gini expenditure elasticities for household operations apparel and services and entertainment are relatively high an implication of this result is that taxing such goods and services will increase the progressivity or reduce the regressivity of the tax system copyright 1993 by mit press

optimal bidding in auctions from a game theory perspective abstract the game theoretic perspective in auction bidding has provided a powerful normative framework for the analysis of auctions and it has generated an impressive volume of research contributions tracing this research we review key recent advances which have greatly expanded our understanding of the operation of auctions and produced a more accurate analysis of mechanism design and optimal bidding we follow various experimental studies which have shown that the predictive power of auction theory remains in many cases limited for this reason we concentrate on research themes which enhance the applicability of auction theory leading to more realistic descriptions of bidding behaviors we identify important innovations which expand the environment of auction bidding and carry us beyond rational decision making we conclude providing directions of future research and discussing their implications

an empirical study of an auction with asymmetric information this paper examines federal auctions for drain age leases on the outer continental shelf from 1959 to 1969 these are leases that are adjacent to tracts on which a deposit has been discovered the authors find that the data strongly support the hypotheses that neighbor firms are better informed about the value of a lease than nonneighbor firms that neighbor firms coordinate their bidding decisions and that both types of firms bid strategically in accordance with the bayesian nash equilibrium model for first price sealed bid auctions with asymmetric information

can affirmative action be cost effective an experimental examination of price preference auctions one of the most controversial questions facing our economy and society in recent years is the question of affirmative action the debate centers around an issue of minority representation in which the rights of the majority are depicted as being compromised by affirmative action programs set up to increase the welfare of minorities implicit in this discussion is the assumption that all affirmative action programs must be cost increasing this result it is claimed follows trivially from economic theory since any interference into the competitive process which prevents the most capable from being chosen must be wasteful and costly in this paper we challenge this claim with experimental results demonstrating that pricepreference auctions in which high cost minority firms are given preferential treatment in the awarding of contracts in such a way that it is possible for these firms to win a contract but not have submitted the lowest bid can be programs that both enhance minority representation and are cost effective in that they decrease the cost of government procurement in the theoretical literature on asymmetric auctions eric maskin and john riley 1995 and the optimal auction literature roger myerson 1981 it has been shown that in asymmetric auctions in which firms draw their costs from

awarding monopoly franchises the authors analyze how to award a monopoly franchise when the objective is to maximize expected consumers surplus net of transfer payments to the producer potential producers initially possess independent private information about uncertain production costs only the chosen producer subsequently observes realized production costs after awarding the franchise to the producer with the lowest expected costs prices are optimally set above realized marginal cost these ex post distortions foster more competitive bidding ex ante the distortions for any bid cost pair are invariant to the number of bidders n though expected distortions and profits decline with n copyright 1987 by american economic association

endogenous entry to security bid auctions we endogenize entry to a security bid auction where participation is costly and bidders must decide given their private valuations whether to participate we first consider any minimum reserve security bid of a fixed expected value that weakly exceeds the asset s value when retained by the seller demarzo kremer and skrzypacz 2005 establish that with a fixed number of bidders auctions with steeper securities yield the seller more revenues counterintuitively we find that auctions with steeper securities also attract more entry further enhancing the revenues from such auctions we then establish that with optimal reserve securities auctions with steeper securities always yield higher expected revenues

perfect equilibria in budget constrained sequential auctions an experimental study this article presents an experimental study of bidding behavior in sequential auctions in which there are budget constraints and perfect information our experiments test both the properties of such auctions and the predictive power of a refinement of the nash equilibrium concept we find that budget constraints affect the behavior of bidders and that the trembling hand perfect equilibrium is generally a good predictor of prices

that s how we roll an experiment on rollover risk abstract we design a continuous time experiment to study how different short term credit maturities interact with the state of the economy we find that when the economy is in a boom long maturities stabilize the credit market yet when in a downturn such maturities increase the likelihood of credit freezes this result has important regulatory implications as it suggests that a policy aimed at reducing maturity mismatch in short term credit markets might backfire during a recession

auctions with contingent payments an overview i survey a literature on auctions with contingent payments that is auctions in which payments are allowed to depend on an ex post verifiable variable such as revenues in oil lease auctions based on demarzo et al 2005 i describe a partial ranking of auction revenues for auctions that differ in terms of contract forms pricing rules and seller commitment and why the revenue equivalence theorem does not apply even in an independent private values setup i discuss models that incorporate adverse selection moral hazard competition between auctioneers common values and the sale of multiple units

the theory of reform and indian indirect taxes abstract given a set of value judgements an initial state and a model of the economy one can ask whether some feasible tax change would increase welfare we do this by defining the marginal cost in terms of welfare of raising an extra rupee from the i th good the inverse optimum problem is the calculation of non negative welfare weights on households which imply that the initial state is optimum if no such welfare weights exist then a pareto improvement is possible we illustrate the concepts and results using data from the indian economy for 1979 1980 directions of tax reform for a number of specific social welfare functions and for pareto improvements are presented

procurement and predation dynamic sourcing from financially constrained suppliers abstract this paper studies the relationship between a financially constrained firm and a stronger opponent who is not cash constrained when these firms repeatedly compete in a procurement context we characterize and discuss the procurement agency s optimal strategy when faced with such asymmetric firms we highlight a trade off between the long run benefits from competition and the short run benefits from reduced costs finally we show that to reduce costs in the short run the financially weak firm should be favored in future procurement

collusion as public monitoring becomes noisy experimental evidence this paper uses laboratory experiments to test the implications of the theory of repeated games on equilibrium payoffs and estimate strategies in an infinitely repeated prisoners dilemma game with imperfect public monitoring we find that subjects payoffs i decrease as noise increases and ii are lower than the theoretical maximum for low noise but exceed it for high noise under the assumption that the subjects strategy uses thresholds on the public signal for transition between cooperation and punishment states we find that the best fitting strategy simply compares the most recent public signal against a single threshold

withdrawable bids as winner s curse insurance when bidders have a common value or strongly affiliated values for an object or contract being auctioned by sealed bids it is possible that the maker of a rational and apparently winning bid would upon learning the competing bids prefer losing the auction to honoring his bid the ability to withdraw a bid perhaps at a cost in such circumstances provides a form of winner s curse insurance bidding with such insurance is analyzed obtaining the general condition for rational bid withdrawal and sufficient conditions for the existence of an equilibrium with more aggressive bidding next we define a compensation penalties bid withdrawal penalty scheme and show that with it the bid taker is better off on the average than if bid withdrawal is impossible finally we find equilibrium bidding and withdrawal strategies in a multiplicative model as a function of the magnitude of the bid withdrawal penalty and of the bid taker s likelihood after a withdrawal of honoring the second best bid this model has

equilibrium of affiliated value second price auctions with financially constrained bidders the two bidder case we study an affiliated value second price auction with two financially constrained bidders we prove the existence of a symmetric equilibrium under quite general conditions comparative static results are provided journal of economic literature classification number d44

small business set asides in procurement auctions an empirical analysis as part of public procurement many governments adopt small business programs to pro vide contract opportunities for businesses often with preferences for firms operated by mem bers of groups designated as disadvantaged the redistribution arising from such programs however can introduce significant added costs to government procurement budgets in this paper the extent to which small business set asides increase government procurement costs is examined the estimates employ data on japanese public construction projects where approximately half of the procurement budget is set aside for small and medium enterprises smes applying a positive relationship between profitability and firm size obtained by the non parametric estimation of asymmetric first price auctions with affiliated private values a counterfactual simulation is undertaken to demonstrate that approximately 40 percent of smes would exit the procurement market if set asides were to be removed surprisingly the resulting lack of competition would increase government procurement costs more than it would offset the production cost inefficiency

cooperation in the finitely repeated prisoner s dilemma more than half a century after the first experiment on the finitely repeated prisoner s dilemma evidence on whether cooperation decreases with experience as suggested by backward induction remains inconclusive this paper provides a meta analysis of prior experimental research and reports the results of a new experiment to elucidate how cooperation varies with the environment in this canonical game we describe forces that affect initial play formation of cooperation and unraveling breakdown of cooperation first contrary to the backward induction prediction the parameters of the repeated game have a significant effect on initial cooperation we identify how these parameters impact the value of cooperation as captured by the size of the basin of attraction of always defect to account for an important part of this effect second despite these initial differences the evolution of behavior is consistent with the unraveling logic of backward induction for all parameter combinations importantly despite the seemingly contradictory results across studies this paper establishes a systematic pattern of behavior subjects converge to use threshold strategies that conditionally cooperate until a threshold round and conditional on establishing cooperation the first defection round moves earlier with experience simulation results generated from a learning model estimated at the subject level provide insights into the long term dynamics and the forces that slow down the unraveling of cooperation

decomposition of s concentration curves for any given order of inverse stochastic dominance standard concentration curves are decomposed into three components called contribution curves those compo nents correspond to within group inequalities between group inequalities and transvari ational inequalities we prove for all orders that contribution curve dominance implies systematically welfare improving tax reforms and conversely accordingly as welfare ex pansions may be costly in terms of particular inequalities we propose targeted fiscal reforms jel classification d63 h20

rational cooperation in the finitely repeated prisoner s dilemma experimental evidence this paper presents experiments designed to examine the sequential equilibrium reputation hypothesis in the finitely repeated prisoner s dilemma the authors test the hypothesis by controlling the subjects ability to build reputations and by manipulating their beliefs that their opponent is irrational or altruistic the responses of subjects strongly support the sequential equilibrium prediction the results also suggest an important role for homemade altruism that is a natural tendency to cooperate that subjects bring to the experiment from the outside the authors find that there may be no difference between the beliefs that an opponent is altruistic and the actual chance it is so copyright 1993 by royal economic society

general licensing schemes for a cost reducing innovation optimal combinations of upfront fees and royalties are considered for a cost reducing innovation in a cournot oligopoly for both outside and incumbent innovators it is shown that for any nondrastic innovation a the license is practically sold to all firms ensuring full diffusion of the innovation b consumers are better off firms are worse off and the social welfare is improved c the optimal licensing policy involves positive royalty for relatively significant innovations d compared to an incumbent firm an outsider invests more in r d and has higher incentive to innovate and e as a function of the magnitude of the innovation the industry size that provides the highest incentive to innovate is u shaped

bidding with securities auctions and security design we study security bid auctions in which bidders compete for an asset by bidding with securities that is they offer payments that are contingent on the realized value of the asset being sold the value depends on investment by the winner thus creating the possibility of moral hazard such auctions are commonly used both formally and informally in formal auctions the seller generally restricts bids to an ordered set such as an equity share or royalty rate by restricting the bids standard auction formats such as first and second price auctions can be used in informal settings with competing buyers the seller does not commit to a mechanism upfront rather bidders offer securities and the seller chooses the most attractive bid based on his beliefs ex post we characterize equilibrium payoffs and bidding strategies in this setting and show that an informal mechanism yields the lowest possible revenues across all mechanisms we also determine the optimal formal mechanism and show that the security design is more important than the auction format we show that the revenue equivalence principle that expected revenues are independent of the auction format holds if the set of permissible securities is ordered and convex such as equity otherwise it need not hold for example when bidders offer standard debt securities a second price auction is superior on the other hand if bidders compete on the conversion ratio of convertible debt a first price auction yields higher revenues finally we examine how different forms of moral hazard impact our results

the evolution of cooperation in infinitely repeated games experimental evidence 1 for example in infinitely repeated prisoner s dilemma games with patient agents both cooperate and defect may be played in equilibrium even though the theory of infinitely repeated games has been used to explain cooperation in a variety of environments no definitive solution has been provided to the problem of equilibrium selection when both cooperation and defection are possible equilibrium outcomes which one should we expect to prevail previous experimental evidence has shown that subjects often fail to coordinate on a specific equilibrium when they play a small number of infinitely repeated games some subjects attempt to establish cooperative agreements while others defect but how would behavior evolve as subjects learn from previous repeated games would cooperation prevail when it can be supported in equilibrium or will subjects learn

optimal equity auctions with two dimensional types abstract we analyze the design and performance of equity auctions when bidder s valuations and opportunity costs are private information distributed according to an arbitrary joint density that can differ across bidders we identify for any incentive compatible mechanism an equivalent single dimensional representation for uncertainty we then characterize the revenue maximizing and surplus maximizing equity mechanisms and compare revenues in optimal equity and cash auctions unlike in cash auctions the adverse selection arising from bidders two dimensional types in equity auctions can lead to a global violation of the regularity condition which represents a maximal mismatch between incentive compatibility and maximization of revenue or surplus such mismatch can lead a seller to exclude bidders and demand a bidder specific stake from a non excluded bidder providing insights into when a firm should employ an auction and when it should just negotiate with a single bidder

welfare dominance an application to commodity taxation in this paper the authors propose a method to identify commodity tax changes that will be favored by all individuals who can agree on certain weak assumptions with regard to the social welfare function the method is based on an extension of the criterion of second degree stochastic dominance and is illustrated using data from israel copyright 1991 by american economic association

multiple object auctions with budget constrained bidders in the last few years governments in many parts of the world have aggressively sought to privatize socially held assets this wave of privatization has included the sale of industrial enterprises in the former soviet union and eastern europe the sale of public transportation systems in britain and scandinavia and the sale of radio spectra in the u s both the enormity and the importance of these sales have naturally led to an examination of how best to accomplish this task auctions have been proposed and have frequently been used as time honoured convenient and attractive mechanisms for such sales this in turn has led to a revival of interest in the theory of auctions particularly those involving multiple objects the magnitude of these privatization sales has meant that in many instances it is realistic to consider that buyers may run up against liquidity or borrowing constraints the presence of these financial constraints introduces important differences into traditional auction theory for instance pitchik and schotter 1986 and che and gale 1996 1998 have shown that when bidders are subject to such constraints the conclusion of the celebrated revenue equivalence theorem no longer holds when multiple objects are auctioned in the presence of budget constraints it may be advantageous for a bidder to bid aggressively on one object with a view to raising the price paid by his rival and depleting his budget so that the second object may then be obtained at a lower price in effect a bidder may wish to raise a rival s costs in one market in order to gain advantage in another thus unlike in traditional auction theory a particular bidder s payoff is affected by the price paid by a rival bidder it is important to note that this effect comes into play only when several objects are sold

a liquidity based model of security design we consider the problem of the design and sale of a security backed by specified assets given access to higher return investments the issuer has an incentive to raise capital by securitizing part of these assets at the time the security is issued the issuer s or underwriter s private information regarding the payoff of the security may cause illiquidity in the form of a downward sloping demand curve for the security the severity of this illiquidity depends upon the sensitivity of the value of the issued security to the issuer s private information thus the security design problem involves a tradeoff between the retention cost of holding cash flows not included in the security design and the liquidity cost of including the cash flows and making the security design more sensitive to the issuer s private information we characterize the optimal security design in several cases we also demonstrate circumstances under which standard debt is optimal and show that the riskiness of the debt is increasing in the issuer s retention costs for assets

risk aversion in a dynamic asset allocation experiment we conduct a controlled laboratory experiment in the spirit of merton 1971 in which subjects dynamically choose their portfolio allocation between a risk free and risky asset using the optimal allocation of an investor with hyperbolic absolute risk aversion hara utility we fit the experimental choices to characterize the risk profile of our participants despite substantial heterogeneity decreasing absolute risk aversion and increasing relative risk aversion are the predominant types we also find some evidence of increased risk taking after a gain finally the session level risk attitudes show a different profile than the individual descriptions of risk attitudes

auctions with contingent payments there now exists a host of results concerning the revenue performance of various auction methods this note delves deeper into auction markets by examining the effects on sellers revenue of certain noncash means of payment the basic result that bidding mediums which include some contingent pricing feature generally yield the seller more revenue than do cash bids is intriguing by itself and also points out the limitations of received theory since what follows builds on the independent preferences framework it is useful to first note the assumptions of that model and the major results pertaining to it to model an auction in the independent preferences tradition one assumes that bidders have reservation values vi that are known only privately and that can be depicted as being drawn independently from some distribution f v the most important result for this model is the revenue equivalence theorem as given in john riley and william samuelson 1981 any auction involving risk neutral bidders for which the following four conditions hold a a buyer can make any bid above some minimum reserve price b the buyer making the highest bid is awarded the object c the auction rules are anonymous and d there is a common equilibrium bidding strategy in which each buyer makes a bid bi which is a strictly increasing function of his reservation value vi yields an expected revenue of

second price common value auctions under multidimensional uncertainty the literature has demonstrated that second price common value auctions are sensitive to the presence of asymmetries among bidders in a two bidder model bikhchandani 1988 reputation in repeated second price auctions j econ theory 46 97 119 has shown that if it is common knowledge that one bidder has a disadvantage compared to her opponent that bidder almost surely never wins the auction employing a similar two bidder model this paper shows that this result does not carry over when one allows for two sided uncertainty in such case in every equilibrium the disadvantaged type bidder needs to win the auction with strictly positive probability we then solve for the equilibria in two cases one with two types and another with a continuum of types and we show that they converge to the symmetric equilibria of the corresponding symmetric auctions we thus reestablish a lost linkage in the analysis of common value and almost common value auctions

evaluating impact effects of tax reforms abstract this survey paper provides coverage of the inputs from the theory side which go into the empirical analysis of impact effects of tax reforms inequality social welfare progressivity and horizontal inequity effects are considered the value judgements inherent in selecting the target group for analysis specifying welfare through household utility equivalizing incomes and otherwise incorporating differences in household needs into utilitarian analysis are all explained the evaluation procedures described include dominance checks and index comparisons the inequality and social welfare tests are also applicable to other comparisons of income distribution standard computer software to sort cumulate and compute covariances is all that is required to undertake the necessary computations using microdata

how risk sharing may enhance efficiency of english auctions we investigate the possibility of enhancing efficiency by awarding premiums to a set of highest bidders in an english auction in a setting that extends maskin and riley 1984 econometrica 52 1473 1518 in three aspects i the seller can be risk averse ii the bidders can have heterogeneous risk preferences and iii the auction can have a binding reserve price our analysis reveals that the premium has an intricate joint effect on risk sharing and expected revenue which in general benefits risk averse bidders when the seller is more risk averse than the pivotal bidder a condition often verifiable by deduction prior to the auction the premium also benefis the seller and therefore leads to a pareto improvement of the english auction the advantage of such premium tactics is directly related to a the seller s degree of risk aversion b the reserve price c the riskiness of the object for sale d the degree of heterogeneity in risk preferences among the bidders and e the number of the potential bidders

continuous time repeated games in this paper the authors develop a model of strategic behavior in continuous time games of complete information which includes conventional repeated games in discrete time as a special case the model developed here admits a very large class of strategies that allows one to extend the repeated game model to continuous time the set of equilibria in this game may be large in many cases equal to the feasible individually rational set of payoff s the authors also study the restriction of renegotiation proofness in this framework and apply these results to a cournot duopoly example copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

standard auctions with financially constrained bidders we develop a methodology for analyzing the revenue and efficiency performance of auctions when buyers have private information about their willingness to pay and ability to pay we then apply the framework to scenarios involving standard auction mechanisms in the simplest case where bidders face absolute spending limits first price auctions yield higher expected revenue and social surplus than second price auctions the revenue dominance of first price auctions over secondprice auctions carries over to the case where bidders have access to credit these rankings are explained by differences in the extent to which financial constraints bind in different auction formats

sustainable management of renewable resources an experimental investigation in continuous time abstractthis study addresses one of the most basic questions in renewable resource management the ability of economic agents to exploit a renewable resource in an efficient and sustainable manner in a laboratory experiment subjects are presented with renewable resource extraction problems where optimal management will lead to a stable steady state a test of sustainability of the extraction practices shows that extraction behaviour results in steady states only 56 of the time the mode of the steady state distribution coincides with the optimal steady state extraction the trade off between accruing a higher payoff in the present and sustaining the resource for future exploitation leads to suboptimal behaviours such as initial overextraction of the resource compared to the optimal extraction policy costly downward adjustment of the extraction later in time and settling down for lower long run resource and extraction the suboptimal behaviours lead to 17 loss in efficiency on average in terms of th

expected revenue of all pay auctions and first price sealed bid auctions with budget constraints we show that all pay auctions dominate first price sealed bid auctions when bidders face budget constraints this ranking is explained by the fact that budget constraints bind less frequently in the all pay auctions which leads to more aggressive bidding in that format

forward looking behavior in hawk dove games in endogenous networks experimental evidence abstract we conduct an experiment in continuous time every subject can change her links to others and her action in a hawk dove game which she plays bilaterally with each of her linked partners at any time we hypothesize that norms exist regarding who establishes and thus pays for links and that players take these norms into account when deciding on their strategy for such limitedly forward looking players who consider others linking reactions we introduce a strategy adaptation rule anticipatory better reply rule abr and a related stability criterion reaction anticipatingly stable ras our data support our assumption on linking reactions subjects seem to take these reactions into account when deciding to switch from hawk to dove abr behavior however better reply behavior is prevalent when short term profits allure ras configurations occur more often than nash equilibria of the base game however with respect to stability they perform similar

effects of seller s information disclosure in equity auctions requiring post auction investment abstract we consider a moral hazard issue inherent in the equity auctions of assets such as oil and gas leases and corporate takeovers after the auction the winning bidder decides whether to make follow up investments in the acquired asset and makes the equity payment out of the revenue from it according to the auction outcome before the auction the seller holds private information about the possible returns on that investment and must decide whether to disclose it larger equity payments undermine incentives to invest reducing the impact of information revealed by the seller on expected values of the asset to a winning bidder thus information disclosure makes bids less aggressive in expectation expected seller revenues may be higher when she does not disclose her private information than when she commits to publicly announcing it regardless of whether it is good or bad

optimal equity auctions with heterogeneous bidders abstract i analyze the effects of heterogeneity in terms of bidders valuation distributions and standalone values in equity auctions auctions in which bidders offer equities rather than cash heterogeneity misaligns equity bids face values monetary values and bidder types making the seller s revenues sensitive to the auction design given heterogeneity i identify the mechanism that maximizes the expected revenue among all incentive compatible mechanisms of equity auctions i show how different sources of heterogeneity alter the optimal design revenues and allocational efficiency unlike optimal cash auctions myerson 1981 where bidders standalone values are irrelevant the allocation of optimal equity auctions favors bidders with lower standalone values because the seller can extract a larger proportion of their rents by contrast when bidders differ only in valuation distributions optimal equity auctions feature more efficient allocations than optimal cash auctions

