the optimal auction a mechanism for optimal third degree price discrimination abstract recently bulow and roberts have indicated that there is a close correspondence between the optimal auction mechanism introduced by myerson and the problem of a monopolist practising third degree price discrimination in several markets they find differences however in the choice variables and in the constraints of the two problems a reinterpretation of the price discrimination problem leads to the demonstration that an optimal auction is an optimal way to practise price discimination

labor market regulation and the winner s curse i introduction in march 1992 the government of british columbia b c canada introduced the skill development and fair wage policy sdfwp which mandated the payment of fair wages on provincial public construction projects and promulgated the wage scales for construction crafts in 1994 sdfwp was enacted as legislation similar laws have been enacted in england and the united states in the past and as allen s 1983 survey shows their impact is a subject of controversy opponents argue that regulated wages distort the labor market reduce competition and increase construction costs proponents of the law on the other hand not only emphasize its long term positive effects on the living and working conditions of workers training and the consequent productivity increases but also claim that the alleged inflationary effect is counterbalanced by the improved labor and product quality in this paper i focus on another consequence of wage regulation namely its impact on bidding for public construction contracts i propose that the wage regulation will affect the construction market not only by changing the costs and quality of inputs but also through the transformation of the nature of the uncertainty that the contractors face during the bidding process the auction theory predicts that the optimal bid is responsive to the type of uncertainty under the so called common values cv model bidders face some common source of uncertainty regarding the construction cost and the winner is prone to underestimate the true cost rational and experienced bidders avoid this winner s curse by adding a surcharge to their estimated cost as uncertainty assumes a less collective and more private nature however the winner s curse becomes less of a problem and the rational bidder does not need to resort to the additional surcharge as a protection from underbidding the sdfwp may result in such a transformation in the bidding environment by reducing the uncertainty over labor costs that are common to all nonunion contractors elimination of the surcharge in turn may even offset the possibly higher labor cost in this paper i will test indirectly the hypothesis that the sdfwp influenced the bidding environment in b c in this fashion under the working assumption that contractors follow optimal rules in determining bids for this purpose i will use data from 54 public school construction projects tendered between 1989 and 1995 and compare the pre and post sdfwp unit bid prices the paper is organized as follows in section ii i discuss the relevant auction literature and the hypotheses i state the main hypotheses of the paper concerning the sdfwp and bidding behavior in section iii section iv describes the data an empirical model of bid price determination is presented and estimated in sections v vi and vii the final section concludes ii bidding and the winner s curse bidders for public school construction projects in b c submit sealed bids at a specified date and the lowest bidder wins the contract 1 many of the early sealed bid first price optimal bidding models presented in economics civil engineering and operations research literatures follow friedman 1956 according to these models bidders are risk neutral non colluding expected profit maximizers competing over a single project friedman suggests that the probability of being the lowest competitor is equal to the product of the probabilities of underbidding each competitor probability distributions of the competitors bids are to be obtained from the data on previous tenders this approach lays bare critical elements in competitive bidding first the contractor faces a trade off between profitability and the probability of winning the contract the bid must be high enough to yield a positive profit and low enough to win over other bids second superior cost efficiency enables the contractor to change the parameters of this trade off in his or her favor

how to set minimum acceptable bids with an application to real estate auctions in a general auction model with affiliated signals common components to valuations and endogenous entry we compute the equilibrium bidding strategies and outcomes and derive a lower bound on the optimal reserve price this lower bound can be computed using data on past auctions combined with information about the subsequent sales prices of unsold goods we illustrate how to compute the lower bound using data from real estate auctions

sex differences in tenure profiles effects of shared firm specific investment this article employs a model of masanori hashimoto with extensions by donald parsons to analyze variation in tenure by sex age and firm type fixed wage contracts eliminate postcontractual opportunism associated with firm specific human capital investment however such contracts result in inefficient quits and terminations calibration of the sharing of this investment between workers and employers minimizes the costs of these inefficient separations moreover this optimal sharing rate varies systematically with the characteristics listed above these tenure slope implications are tested with favorable results

an empirical analysis of entrant and incumbent bidding in road construction auctions this paper explores differences in the bidding patterns of entrants and incumbents in road construction auctions we find that entrants bid more aggressively and win auctions with significantly lower bids than incumbents the differences in their bidding patterns are consistent with a model of auctions in which the distribution of an entrant s costs exhibits greater dispersion than that of an incumbent s and relations of stochastic dominance in the distributions do not persist for the entire range of estimated costs we also find that more efficient firms bid on average more aggressively and firms with greater backlogs bid less aggressively

firm specific human capital as a shared investment reply as edwin leuven and hessel oosterbeek 2001 point out rather than performing the comparative statics analysis on the effect of increasing uncertainty my original study limited the analysis to degenerate cases and refrained from inferring a possible monotonic relationship between uncertainties and the share ratio hashimoto 1981 pp 479 80 leuven and oosterbeek do not dispute my conclusions for degenerate cases donald o parsons 1986 p 826 later asserted such a monotonic relationship without reporting a comparative statics analysis leuven and oosterbeek use a uniform distribution of productivity to dispute parsons assertion hashimoto and jeong geon lee 1994 reached a similar conclusion to theirs given the hashimoto lee comparative statics analysis i view the most significant contribution of leuven oosterbeek to be not so much their comparative statics as their explicit formulation to account for what has become known in the literature as enforceability of contracts in the 1981 paper i was concerned with the enforceability issues so i adopted a certaintyequivalent approach to the fixed wage formulation in the face of double informational asymmetry between the employer and worker i then focused on the becker type share determination of specific human capital returns gary s becker 1962 leuven and oosterbeek directly formulate the enforceability of employment contracts in terms of a fixed wage rather than in terms of the sharing ratio by considering the enforceability or the incentive compatibility issues in a fuller perspective i conclude that the certainty equivalent formulation i adopted in my 1981 model has an internal infirmity in my opinion this infirmity is a point that a serious comment on hashimoto 1981 should underscore i do not think that leuven and oosterbeek s comment 2001 is sufficiently articulate or structured to highlight this point space does not permit a full discussion so let me remark briefly on an important point that leuven and oosterbeek should have highlighted but did not the explicit and direct determination of the incentive compatible fixed wage w leads me to conclude that the joint maximand is not the unconditional expectation ev s 2 ey s as i originally formulated rather it is the conditional expectation estay v s 2 y s conditional on both parties not separating in the latter formulation the determination of the fixed wage w implies an ex ante determination of the share parameter to be a 5 estay w 2 y s estay v s 2 y s which is equivalent to leuven and oosterbeek s definition of a in spite of the difference in formulation between leuven oosterbeek and hashimoto lee the two studies obtain essentially the same comparative statics results this is because both formulations rely on incentive compatibility conditions for separation decisions where the forces at work are basically the same thus leuven and oosterbeek confirm the accuracy of the degenerate results reported in hashimoto 1981 for nondegenerate cases the comparative statics are generally ambiguous using a uniform distribution leuven and oosterbeek do find that the optimal wage decreases with the uncertainty in the market and increases with the uncertainty in the firm p 345 these findings are equivalent to what hashimoto and lee 1994 found that the optimal share ratio decreases with the uncertainty in the outside productivity and increases with the uncertainty in the inside productivity the leuven oosterbeek comment contributes a technical advance but it retains the essential economic logic department of economics 410 arps hall ohio state university 1945 north high street columbus oh 43210 i am grateful to hajime miyazaki for extensive discussions that elucidated theoretical issues in modeling information asymmetric employment relations and for improving the exposition and to teresa schoellner for her very competent research assistance however i bear full responsibility for any remaining shortcomings 1 further analytical details are available upon request

do auctions induce a winner s curse new evidence from the corporate takeover market abstract we contrast the winner s curse hypothesis and the competitive market hypothesis as potential explanations for the observed returns to bidders in corporate takeovers the winner s curse hypothesis posits suboptimal behavior in which winning bidders fail to adapt their strategies to the level of competition and the amount of uncertainty in the takeover environment and predicts that bidder returns are inversely related to the level of competition in a given deal and to the uncertainty in the value of the target our measure of takeover competition comes from a unique data set on the auction process that occurs prior to the announcement of a takeover in our empirical estimation we control for the endogeneity between bidder returns and the level of competition in takeover deals controlling for endogeneity we find that the returns to bidders are not significantly related to takeover competition we also find that uncertainty in the value of the target does not reduce bidder returns related analysis indicates that prestigious investment banks do not promote overbidding analysis of post takeover operating performance also fails to find any negative effects of takeover competition as a whole the results indicate that the breakeven returns to bidders in corporate takeovers stem not from the winner s curse but from the competitive market for targets that occurs predominantly prior to the public announcement of bids

strategic delay in market entry two firms are contemplating entry into a market that is viable for only one firm in a good state we show that even if each firm receives a signal that perfectly reveals a good state both might strategically delay entry owing to the fear that the other firm might enter in the same period as well we also find the conditions where the informed firm will let the rival firm know about the market s profitability and the two will merge to enter the market we discuss the applications of this model to the oil industry and the generic drug industry jel classification l71 d8

managing online auctions current business and research issues the internet s computational power and flexibility have made auctions a widespread and integral part of both consumer and business markets though online auctions are a multi billion dollar annual activity with a growing variety of sophisticated trading mechanisms scientific research on them is at an early stage this paper analyzes the current state of management science research on online auctions it develops a broad research agenda for issues such as the behavior of online auction participants the optimal design of online auctions the integration of auctions into the ongoing operation of firms and the use of the data generated by online auctions to inform future trading mechanisms these research areas will draw from applied and theoretical work spanning management science economics and information systems

a dynamic mincer equation with an application to portuguese data this article argues in favour of a dynamic specification of the mincer equation where the past observed earnings play the role of additional explanatory variable for current observed earnings a dynamic approach offers an explanation why the return to schooling in terms of observed earnings is not independent of labour market experience as suggested by some recent empirical evidence for the united states

the impact of obesity on wages abstract previous studies of the relationship between body weight and wages have found mixed results this paper uses a larger data set and several regres sion strategies in an attempt to generate more consistent estimates of the effect of weight on wages differences across gender race and ethnicity are explored this paperjnds that weight lowers wages for white females ols esti mates indicate that a difference in weight of two standard deviations roughly 65 pounds is associated with a difference in wages of 9 percent in absolute value this is equivalent to the wage effect of roughly one and a half years of education or three years of work experience negative cor relations between weight and wages observed for other gender ethnic groups appear to be due to unobserved heterogeneity i introduction several previous studies have found among females a negative cor relation between body weight and wages there exist three broad categories of ex planations for this finding the first explanation is that obesity lowers wages for example by lowering productivity or because of workplace discrimination the sec ond is that low wages cause obesity this would be true if poorer people consume

a test that discriminates between two models of the dutch first auction non isomorphism abstract previous experiments reject the hypothesis that the dutch and first auctions are isomorphic two alternatives to the standard normal form analysis of the dutch auction are formalized 1 bidders violate bayes rule 2 bidders experience a utility of suspense that is additive with the utility of monetary reward paired comparisons of bidding behavior between groups in which the treatment is to triple the payoff of the baseline group yields no significant effect of this treatment we therefore reject the utility of suspense model

earnings persistence and schooling returns abstract the standard approach to the estimation of schooling returns disregards earnings persistence using longitudinal data for belgian male workers echp 1994 2001 we show that earnings persistence matters

status quo maintenance reconsidered changing or incomplete preferences after reviewing the evidence for status quo maintenance sqm i consider how to reconcile sqm with traditional consumer theory behavioural economists usually let agents preferences change as a function of their endowments treating the same person with different endowments as a set of distinct agents many properties of preferences then become immune to empirical test and it becomes impossible to judge whether an agent s decisions make the agent better or worse off this impedes prediction of when decision rules are likely to change sqm can alternatively be explained with unchanging preferences if preferences are incomplete sqm is then consistent with self interest and there is no reason why it should not persist

collusive bidder behavior at single object second price and english auctions models of collusive bidder behavior at single object second price and english auctions are provided the ind ependent private values model is generalized to permit the formulatio n of coalitions and a strategic response by the auctioneer cooperati ve strategies are found to be dominant in these models coalitions of any size are viable and the payoff to each member increases with th e size of the coalition in addition the collusive strategies of the coalition represent a noncooperative equilibrium the optimal respon se of the auctioneer is to establish a reserve price that is a functi on of the coalition s size these and other features of the model are found to be consistent with the essential features of actual behavio r copyright 1987 by university of chicago press

changes in the u s wage structure 1963 1987 application of quantile regression the 1980 s witnessed rapid changes in the structure of wages in the united states in this study recently developed techniques for quantile regression are applied to every march current population survey since 1964 and changes in the return to schooling and experience at different points of the wage distribution are examined the quantile regression technique parsimoniously describes the entire conditional wage distribution this conditional distribution is used to examine changes in within group wage inequality as measured by the difference between conditional quantiles two linear models are considered a simple one group model and a 16 group model the results suggest that the returns to schooling and experience differ across quantiles of the wage distribution but their patterns of change are similar significant differences in wage inequality are also found across the various skill groups the paper also presents a new imputation method for cps data

do better informed investors always do better a buyback puzzle we explore the value of private investment information using data from a singular source auctions of yearling racehorses horse breeders possess superior information about their own horses and have strong financial incentives to buy the best of these back at auction however those they repurchase subsequently perform significantly worse on average earning 30 less at the racetrack than horses purchased by outsiders moreover this underperformance is concentrated in male horses despite these being purchased exclusively for racing purposes these puzzling findings cannot be explained by differences in horse risk or breeder abilities or by nonfinancial objectives or by behavioral or selection biases jel g02 g11 g14 l83 d44

information revelation through option exercise in many real world situations agents must formulate option exercise strategies with imperfect information in such a setting agents may infer the private signals of other agents through their observed exercise strategies the building of an office building the drilling of an exploratory oil well and the commitment of a pharmaceutical company toward the research of a new drug all convey private information to other market participants this article develops an equilibrium framework for option exercise games with asymmetric private information many interesting aspects of the patterns of equilibrium exercise are analyzed in particular informational cascades where agents ignore their private information and jump on the exercise bandwagon may arise endogenously article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

obesity and happiness this article provides insight on the relationship between individual obesity and happiness levels using the latest available panel data from germany german socio economic panel gsoep uk british household panel survey bhps and australia household income and labour dynamics in australia hilda we examine whether there is statistical evidence on the impact of overweight on subjective well being instrumental variable iv analysis is utilized under the presence of endogeneity stemming from several explanatory variables results indicate that in all three countries obesity has a negative effect on the subjective well being of individuals the results also have important implications for the effect of other socio demographic economic and individual characteristics on well being

the excess sensitivity of layoffs and quits to demand excessive layoffs in bad times and excessive quits in good times both stem from the same weakness in practical employment arrangements the specific nature of worker firm relations creates a situat

resource allocation models with risk aversion and probabilistic dependence offshore oil and gas bidding bidding for offshore u s oil and gas leases is a major corporate resource allocation problem involving enormous uncertainties and very high stakes this paper presents two new operationally useful decision analysis models to aid in bidding for oil and gas leases they are unique in that they consider risk aversion and probabilistic dependence among the values of the leases with both bid levels and partnership shares as continuous decision variables they are suitable for use in evaluating proposed bidding policies or as objective functions in optimization formulations practicality of their data requirements is evidenced by use of one of the models for several years in a major oil company comparison of optimal solutions to these models on a small example using actual oil company data demonstrates the importance of taking risk aversion and probabilistic dependence into account and provides insight into the adequacy of independence and conditional dependence as approximations for dependence these results are pertinent to other real world allocation problems that share many of the characteristics of bidding problems such as r d funds allocation

