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Set-Asides and Subsidies in Auctions

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  • Susan Athey
  • Dominic Coey
  • Jonathan Levin

Abstract

Set-asides and subsidies are used extensively in government procurement and resource sales. We analyze these policies in an empirical model of US Forest Service timber auctions. The model fits the data well both within the sample of unrestricted sales used for estimation, and when we predict (out-of-sample) outcomes for small business set-asides. Our estimates suggest that restricting entry substantially reduces efficiency and revenue, although it increases small business participation. An alternative policy of subsidizing small bidders would increase revenue and small bidder profit, with little efficiency cost. We explain these findings by connecting to the theory of optimal auction design. (JEL D44, H57, L73, Q23)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Microeconomics.

Volume (Year): 5 (2013)
Issue (Month): 1 (February)
Pages: 1-27

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Handle: RePEc:aea:aejmic:v:5:y:2013:i:1:p:1-27

Note: DOI: 10.1257/mic.5.1.1
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  1. Athey, S., 1997. "Sigle Crossing Properties and the Existence of Pure Strategy Equilibria in Games of Incomplete Information," Working papers 97-11, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Matthew Shum, 2000. "Nonparametric Tests for Common Values," Econometric Society World Congress 2000 Contributed Papers 1598, Econometric Society.
  3. Susan Athey & Jonathan Levin & Enrique Seira, 2004. "Comparing Open and Sealed Bid Auctions: Theory and Evidence from Timber Auctions," Levine's Bibliography 122247000000000524, UCLA Department of Economics.
  4. Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, number 9780521536721, October.
  5. Susan Athey & Jonathan Levin, 1999. "Information and Competition in U.S. Forest Service Timber Auctions," Working papers 99-12, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Guerre, E. & Perrigne, I. & Vuong, Q., 1995. "Nonparametric Estimation of First-Price Auctions," Papers 9504, Southern California - Department of Economics.
  7. Marion, Justin, 2007. "Are bid preferences benign? The effect of small business subsidies in highway procurement auctions," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1591-1624, August.
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Cited by:
  1. Che, Yeon-Koo & Gale, Ian & Kim, Jinwoo, 2013. "Efficient assignment mechanisms for liquidity-constrained agents," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 659-665.
  2. Butler, Jeffrey V. & Carbone, Enrica & Conzo, Pierluigi & Spagnolo, Giancarlo, 2013. "Reputation and Entry," Konkurrensverket Working Paper Series in Law and Economics 2013:3, Konkurrensverket (Swedish Competition Authority).
  3. Rahul Deb & Mallesh Pai, 2013. "Symmetric Auctions," Working Papers tecipa-486, University of Toronto, Department of Economics.
  4. Klenio Barbosa & Pierre C. Boyer, 2012. "Discrimination in Dynamic Procurement Design with Learning-by-doing," CESifo Working Paper Series 3947, CESifo Group Munich.
  5. Kirkegaard, René, 2013. "Handicaps in incomplete information all-pay auctions with a diverse set of bidders," European Economic Review, Elsevier, vol. 64(C), pages 98-110.
  6. Jun Nakabayashi, 2009. "Small Business Set-asides in Procurement Auctions: An Empirical Analysis," Tsukuba Economics Working Papers 2009-005, Economics, Graduate School of Humanities and Social Sciences, University of Tsukuba, revised Nov 2009.
  7. James W. Roberts & Andrew Sweeting, 2011. "When Should Sellers Use Auctions?," NBER Working Papers 17624, National Bureau of Economic Research, Inc.

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