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IPV model with Cobb–Douglas and reference-dependent utility functions

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  • Zhang, Yunyi
  • Gong, Pu

Abstract

The optimal allocation of land resources using auctions is beneficial for rational land use. This paper introduces the Cobb–Douglas utility function and reference-dependent utility function into the original independent private value model to study the effect of bidders’ preferences for winning probability in different auction schemes. This preference has an obvious influence on the seller’s expected revenue in the first price auction. When the buyer demonstrates a relatively large preference for the probability of winning, selecting the second-price auction is helpful for seller to obtain high expected revenue. On the other hand, when this preference is relatively small, a favorable choice for the seller is the first-price auction with the reserve price publicly announced. The comprehensive coupling effect of different parameters can be analyzed by using the improved auction model, which considers the reference and preference situations simultaneously. This model would be useful in the design of a land auction scheme.

Suggested Citation

  • Zhang, Yunyi & Gong, Pu, 2018. "IPV model with Cobb–Douglas and reference-dependent utility functions," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 510(C), pages 121-131.
    • Handle: RePEc:eee:phsmap:v:510:y:2018:i:c:p:121-131
    DOI: 10.1016/j.physa.2018.06.123
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