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

the effect of shill bidding upon prices experimental evidence this paper explores through a series of experiments the effect of shill bidding upon revenues and prices in auctions we study the practice of shill bidding in a common value framework our findings are consistent with the prediction that if bidders are aware of the possibility of seller participation in an auction profits will be reduced on average we also study factors that affect bidder and seller participation decisions shill bidding can alleviate the problem of the winner s curse by lowering the price and it can thus provide benefits to bidders

returns to education and wage equations the paper shows why considering a number of education dependent covariates in a wage equation decreases the coefficient of education in that equation this result is illustrated empirically with a meta analysis for portugal the education coefficient decreases when covariates are used that can be considered post education decisions on the other hand it is independent of sample size tenure and whether hourly or monthly wages are used these results support the use of a simple specification of the mincer equation for the study of the total returns to education

shared agents and competition in laboratory english auctions at livestock auctions the same purchasing agent can represent more than one processor repeated multiple unit english auctions are created in a laboratory to measure the impact of shared agents on trade prices under alternative treatments with six and as few as two agents representing six principals treatments are constructed in which the agents either know or do not know quantity for sale and in which there are progressively fewer agents bidding knowledge of quantity for sale can be anticompetitive evolution toward increased market concentration leads to consistent anticompetitive pricing resulting in prices significantly lower than the predicted competitive equilibrium prices

firm specific human capital as a shared investment comment employment relationships typically involve the division of surplus surplus can be the result of a good match a monopoly rent or a quasirent that arises because of a specific investment the division of this surplus is of economic interest as it is a determinant of turnover investment and wages gary s becker 1962 argued in the context of specific human capital investments that the incumbent employee and firm will share the surplus this notion was formalized in a prototypical model of surplus sharing as first proposed by masanori hashimoto 1981 the model has been studied extensively among others by h lorne carmichael 1983 robert e hall and edward p lazear 1984 and donald o parsons 1986 while elizabeth becker and cotton m lindsay 1994 provide an empirical application the key feature of the model is the existence of transaction costs both the employee and the firm have ex ante uncertain private information on which they cannot write a contingent contract this makes that they write a nonrenegotiable contract that specifies a fixed wage after this the firm learns the value of the employee s marginal product whereas the employee learns the value of his outside option both parties then decide unilaterally whether to separate or not and inefficient separations may occur the wage is set in such a way as to maximize the expected total surplus the present analysis will consider the role of uncertainty in this model this has not been done before in a rigorous way hashimoto considered only degenerate cases his analysis suggests that the wage will be low when the uncertainty of the market conditions is small and high when the uncertainty of the conditions inside the firm is small parsons 1986 makes a claim that this is actually the case without deriving the result this paper shows that the comparative statics are ambiguous and may well be the opposite of those suggested by hashimoto and claimed by parsons it also provides the intuition that is behind this result namely that uncertainty not only influences turnover but also the option value of the match and its opportunity cost section i briefly summarizes hashimoto s model and shows that without further assumptions the comparative statics are ambiguous section ii derives an explicit solution of the wage section iii briefly considers alternative wage setting schemes and section iv concludes

exploration and development of u s oil and gas fields 1955 2002 we study the exploration and development of oil and gas fields in the u s over the period 1955 2002 we make four contributions to explain the economic evolution of the oil and gas industry during this period first we derive a testable model of the dynamics of competitive oil and gas field exploration and development second we show how to empirically distinguish hotelling scarcity effects from effects due to technological change third we test these hypotheses using statewide panel data of exploration and development drilling we find that the time paths of exploration development and total wells drilled are dominated by hotelling scarcity effects finally we offer an explanation for why fixed costs from exploration can make the contracting equilibrium in the mineral rights market efficient

contract selection and performance in competitive bidding for electricity generation third parties bidding to supply utilities with electric generation facilities is a new and increasingly important practice six states have either establishes bidding programmes or are considering doing so the paper uses data from maine the first state to use electric generation bidding to examine which bids are awarded contracts and which contracts fail to fulfill their provisions results show that bid price plays a very small role if any in the selection process

auctions with endogenous quantity this article studies auctions in which several sellers compete for the right to sell to a market characterized by a negatively sloped demand curve in this environment the quantity traded becomes endogenous this effect leads to three results concerning the outcomes of open versus first price sealed bid auctions first an open auction yields a higher expected price than does sealed bidding second and more important the open auction captures less of the potential gains from trade than does the sealed bid auction third for broad classes of demand curves the efficiency gains from switching to sealed bids from an open auction accrue to both sellers and the buyer so that all concerned parties would agree to the change a direct application of the theory is to procurement the heavy use of sealed bidding in procurement is seen as rational in light of these results auction models with endogenous quantity could be an alternative to price setting oligopoly models for the study of price formation in general for the latter impose strong information requirements on agents and yield only equilibrium price vectors not equilibrium processes for determining prices

