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Auction Form Preferences of Risk-Averse Bid Takers

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  • Keith Waehrer
  • Ronald M. Harstad
  • Michael H. Rothkopf

Abstract

We analyze the preferences of a risk-averse seller over the class of "standard" auctions with symmetric and risk-neutral bidders. Assuming that buyers' private signals are independently distributed, we find that a sealed-bid first-price auction with an appropriately set reserve price is preferred by all risk-averse sellers to any other standard auction. In first- and second-price auctions, the more risk averse a seller, the lower the seller's optimal reserve price. Given two first-price auctions with reserve prices and entry fees such that both have the same screening level, all risk-averse sellers prefer the auction with the lower entry fee.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 29 (1998)
Issue (Month): 1 (Spring)
Pages: 179-192

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Handle: RePEc:rje:randje:v:29:y:1998:i:spring:p:179-192

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Cited by:
  1. Audrey Hu & Steven A. Matthews & Liang Zou, 2009. "Risk Aversion and Optimal Reserve Prices in First and Second-Price Auctions," PIER Working Paper Archive, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania 09-016, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  2. