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Signal Orderings Based on Dispersion and the Supply of Private Information in Auctions

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  • Juan-JosÈ Ganuza
  • JosÈ S. Penalva
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    Abstract

    This paper provides a novel approach to ordering signals based on the property that more informative signals lead to greater variability of conditional expectations. We define two nested information criteria (supermodular precision and integral precision) by combining this approach with two variability orders (dispersive and convex orders). We relate precision criteria with orderings based on the value of information to a decision maker. We then use precision to study the incentives of an auctioneer to supply private information. Using integral precision, we obtain two results: (i) a more precise signal yields a more efficient allocation; (ii) the auctioneer provides less than the efficient level of information. Supermodular precision allows us to extend the previous analysis to the case in which supplying information is costly and to obtain an additional finding; (iii) there is a complementarity between information and competition, so that both the socially efficient and the auctioneer's optimal choice of precision increase with the number of bidders. Copyright 2010 The Econometric Society.

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    Bibliographic Info

    Article provided by Econometric Society in its journal Econometrica.

    Volume (Year): 78 (2010)
    Issue (Month): 3 (05)
    Pages: 1007-1030

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    Handle: RePEc:ecm:emetrp:v:78:y:2010:i:3:p:1007-1030

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    Cited by:
    1. Drees, Burkhard & Eckwert, Bernhard & Várdy, Felix, 2013. "Cheap money and risk taking: Opacity versus fundamental risk," European Economic Review, Elsevier, vol. 62(C), pages 114-129.
    2. Larbi Alaoui & Alvaro Sandroni, 2013. "Predestination and the Protestant ethic," Economics Working Papers 1350, Department of Economics and Business, Universitat Pompeu Fabra.
    3. Forand, Jean Guillaume, 2013. "Competing through information provision," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 438-451.
    4. Krähmer, Daniel, 2012. "Auction design with endogenously correlated buyer types," Journal of Economic Theory, Elsevier, vol. 147(1), pages 118-141.
    5. Larbi Alaoui & Alvaro Sandroni, 2013. "Predestination and the Protestant Ethic," Working Papers 679, Barcelona Graduate School of Economics.
    6. Xianwen Shi, 2007. "Optimal Auctions with Information Acquisition," Working Papers tecipa-302, University of Toronto, Department of Economics.
    7. Hoffmann, Florian & Inderst, Roman, 2011. "Pre-sale information," Journal of Economic Theory, Elsevier, vol. 146(6), pages 2333-2355.
    8. Laura Doval, 2013. "Whether or not to open Pandora's box," Discussion Papers 1574, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    9. Roman Inderst & Marco Ottaviani, 2012. "Competition through Commissions and Kickbacks," American Economic Review, American Economic Association, vol. 102(2), pages 780-809, April.
    10. Wang, Chengsi, 2011. "Informative Advertising, Consumer Search and Transparency Policy," MPRA Paper 34977, University Library of Munich, Germany.
    11. Maxim Ivanov, 2013. "Information revelation in competitive markets," Economic Theory, Springer, vol. 52(1), pages 337-365, January.
    12. Inderst, Roman & Ottaviani, Marco, 2012. "How (not) to pay for advice: A framework for consumer financial protection," Journal of Financial Economics, Elsevier, vol. 105(2), pages 393-411.
    13. Szech, Nora, 2011. "Optimal disclosure of costly information packages in auctions," Journal of Mathematical Economics, Elsevier, vol. 47(4-5), pages 462-469.

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