can relaxation of beliefs rationalize the winner s curse an experimental study we use a second price common value auction called the maximal game to experimentally study whether the winner s curse wc can be explained by models which retain best response behavior but allow for inconsistent beliefs we compare behavior in a regular version of the maximal game where the wc can be explained by inconsistent beliefs to behavior in versions where such explanations are less plausible we find little evidence of differences in behavior overall our study casts a serious doubt on theories that posit the wc is driven by beliefs

a comparison of naive and experienced bidders in common value offer auctions a laboratory analysis laboratory economics experiments typically use financially motivated students as subjects an ongoing issue is whether this is an appropriate subject pool since the students are typically inexperienced in the types of decision making required of them in the lab this paper addresses this issue in the context of common value offer auctions as we compare the behaviour of experienced business executives in the construction contract industry experts with that of naive student subjects results of previous research of this sort have been equivocal in some cases experts make the same errors as novices in other cases they do not hogarth and reder i987 a series of sealed bid common value offer auctions in which bidders compete for the right to supply an item of unknown cost were conducted inherent to common value auctions cvas is an adverse selection problem which may result in below normal or negative profits the winner s curse experimental studies have documented the presence of the winner s curse with financially motivated student subjects in high price demand side auctions kagel et al i986 kagel and levin i986 the experiments reported here generalise these earlier studies from bid to offer auctions also in employing offer auctions we establish a setting with which our experts are familiar thus allowing their experience the best chance to manifest itself

hedging winner s curse with multiple bids evidence from the portuguese treasury bill auction auctions of government securities typically permit bidders to enter multiple price quantity bids despite the widespread adoption of this institutional feature and its use by bidders the motivations behind its use and its effects on auction outcomes are not well understood theoretically and have been little explored empirically this paper proposes that bidders use multiple bids to adjust for winner s curse by spreading her bids a bidder aligns her outcome more closely to the aggregate outcome of the auction this hypothesis is tested using bidding data from treasury bill auctions in portugal i find that ceteris paribus a bidder submits a greater number of bids and disperses prices on these bids more widely when there is a greater potential for winner s curse in particular both these measures of bid spreading increase with the volatility of market interest rates and the expected number of participating well informed bidders

the effectiveness of english auctions abstract we study the performance of the english auction under different assumptions about the seller s degree of bayesian sophistication we define the effectiveness of an auction as the ratio between the expected revenue it generates for the seller and the expected valuation of the object to the bidder with the highest valuation total surplus we identify tight lower bounds on the effectiveness of the english auction for general private values environments and for private values environments where bidders valuations are non negatively correlated for example when the seller faces 12 bidders who the seller believes have non negatively correlated valuations whose expectations are at least as high as 60 of the maximal possible valuation an english auction with no reserve price generates an expected price that is more than 80 of the value of the object to the bidder with the highest valuation

a laboratory comparison of uniform and discriminative price auctions for reducing non point source pollution auctions allow regulators to identify land management changes with substantial environmental benefit and low opportunity cost this paper reports an experiment in which seller subjects compete in sealed offer auctions to obtain part of a fixed budget allocated by the experimenter regulator to subsidize pollution abatement one treatment employs uniform price auction rules whereas another treatment employs discriminative price auction rules we find that most offers in the uniform price auction are within 2 of cost whereas most offers in the discriminative price auction are at least 8 greater than cost nevertheless the discriminativeprice auction has superior overall market performance

econometrics of first price auctions in this paper we propose an estimation method for the empirical study of theoretical auction models we focus on first price sealed bid and descending auctions and we adopt the private value paradigm where each bidder is assumed to have a different private value only known to him for the object that is auctioned following mcfadden 1989 and pakes and pollard 1989 our proposed method is based on simulations specifically the method relies on a simulated nonlinear least squares objective function appropriately adjusted so as to obtain consistent estimates of the parameters of interest we illustrate the proposed method by studying a market of agricultural products where descending auctions are used our analysis takes into account heterogeneity of the auctioned objects and the fact that only the winning bid is observed we estimate the parameters that characterize the distribution of the unobserved private values for each auctioned object

auction design for the allocation of emission permits in the presence of market power to the extent that emission permits have been allocated using market mechanisms this has been done using a sealed bid auction design typically with discriminatory prices however several authors have recommended the ascending auction format basically two competing ascending auction designs have been suggested the standard ascending auction with clock or demand schedules or an alternative ascending clock implementation of vickrey pricing the latter design was introduced as a response to problems of bid shading under the sealed bid and the standard ascending auction format the purpose of this paper is to investigate the allocation of permits under these two alternative mechanisms the auction process and the resulting market outcome in the presence of oligopolistic competition are simulated in this setting it is not obvious that bid shading is the optimal strategy under the standard design nor is it obvious that sincere bidding is the optimal strategy under the alternative ascending auction design the alternative auction format makes it less costly to pursue a strategy to increase market shares through the acquisition of emission permits thus increasing the competitor s costs leading to overbidding as the optimal strategy

multi criteria auctions without full comparability of bids the emergence of auction mechanisms that support bids characterized by several attributes is one of the most recent evolutions within auction theory these mechanisms referred to as multi attribute multiple issue or multi dimensional auctions are at the intersection between multi criteria decision and auction theories the purpose of this paper is to introduce multi criteria auctions the originality of which is not to require full comparability between bids we claim that this distinctive feature is of great interest especially in procurement situations furthermore the existence of potential incomparability between multi dimensional offers will permit us to manage different bidding niches coexisting within the same bidding space a theoretical framework based on a general preference structure will be introduced and then referenced to existing approaches such as multi attribute auctions or new ones such as dominance based multi criteria auctions or butterfly auctions

empirical age earnings profiles the human capital earnings function in which earnings are expressed as a quadratic in potential experience is probably the most widely accepted empirical specification in economics in spite of its widespread acceptance the human capital earnings function provides a very poor approximation of the true empirical relationship between earnings and experience the standard formulation understates early career earnings growth by about 30 50 and overstates midcareer growth by 20 50 however simple alternative specifications that fit the data are available

did installed base give an incumbent any measurable advantages in federal computer procurement this research examines the relative strength and significance of the status of incumbent contractor in federal computer procurement one finding as expected is that an agency is likely to acquire a system from an incumbent vendor another finding perhaps more interesting is that the in compatibility between a buyer s installed base and a potential system also influences the vendor choice a result that may be the first econometric measurement of the competitive effects of incompatibility an illustration of this thesis comes from ibm s experience new evidence shows however that ibm s apparent disadvantage with government agencies is largely due to incompatibilities in ibm s product line

the outsourcing of r d through acquisitions in the pharmaceutical industry abstract we examine the performance of 160 pharmaceutical acquisitions from 1994 to 2001 and find evidence that on average acquirers realize significant positive returns these returns are positively correlated with prior acquirer access to information about the research and development activities at target firms and a superior negotiating position a unique desperation index is employed to determine the current status of a firm s internal productivity we find that firms experiencing declines in internal productivity or which are more desperate are more likely to engage in an outsourcing type acquisition in an effort to replenish their research pipelines

hindsight foresight and insight an experimental study of a small market investment game with common and private values we experimentally test an endogenous timing investment model in which sub jects privately observe their cost of investing and a signal correlated with the common investment return subjects overinvest relative to nash we separately consider whether subjects draw inferences in hindsight and use foresight to delay profitable investment and learn from market activity in contrast to nash cursed equilibrium and level k predictions behavior hardly changes across our experimental treatments maximum likelihood estimates are inconsistent with belief based theories we offer an explanation in terms ofboundedly ratio nal rules of thumb based on insights about the game which provides a better fit than quantal response equilibrium jel c72 d82 d83 gil

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

viewpoint on the generalizability of lab behaviour to the field abstract we can think of no question more fundamental to experimental economics than understanding whether and under what circumstances laboratory results generalize to naturally occurring environments in this paper we extend levitt and list 2006 to the class of games in which financial payoffs and doing the right thing are not necessarily in conflict we argue that behaviour is crucially linked to not only the preferences of people but also the properties of the situation by doing so we are able to provide a road map of the psychological and economic properties of people and situations that might interfere with generalizability of laboratory result from a broad class of games

entry and r d in procurement contracting abstract a model of competitive procurement and contracting is presented in this paper the key features of the model include precontract r d an endogenous number of homogeneous firms and sealed bid auction rules both diminishing and constant returns to scale drs and crs in r d expenditure technologies are considered i find that the sealed bid first price auction fpa is equivalent to the second price auction spa under drs technology the revenue equivalence theorems breaks down under crs because multiple equilibria arise in the r d stage when spa is used howerer spa yields a unique perfect equilibrium given sufficient heterogeneity among potential firms the free entry perfect equilibrium is also characterized the buyer prefers free entry through an appropriate selection of the reservation price

auctions and bidding a primer maybe the contractor was right to think bid jobs are different but it is more likely that he suffered from too simple a view of what is involved in preparing a competitive bid our analysis will show that even an experienced estimator working in familiar terrain can lose money if he doesn t understand the subtleties of competitive bidding the phenomenon experienced by the painting contractor known as the winner s curse is just one of the surprising and puzzling conclusions that have been turned up by modern research into auctions another is the theoretical proposition supported also by some experimental evidence that for example a sealed bid treasury bill auction in which each buyer pays a price equal to the highest rejected bid would yield more revenue to the treasury than the current procedure in which the winning bidder pays the seemingly higher amount equal to his own bid there are also subtle results that demonstrate the equivalence of such apparently different institutions as the standard sealed bid auction in which the auctioneer seller sells the goods to the highest bidder for a price equal to his bid and the dutch auction in which the auctioneer seller begins by asking a high price and gradually lowers the price until