a representation theorem for guilt aversion guilt aversion has been shown to play an important role in economic decision making in this paper we take an axiomatic approach to guilt by deducing a utility representation from a list of easily interpretable assumptions on an agent s preferences it turns out that our logarithmic representation can mitigate the problem of multiplicity of equilibria to which psychological games are prone we apply the model in three well known games and show that its predictions are consistent with experimental observations

rfq auctions with supplier qualification screening we consider a manufacturer using a request for quotes rfq reverse auction in combination with supplier qualification screening to determine which qualified supplier will be awarded a contract supplier qualification screening is costly for the manufacturer for example involving reference checks financial audits and on site visits the manufacturer seeks to minimize its total procurement costs i e the contract payment plus qualification costs although suppliers can be qualified prior to the auction prequalification we allow the manufacturer to delay all or part of the qualification until after the auction postqualification using an optimal mechanism analysis we analytically explore the trade offs between varying levels of pre and postqualification although using postqualification causes the expected contract payment to increase bids from unqualified suppliers are discarded we find that standard industrial practices of prequalification can be improved upon by judicious use of postqualification particularly when supplier qualification screening is moderately expensive relative to the value of the contract to the manufacturer

financial contracting theory meets the real world an empirical analysis of venture capital contracts we compare the characteristics of real world financial contracts to their counterparts in financial contracting theory we do so by studying the actual contracts between venture capitalists vcs and entrepreneurs the distinguishing characteristic of vc financings is that they allow vcs to separately allocate cash flow rights board rights voting rights liquidation rights and other control rights we describe and measure these rights we then interpret our results in relation to existing financial contracting theories we also describe the interrelation and the evolution across financing rounds of the different rights query 1 query 2

prizes and lemons procurement of innovation under imperfect commitment the literature on r d contests implicitly assumes that contestants submit their innovation regardless of its value this ignores a potential adverse selection problem the present paper analyzes the procurement of innovations when the procurer cannot commit to never bargain with innovators who bypass the contest we compare xed prize tournaments with and without entry fees and optimal scoring auctions with and without minimum score requirement our main result is that the optimal xed prize tournament is more pro table than the optimal auction since preventing bypass is more costly in the optimal auction

marginal commodity tax reforms a survey as noted 30 years ago by martin feldstein optimal taxes may be useless for practical purposes and emphasis should instead be placed on the possibility of enhancing welfare by reforming existing tax rates in this perspective marginal commodity tax reforms are gaining increasing attention due to political and economic constraints on large reforms of direct or indirect taxation in this paper we summarize the main features and results of the literature on marginal commodity tax reforms pioneered by ahmad and stern further developed by yitzhaki and thirsk and recently reinterpreted by makdissi and wodon we establish new links to other fields of research namely the literature on the use of equivalence scales and on poverty measurement we also critically examine some issues associated with the implementation of marginal tax reforms with special reference to the calculation of welfare weights and revenue effects finally we suggest directions for future research on poverty reducing commodity tax reforms

appropriate design of auctions for renewable energy support prequalifications and penalties abstract auctions are a promising tool to accomplish renewable energy support res however they involve diverse risks for the auctioneer and the bidders the major risk for the auctioneer with respect to the expansion target and the acceptance of auctions for res in general is the risk of non realization awarded bidders do not realize their projects the main reasons are bidders uncertainties concerning their project costs the auctioneer can reduce the non realization risk by taking various measures the most discussed and implemented measures are financial and physical prequalifications and penalties an evaluation of these measures has relevant implications for an appropriate auctions design for res the non realization option induces lower bids a suitable combination of financial and physical prequalifications can reduce the non realization risk significantly however involves sunk costs counterintuitively first price auction and second price auction lead to different expected award prices and different realization probabilities penalties bear a high risk of inefficient auction outcomes the appropriate parametrization and combination of the measures is challenging under consideration of all implications we recommend high financial and adjusted physical prequalifications to achieve a sufficiently high realization rate while maintaining efficiency

participation and welfare in auctions with default abstract in an auction with costly participation we show that bidder default may cause social welfare loss through i the possibility of no trade and ii the under participation of bidders in equilibrium we also provide closed form solutions to the model

ranking equilibrium competition in auctions with participation costs this paper studies the degrees of equilibrium competition in three common forms of auctions with costly participation and shows that when bidders valuation distribution is concave there is a simple condition to rank the equilibrium competition of those auctions it also investigates how the results are related to stochastic ordering of bidders valuation distributions and provides some illustrative examples

credit auctions and bid caps abstract in this paper we offer two contributions to the field of credit auctions first we compare first and second price credit auctions and provide solvency dependent conditions such that one mechanism dominates the other in terms of expected payoffs of all the parties involved in addition we present a new possibility of using bid caps in credit auctions we study the equilibria in the capped mechanisms and show that bid caps can increase the seller s expected payoff and in some cases the expected payoffs of all sides a win win situation

a continuous dilemma we study prisoners dilemmas played in continuous time with flow payoffs accumulated over 60 seconds in most cases the median rate of mutual cooperation is about 90 percent control sessions with repeated matchings over eight subperiods achieve less than half as much cooperation and cooperation rates approach zero in one shot sessions in follow up sessions with a variable number of subperiods cooperation rates increase nearly linearly as the grid size decreases and with one second subperiods they approach continuous levels our data support a strand of theory that explains how capacity to respond rapidly stabilizes cooperation and destabilizes defection in the prisoner s dilemma jel c72 c78 c91

