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How the U.S. Treasury should auction its debt

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Author Info
V.V. Chari
Robert J. Weber

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Abstract

The U.S. Treasury could raise more revenue if it changed the way it auctions its debt. Under the current procedure, all bidders whose competitive bids for Treasury securities are accepted pay the prices they bid; different winning bidders, that is, pay different prices. Instead, economic theory says, all winning bidders should all pay the same price—that of the highest bid not accepted, or the price that just clears the market. This procedural change would increase the revenue that Treasury auctions raise primarily because it would decrease the amount of resources that bidders would spend collecting information about what other bidders are likely to do. It would also reduce the incentives for traders to attempt to manipulate the securities market.

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Publisher Info
Article provided by Federal Reserve Bank of Minneapolis in its journal Quarterly Review.

Volume (Year): (1992)
Issue (Month): Fall ()
Pages: 3-12
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Handle: RePEc:fip:fedmqr:y:1992:i:fall:p:3-12:n:v.16no.4

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Keywords: Government securities;

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  1. Daniel Heller & Yvan Lengwiler, 1998. "The auctions of Swiss government bonds: should the Treasury price discriminate or not?," Finance and Economics Discussion Series 1998-11, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  2. Rhee, S. Ghon, 2000. "Further Reforms after the "BIG BANG": The Japanese Government Bond Market," CEI Working Paper Series 2000-3, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  3. Rhee, S. Ghon, 2001. "Further Reforms of the JGB Market for the Promotion of Regional Bond Markets," CEI Working Paper Series 2001-14, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  4. Keunkwan Ryu & Gyung-Rok Kim & Seonghwan Oh, 2004. "Discriminatory vs Uniform Price Auction: Auction Revenue," Econometric Society 2004 Far Eastern Meetings 539, Econometric Society. [Downloadable!]
  5. Kjell Sunnevåg, 2003. "Auction Design for the Allocation of Emission Permits in the Presence of Market Power," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 26(3), pages 385-400, November. [Downloadable!] (restricted)
  6. Skully, David W., 1999. "The Economics Of Trq Administration," Working Papers 14584, International Agricultural Trade Research Consortium. [Downloadable!]
  7. Robert Jörin & Yvan Lengwiler, 2004. "Learning from Financial Markets: Auctioning Tariff-Rate Quotas in Agricultural Trade," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 140(IV), pages 521-541, December. [Downloadable!]
  8. Goldreich, David, 2003. "Underpricing in Discriminatory and Uniform-Price Treasury Auctions," CEPR Discussion Papers 4105, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  9. Yvan Lengwiler, 1998. "The multiple unit auction with variable supply," Finance and Economics Discussion Series 1998-28, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  10. Saikat Nandi, 1997. "Treasury auctions: what do the recent models and results tell us?," Economic Review, Federal Reserve Bank of Atlanta, issue Q 4, pages 4-15. [Downloadable!]
  11. Hans Haller & Yvan Lengwiler, 1998. "A discrete model of discriminatory price auctions - an alternative to Menezes-Monteiro," Finance and Economics Discussion Series 1998-08, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  12. Ajay Shah, 1995. "The Indian IPO Market: Suggestions for Institutional Arrangements," Finance 9507004, EconWPA. [Downloadable!]
  13. Kenneth D. Garbade, 2004. "The institutionalization of treasury note and bond auctions, 1970-75," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 29-45. [Downloadable!]
  14. Lawrence M. Ausubel & Peter Cramton, 1997. "Auctioning Securities," Papers of Peter Cramton 98wpas, University of Maryland, Department of Economics - Peter Cramton, revised Mar 1998. [Downloadable!]
  15. Jackson, Matther O. & Ilan Kremer, 2004. "The Relevance of a Choice of Auction Format in a Competitive Environment," Working Papers 1190, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  16. Lawrence M. Ausubel & Peter Cramton, 1995. "Demand Reduction and Inefficiency in Multi-Unit Auctions," Papers of Peter Cramton 98wpdr, University of Maryland, Department of Economics - Peter Cramton, revised 22 Jul 2002. [Downloadable!]
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