naive bidding this paper presents an equilibrium explanation for the persistence of naive bidding specifically we consider a common value auction in which a naive bidder who ignores the winner s curse competes against a fully rational bidder we show that the naive bidder earns higher equilibrium profits than the rational bidder when the signal distribution is symmetric and unimodal we then consider a sequence of such auctions with randomly selected participants from a population of naive and rational bidders with the proportion of bidder types in the population evolving in response to their relative payoffs in the auctions we show that the evolutionary equilibrium contains a strictly positive proportion of naive bidders finally we consider more general examples in which a naive bidder matched against a rational bidder does i worse than his rational opponent but ii better than a rational bidder matched against another rational bidder again the evolutionary equilibrium contains a strictly positive proportion of naive bidders the results suggest that overconfident recent entrants in internet and other low transaction cost auctions of items that appeal to a mass audience may earn higher payoffs than their experienced competitors and thus will not eventually be driven from the market

a weighty issue revisited the dynamic effect of body weight on earnings and satisfaction in germany we estimate the relationship between changes in the body mass index bmi and wages or satisfaction respectively in a panel of german employees in contrast to previous findings our dynamic models indicate an inverse u shaped association between bmi and wages as the implied maximum occurs in the overweight category the positive trend in weight may not yet constitute a major limitation to productivity further investigation points out a stronger association among young workers and workers with jobs that are less protected work satisfaction of young workers is associated with bmi beyond the effect of earnings

auctions for initial sale of annual catch entitlement we use a laboratory experiment calibrated to a representative new zealand fishery to assess three sealed bid multi unit demand auction mechanisms under consideration for allocating quota for species being introduced into the quota management system these auctions allocate the k units to the k highest bids but prices are determined according to discriminative kth price and k 1st price rules in our experiment the auctions are equally efficient but revenue is highest in the discriminative auction and lowest in the k 1st price auction results are robust to industry subjects and subjects are responsive to the across unit bidding incentives present in multi unit demand auctions

bidding in common value auctions how the commercial construction industry corrects for the winner s curse experienced construction industry executives suffer from a winner s curse in laboratory common value auction markets dyer et al dyer d j h kagel d levin 1989 a comparison of naive and experienced bidders in common value offer auctions laboratory analysis econom j 99 108 115 this paper identifies essential differences between field environments and the economic theory underlying the laboratory markets that account for the executives success in the field and a winner s curse in the lab these are 1 industry specific mechanisms which enable contractors to escape the winner s curse even when they bid too low 2 learned industry specific evaluative processes which enable experienced contractors to avoid the winner s curse in the first place and 3 important private value elements that underlie bidding also identified are a number of industry specific bidding characteristics whose evolution can be explained using modern auction theory lessons are drawn regarding the use of experime

the economics of private sector training a survey of the literature abstract this survey organizes and summarizes existing theoretical work on private sector training the theoretical models focus on investment efficiency finance and turnover recent developments in the on the job training literature are characterized by strategic interaction between employers and employees and emphasize market imperfections

asymmetric information information externalities and efficiency the case of oil exploration in this article we examine the efect of private information and information externalities on the ex post eficiency of investment in oil exploration we show that too much drilling tends to occur ifjirms believe that the area is likely to contain a sizeable pool of oil and too little drilling occurs if the opposite is true bargaining with well defined property rights to the information externality can eliminate underinvestment but overinvestment remains a problem because firms have an incentive not to disclose their private information

is there a return risk link in education abstract using results for 16 countries the positive relationship between return to education and the risk involved in this investment is studied it seems that most of the countries fit the pattern well higher risk higher return and the tradeoff is rather large

the impact of public information on bidding in highway procurement auctions a number of papers in the theoretical auction literature show that the release of information regarding the seller s valuation of an item can cause bidders to bid more aggressively this widely accepted result in auction theory remains largely untested in the empirical literature recent theoretical work has also shown that this effect can be more pronounced in auctions with larger common cost uncertainty we examine the impact of a policy change by the oklahoma department of transportation that led to the release of the state s internal estimate of the costs to complete highway construction projects we perform a differences in differences analysis comparing bidding in texas a state that had a uniform policy of revealing the same information all throughout the period of analysis to bidding in oklahoma our results show that in comparison to texas auctions the average bid in oklahoma fell after the change in engineers cost estimate ece policy this decline in bids was even larger for projects where the common uncertainty in costs is greater moreover the within auction standard deviation of bids fell after the change in ece policy with the most significant decline observed again in projects with greater common cost uncertainty

the performance of corporate alliances evidence from oil and gas drilling in the gulf of mexico abstract i use data on oil and gas drilling in the gulf of mexico to measure how a corporate alliance a group of firms that jointly develops an offshore tract performs relative to a solo firm i employ a regression discontinuity strategy based on bids in first price sealed bid auctions for the rights to develop leases by focusing on leases where one organizational form narrowly outbids the other i measure drilling outcomes while controlling for the endogenous matching of projects and organizational forms solo firm leases are less profitable than alliance leases because alliance members combine their information and expertise