bidding with securities comment to feasible securities 1 their main finding concerns the role of the steepness of securities in determining the seller s revenue they show that the steeper the payment to the seller as a func tion of the realized value the higher is the seller s expected revenue a shift from a security say a debt to a steeper one say equity or call option flattens the surplus accruing to a bidder as a function of his future realized value and this levels the competitive gaps between bidders hence the competition becomes intensified 2 in this comment we wish to add to dks analysis a caveat that the adverse selection prob lem should be an important part of security and auction design consideration unlike cash bids security bids are difficult to evaluate when the seller does not know the buyer s exact type for instance a 40 percent share of an asset managed by a buyer may be less valuable than a 30 per cent share of the same asset managed by a different buyer if the latter is much more competent lacking such information a seller may fall victim to adverse selection choosing a wrong bidder this problem has been noted by several authors such as william samuelson 1987 simon board 2007 and charles zheng 2001 in the context of a fixed security design our concern here is its relevance for security design we show that the adverse selection problem may lead to rankings of alternative security designs that are quite different from and in fact opposite to those found in dks in particular under a reasonable circumstance a steeper security is more vulnerable to adverse selection and could result in a poorer revenue performance than a flatter security to illustrate suppose there are two buyers 1 and 2 buyer 1 2 has a project which gener ates a gross return of v and requires initial investment cost of x r suppose that vx v2 0 and xx x2 and also that vx xx v2 x2 that is buyer 1 s project generates a higher net return so is efficient to select but requires a higher investment than buyer 2 s project this assumption is reasonable a financially distressed or bankrupt firm will more likely turn profitable again under management willing to infuse more cash for instance or a firm that can generate a greater value from an underperforming target is more likely to have a higher opportunity cost e g of pursuing other target or standalone values the assumption is equally compelling in other contexts such as the government sale of oil leases

mechanism design by competing sellers a dynamic model with many sellers and buyers is constructed agents failing to trade may trade in the next period an equilibrium is found where sellers hold identical auctions and buyers randomize over the sellers they visit the distribution of buyer valuations is endogenous an auction with efficient reserve is an optimal mechanism from each seller s point of view in spite of the ability of any seller to alter the distribution of buyer types participating in the seller s mechanism by altering the mechanism copyright 1993 by the econometric society

privatizing highways in latin america fixing what went wrong revolution in the way highways are provided took place in latin america in the 1990s when more than fifty projects mainly in argentina brazil chile colombia and mexico were privatized using build operate and transfer bot contracts the so called lost decade of the 1980s resulted in low investment in infrastructure and inad equate maintenance and it created a major highway deficit across latin america this deficit together with chronic budgetary problems led gov ernments to embrace a scheme in which the private sector financed urgently needed infrastructure investments thereby freeing up public resources for projects in other priority areas 1 this paper draws some lessons based on the evidence accumulated to date in particular we show that policymakers face unpleasant choices when considering how to provide highways in the future the evidence suggests that private financing of new highways freed up fewer resources than expected in several cases public funds were diverted to bail out fran chise holders in financial trouble 2 government guarantees for private highway franchises also added to the fiscal burden and such guarantees

ex post information in auctions assumptions maskin and riley 1984 show that when the amount a buyer is willing to pay for the auctioned object is not independent of his wealth expected revenue tends to be lower under open bidding in contrast milgrom and weber 1982 relax the assumption that valuations are independent and assume instead that buyers private estimates of the item s value are affiliated a buyer with a high estimate then tends to believe that other buyers will have higher estimates as well maintaining the other assumptions milgrom and weber show that expected revenue is higher in the open ascending bid auction the intuition behind this result is that in sealed high bid auctions a buyer s bid is determined not only by his own beliefs but via their bids by the beliefs of those with lower estimates a buyer with a low estimate believes that others are more likely to have low estimates as well he therefore bids less aggressively it follows that a buyer can beat all opponents who have lower estimates with a bid which is lower than it would be if beliefs were independent 2 milgrom and weber also show that if the seller purchases and then publicly reveals information which is positively linked to buyers valuations this also raises expected gross revenue from an auction the intuition here is that this helps to reduce the difference in bidders willingness to pay 3 that such a reduction should raise expected revenue is easily understood for the limiting case in which the seller s information includes all the buyers private information for then all buyer asymmetry is eliminated and so expected buyer profit is bid away to zero the seller therefore reaps the entire surplus in the following pages the implications of correlated signals are further explored while milgrom and weber emphasized the potential gains to a seller who reveals information ex ante the focus here is on ex post information in section 2 it is shown that under weak assumptions the sealed high bid auction is dominated by any auction

horizontal mergers with synergies cash vs profit share auctions we consider takeover bidding in a cournot oligopoly when firms have private information concerning the synergy effect of merging with a takeover target and bidders can influence rivals beliefs through their bids we compare cash and profit share auctions first and second price supplemented by entry fees since non merged firms benefit from a merger if synergies are low bidders are subject to a positive externality with positive probability nevertheless pooling does not occur unlike cash auctions profit share auctions are not revenue equivalent and the second price profit share auction is more profitable than the other auctions

competition among sellers who offer auctions instead of prices abstract in this paper we study a large market in which sellers compete by offering auctions to buyers instead of simple fixed price contracts two variants of the model are studied one extends a model first analyzed by wolinsky rev econ stud 55 1988 71 84 in which buyers learn their valuations only after meeting sellers the other variant extends the model of mcafee econometrica61 1993 1281 1312 in which buyers know their valuations before they choose among available auctions the equilibrium array of auctions is characterized for each case and the efficiency properties of the equilibria are analyzed journal of economic literatureclassification numbers d41 d44 d82

costly auction entry royalty payments and the optimality of asymmetric designs abstract we analyze optimal auction mechanisms when bidders base costly entry decisions on their valuations and bidders pay with a fixed royalty rate plus cash with sufficient valuation uncertainty relative to entry costs the optimal mechanism features asymmetry so that bidders enter with strictly positive but different ex ante probabilities when bidders are ex ante identical higher royalty rates which tie payments more closely to bidder valuations increase the optimal degree of asymmetry in auction design further raising revenues when bidders differ ex ante in entry costs the seller favors the low cost entrant whereas when bidders have different valuation distributions the seller favors the weaker bidder if entry costs are low but not if they are high higher royalty rates cause the seller to favor the weaker bidder by less and the strong bidder by more

bidding and renegotiation in procurement auctions abstract in this paper we study renegotiation in procurement auctions a procurer with private valuation announces a project which can be completed by many firms these firms submit bids which may be renegotiated upon later in the equilibrium we characterize the probability of renegotiation is decreasing in both the cost of renegotiation and the number of firms we conclude that the initial bids are more than cheap talk these prices serve simultaneously as bids to win the contract and signals of the firms costs finally we compare our model to other renegotiation models in the literature

tobacco consumption and taxation in italy an application of the quaids model estimates are presented of the demand for tobacco in italy in the context of a demand system approach the grouping of goods is based on varian s non parametric test for weak separability the parametric demand model is banks blundell and lewbel s quaids model which combines the empirical flexibility of quadratic logarithmic engel curves with integrability estimation is by iterative gmm procedure the estimates are used in an analysis of welfare improving tax reforms which incorporates distributional data the results are discussed with respect to the special features of the italian tobacco market

modeling competitive bidding a critical essay in analyzing bidding modeling matters this paper is a critical analysis of the models available to aid competitive bidding decision making bidding strategy and auction design in real transactions after an introductory overview this paper describes the contexts in which auctions arise reviews the mainstream theory of single isolated auctions and discusses the important work involved in enrichment of this theory in doing so it indicates results that have been obtained and the sort of changes in analytical approach that are needed to tackle other critical enrichments the paper summarizes briefly what is known about the direct use of models by bidders and auction designers a general theme of this paper is that enriched models are needed to bring bidding theory closer to direct applicability in decision making

targeting target shareholders we integrate heterogeneity and uncertainty in investor valuations into a model of takeovers investors have dispersed valuations holding shares in firms they value more highly and a successful offer must win approval from the median target shareholder we derive the consequences for an acquiring firm s takeover offer its size and cash equity structure and implications for takeover premia firm returns share price dynamics the probability that a takeover succeeds and shareholder welfare we characterize when the acquirer prefers cash offers and when equity offers are best our model collectively reconciles various empirical regularities that have proven elusive to explain in one unified framework and we derive new testable predictions this paper was accepted by neng wang finance

the optimal mechanism for selling to a budget constrained buyer abstract this paper finds an optimal mechanism for selling a good to a buyer who may be budget constrained we consider a seller with one unit of a good facing a buyer with a quasilinear utility function if the buyer does not face a binding budget constraint textbook monopoly pricing is optimal by contrast the possibility of a binding budget constraint can make it optimal for the seller to use nonlinear pricing to commit to a declining price sequence to require the buyer to disclose his budget or to offer financing journal of economic literature classification numbers c70 d42 d45 d89 l12

implementation with contingent contracts we study dominant strategy incentive compatibility in a mechanism design setting with contingent contracts where the payoff of each agent is observed by the principal and can be contracted upon our main focus is on the class of linear contracts one of the most commonly used contingent contracts which consist of a transfer and a flat rate of profit sharing we characterize outcomes implementable by linear contracts and provide a foundation for them by showing that in finite type spaces every social choice function that can be implemented using a more general nonlinear contingent contract can also be implemented using a linear contract we then qualitatively describe the set of implementable outcomes we show that a general class of social welfare criteria can be implemented this class contains social choice functions such as the rawlsian which cannot be implemented using uncontingent transfers under additional conditions we show that only social choice functions in this class are implementable

contracts between art and commerce have had trouble mobilizing a set of economic tools suited to understand ing such issues as why these industries are organized as they are and what consequences public policies hold for them however some useful tools have recently emerged from the theory of contracts the basic structural characteristics of creative industries their technologies of production and consumption fiercely resist governance by anything approaching a complete contract yet they have evolved distinctive and serviceable contract forms that seem to differ from deal making patterns prevalent in other sectors great works of art may speak for themselves as connoisseurs declare but they do not lead self sufncient lives the inspirations of talented artists reach consumers hands eyes ears only with the aid of other inputs humdrum inputs that respond to ordinary economic incentives the visual artist needs a gallery to display and promote works to potential purchasers the author requires a publisher the pop musician a record label a symphony orchestra or dance company wants a hall and someone to market the tickets the hollywood movie the broadway play the tv sitcom each demands a diverse group of creative talents as well as a set of humdrum inputs the question of how contracts work between art and commerce thus is nested within the larger question of why artists and humdrum inputs choose to structure their relationships as they do it turns out that the organization of the arts and entertainment industries depends heavily on the contracts that link creative and humdrum agents these

welfare dominance and the design of excise taxation in the cote d ivoire governments in developing countries are continuously searching for new and improved tax bases existing methods of taxation in these countries frequently fall short of meeting acceptable criteria of efficiency equity and administrative ease this paper argues that there is a compelling fiscal rationale for encouraging greater reliance on taxing the consumption of electrical and telephone et services greater emphasis on this selective commodity tax base would contribute to the achievement of taxpayer equity and would be administratively easy to impose in addition the efficiency characteristics of this form of taxation may also add to the attractiveness of the et base

limited liability and mechanism design in procurement in the presence of cost uncertainty limited liability introduces the possibility of default in procurement with its associated bankruptcy costs when nancial soundness is not perfectly observable we show that incentive compatibility implies that nancially less sound contractors are selected with higher probability in any feasible mechanism informational rents are associated with unsound nancial situations by selecting the nancially weakest contractor stronger price competition auctions may not only increase the probability of default but also expected rents thus weak conditions are su cient for auctions to be suboptimal in particular we show that pooling rms with higher assets may reduce the cost of procurement even when default is costless for the sponsor

optimal allocation with ex post verification and limited penalties several agents with privately known social values compete for a prize the prize is allocated based on the claims of the agents and the winner is subject to a limited penalty if he makes a false claim if the number of agents is large the optimal mechanism places all agents above a threshold onto a shortlist along with a fraction of agents below the threshold and then allocates the prize to a random agent on the shortlist when the number of agents is small the optimal mechanism allocates the prize to the agent who makes the highest claim but restricts the range of claims above and below

decisions among defaults and the effect of the option to do nothing prior reviews have focused on if leadership literature pays homage to levels of analysis our purpose is to take stock of how well and in what ways levels issues are implemented in theory and hypotheses formulation construct conceptualization measurement and data analysis to illustrate these notions we provide an in depth review of 163 multi level empirical leader member exchange lmx and vertical dyad linkage vdl studies published between 1972 and 2012 our findings indicate that the volume of multi level studies in lmx has drastically increased recently and the majority of these studies cast theory and hypotheses at the same level with regard to alignment of levels of theory hypotheses with measurement and with data analyses however roughly one out of two published studies suffers from misalignment of levels most of this misalignment occurs in studies where the dyad level of analysis a key component of lmx is an explicit or implicit focus we conclude with a discussion of the implications for the lmx literature and present recommendations to guide multi level leadership research

a model of auction contracts with liquidated damages abstract this paper develops an auction model in which the winning bidder has an opportunity to cancel the transaction and pay damages to the seller in the event of a default on the auction contract the winning bidder pays liquidated damages or loses a posted deposit when renegotiation is possible increasing the deposit has no effect on the seller s payoff unless the seller has some bargaining power and exogenously receives some information about the winning bidder under these conditions the seller s payoff is decreasing in the level of the deposit journal of economic literature classification number d44

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

real time tacit bargaining payoff focality and coordination complexity experimental evidence we conduct a bargaining experiment where interaction is tacit and payoffs are earned and cumulated in real time we test hypotheses about the interaction between the focal properties of payoffs and the complexity of coordinating on an intertemporal behavior that achieves them the general finding is that when a payoff focal outcome requires a complicated coordination scheme bargainers tend to settle on a simpler and sometimes inefficient behavior

competition among sellers in securities auctions we study simultaneous security bid second price auctions with com petition among sellers for potential bidders the sellers compete by designing ordered sets of securities that the bidders can offer as payment for the assets upon observing auction designs potential bidders decide which auctions to enter we characterize all symmet ric equilibria and show that there always exist equilibria in which auctions are in standard securities or their combinations in large markets the unique equilibrium is auctions in pure cash we extend the model for competition in reserve prices and show that binding reserve prices never constitute equilibrium as long as equilibrium security designs are not call options jel d44 d82 g10 in economic and financial markets rights to control and exploit assets with the potential to generate cash flows are often sold through auctions while in some auc tions the winner s future profits from the asset cannot be used as a basis for payment so only cash bids are possible in many cases it is possible to observe and verify the ex post cash flows this means that bidders can submit their bids in the form of securities the values of which are contingent on future cash flows from the asset securities auctions are common in the real world examples include government sales of oil leases lead plaintiff wireless spectrum and highway building auctions many other transactions though not formally auctions are similar to securities auc tions in nature examples include corporate takeovers intercorporate asset sales book publishing advertising and venture capital markets 1 in this paper we analyze equilibrium auction mechanisms when sellers compete for potential bidders by altering security designs of their auctions rather than reserve prices as in the prior literature specifically we consider an environment in which

bidding to lose auctions with resale a losing bidder can still purchase the prize from the winner after the auction we show why a strong bidder may prefer to drop out of the auction before the price has reached her valuation and acquire the prize in the aftermarket a strong bidder may be in a better bargaining position in the aftermarket if her rival won at a relatively low price so it can be common knowledge that in equilibrium a weak bidder will win the auction and even without uncertainty about relative valuations resale will take place the possibility of reselling to a strong bidder attracts weak bidders to participate in the auction and raises the seller s revenue

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

the dynamics of coalition formation a multilateral bargaining experiment with free timing of moves abstract we experimentally investigate behavior in a finitely repeated coalition formation game played in continuous time subjects interact in groups of three bargaining over the distribution of payments which occur at regular time intervals during a given interval payments occur if and only if a majority is in agreement about their allocation aside from these rules we purposefully impose little structure on the bargaining process we investigate the frequency and stability of different types of agreements as well as transitions between them two thirds of payments involve divisions where one player receives nothing almost half of which are equal splits of the entire surplus between two players the most stable division is the three way equal split transitions between agreements are frequent and are generally consistent with myopic payoff maximization in the sense that subjects do not accept short term losses we also find that transitions between coalitions are not markovian in particular players more often forgo short term gains in order to remain in a coalition if it has proven stable in the past

consumption dominance curves testing for the impact of indirect tax reforms on poverty abstract a new tool is presented to test for the robustness of the impact on poverty of marginal tax reforms for pairs of commodities consumption dominance curves exist for every order of stochastic dominance an illustration is provided with bolivian data

optimal design of securities under asymmetric information a firm must decide what security to sell to raise external capital to finance a profitable investment opportunity there is ex ante asymmetry of information regarding the probability distribution of cash flow generated by the investment in this setting we derive necessary and sufficient conditions for a security to be optimal uniquely optimal that is for pooling at this security to be an the unique equilibrium outcome using these conditions we show that the debt contract is uniquely optimal if and only if cash flows are ordered by strict conditional stochastic dominance finally we derive an equivalence relationship between optimal security designs and designs that minimize mispricing