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Should the Treasury Price Discriminate?. A Procedure for Computing Hypothetical Bid Functions

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  • Daniel Heller
  • Yvan Lengwiler

Abstract

Ever since FRIEDMAN [1959], it has been debated whether the Treasury should sell bonds in a uniform or in a discriminatory auction. Empirical research on this topic has been confined to experiments in which both auctions were used. But these experiments inherently contain an identification problem, since differences cannot be attributed to the auction format alone. We develop a method for generating counterfactual data on discriminatory auctions, using real data from uniform-price Treasury bond auctions in Switzerland. Our method allows us to investigate the performance of the two auctions without relying on experiments and without the identification problem.

Suggested Citation

  • Daniel Heller & Yvan Lengwiler, 2001. "Should the Treasury Price Discriminate?. A Procedure for Computing Hypothetical Bid Functions," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 157(3), pages 413-429, September.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200109)157:3_413:sttpd_2.0.tx_2-8
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    References listed on IDEAS

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    1. Nautz, D., 1995. "Optimal bidding in multi-unit auctions with many bidders," Economics Letters, Elsevier, vol. 48(3-4), pages 301-306, June.
    2. Richard Engelbrecht-Wiggans & Charles M. Kahn, 1998. "Multi-unit auctions with uniform prices," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 12(2), pages 227-258.
    3. Yvan Lengwiler, 1999. "The multiple unit auction with variable supply," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 14(2), pages 373-392.
    4. Sushil Bikhchandani & Chi-fu Huang, 1993. "The Economics of Treasury Securities Markets," Journal of Economic Perspectives, American Economic Association, vol. 7(3), pages 117-134, Summer.
    5. Harris, Milton & Raviv, Artur, 1981. "Allocation Mechanisms and the Design of Auctions," Econometrica, Econometric Society, vol. 49(6), pages 1477-1499, November.
    6. Noussair, Charles, 1995. "Equilibria in a Multi-object Uniform Price Sealed Bid Auction with Multi-unit Demands," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 5(2), pages 337-351, March.
    7. Back, Kerry & Zender, Jaime F, 1993. "Auctions of Divisible Goods: On the Rationale for the Treasury Experiment," Review of Financial Studies, Society for Financial Studies, vol. 6(4), pages 733-764.
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    Citations

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    Cited by:

    1. Monostori, Zoltán, 2013. "Diszkriminatív áras és egyenáras aukciók [Discriminatory and uniform-price auctions]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(10), pages 1048-1074.
    2. Joerin, Robert, 2009. "Improving Market Access: The Role of Auctions in Converting Tariff-Rate Quotas into Single Tariffs," 2009 Conference, August 16-22, 2009, Beijing, China 51448, International Association of Agricultural Economists.
    3. Joerin, Robert, 2014. "Improving Market Access: The Role Of Auctions In Converting Tariff-Rate Quotas Into Single Tariffs," Review of Agricultural and Applied Economics (RAAE), Faculty of Economics and Management, Slovak Agricultural University in Nitra, vol. 17(1), March.
    4. Damianov, Damian S. & Becker, Johannes Gerd, 2010. "Auctions with variable supply: Uniform price versus discriminatory," European Economic Review, Elsevier, vol. 54(4), pages 571-593, May.
    5. 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.
    6. repec:ags:aoeisl:170467 is not listed on IDEAS
    7. Ranaldo, Angelo & Rossi, Enzo, 2016. "Uniform-price Auctions for Swiss Government Bonds: Origin and Evolution," Working Papers on Finance 1609, University of St. Gallen, School of Finance.
    8. Michał Krawczyk, 2009. "Demand functions in Polish Treasury auctions," Bank i Kredyt, Narodowy Bank Polski, vol. 40(4), pages 31-49.
    9. Preget, Raphaele & Waelbroeck, Patrick, 2005. "Treasury bill auction procedures: Empirical perspectives from French market bid functions," Journal of International Money and Finance, Elsevier, vol. 24(7), pages 1054-1072, November.
    10. Damianov, Damian S., 2005. "The uniform price auction with endogenous supply," Economics Letters, Elsevier, vol. 88(2), pages 152-158, August.

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    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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