bidding behaviour in ocs drainage auctions theory and evidence empirical economists frequently criticize game theoretic models of markets on the grounds that they fail to generate empirically testable hypotheses the complaint is that prices and quantities or entry decisions are explained using factors that are not observable to the econometrician such as private valuations and beliefs of agents the corollary to this argument is that the only way to proceed empirically is through experiments however this approach suffers from the problem that the experience of the subjects may be too limited and the compensation too small for them to perform the requisite optimizing calculations the objective of this paper is to discuss the above criticism of gametheoretic models in the context of our work on markets of offshore oil and gas leases in this case study one group of buyers is better informed about the unknown value of the leaae being sold that another group and the two groups can be identified game theoretic models of markets with informational asymmetries generate restrictions on the relative behaviour and performance of the two groups of buyers and some of these restrictions are empirically testable we examine them using bid and profit data more generally the work serves to illustrate a basic point about testing models of

naturally occurring markets and exogenous laboratory experiments a case study of the winner s curse we examine the relevance of experimental findings from laboratory settings that abstract from the field context of the task that theory purports to explain using common value auction theory as our guide we identify naturally occurring settings in which one can test the theory experienced agents bidding in familiar roles do not fall prey to the winner s curse yet experienced agents fall prey to the winner s curse when bidding in an unfamiliar role we conclude that the theory predicts field behaviour well when one is able to identify naturally occurring field counterparts to the key theoretical conditions

when does weight matter most past empirical work establishes a wage penalty from being overweight in this paper i exploit variation in an individual s weight over time to determine the age when weight has the largest impact on labor market outcomes for white men controlling for weight at younger ages does not eliminate the effect of older adult weight on wage being overweight as a young adult only adds an additional penalty to adult wages however for white women what they weigh in their early twenties solely determines the existence of an adult wage penalty the female early twenties weight penalty has a persistent effect on wages and differences in marital characteristics occupation status or education cannot explain it it also is not a proxy for intergenerational unobservables

bid dispersion competition and wage regulation some field evidence from public contract bidding in british columbia the paper uses data from british columbia to show that bid dispersion the difference between the winning and next lowest bids in public school construction contract bidding is very compact and that it varies inversely with the degree of competition it also examines the impact of the skill development and fair wage law sdfwp which promulgated wage scales and required contractors to pay them in public construction projects on the bid dispersion multivariate analysis shows that bid dispersion declined after sdfwp one possible interpretation of this result is that the contractors became less prone to the winner s curse following the sdfwp

anomalies the winner s curse abstract next time that you find yourself a little short of cash for lunch try the following experiment in your class take a jar and fill it with coins noting the total value of the coins now a

strategic decision making with information and extraction externalities a structural model of the multistage investment timing game in offshore petroleum production when individual petroleum producing firms make their exploration and development investment timing decisions positive information externalities and negative extraction externalities may lead them to interact strategically with their neighbors this paper examines whether these inefficient strategic interactions take place by estimating a structural econometric model of the firms multi stage investment timing game results show that firms interact strategically on small tracts but not on large tracts for small tracts having a neighboring tract explored reduces real profits by about 26 million while having a neighboring tract developed raises real profits by about 3 5 million

market structure and incomplete information price formation in a real world repeated english auction abstract this paper examines the effect of buyer size on price formation in an english auction of used state police cars while open auctions generally favor competitive pricing bikhchandani 1988 develops a model of a second price common value auction in which bidders can use strategic behavior based on repeated sales to develop an aggressive reputation and as a result pay lower prices in equilibrium the paper tests this hypothesis by examining sales of 340 used automobiles sold at 13 public auctions conditional on the volume of purchases made by the three largest buyers at the auctions the empirical results show that the number of buyers plays a stronger role in price formation than does buyer size

structural econometric analysis of descending auctions since vickrey s 1961 paper the theory of auctions has considerably expanded particularly over the last decade see e g milgrom 1985 1986 and mcafee and mcmillan 1987 for recent surveys in contrast except for some experimental work only a few empirical studies have attempted to validate the new theoretical auction models using field auction data two approaches have emerged the first has concentrated upon testing some implications of the theory of auctions using reduced form econometric models with observed bids as the explained variables explanatory variables might then be the reservation price the number of potential bidders when observed and some characteristics of the auctioned object examples are hansen 1985 1986 hendricks et al 1987 and hendricks and porter 1988 the second approach which is structural has a long tradition in econometrics starting from the work of the cowles commission this approach is followed in this paper the basic idea is simple and relies upon

bidding behaviour in second price auctions rare stamp sales 1923 1937 we find significant asymmetries between bid functions of the low and high mail bidders in auctions of rare stamps over the extremes of the business cycle 1923 1937 we also find a strong negative relationship between the number of bidders and the bids suggesting that the common value characteristics of stamps outweigh their private value characteristics finally we show that stamp returns are positively related to inflation and to stock yields and negatively to interest rates these last results correspond to other studies of stamps over more stable sample periods

information returns and bidding behavior in ocs auctions 1954 1969 this paper examines federal auctions for leases on the outer continental shelf in the light of the predictions of the first price sealed bid common values model of auctions the authors find that the data strongly support the model for auctions in which one bidder is better informed than the other bidders the evidence for auctions in which bidders have noisy but qualitatively similar information is less conclusive but is consistent with a model in which each bidder does not know either the actual or potential number of bidders on a lease copyright 1987 by blackwell publishing ltd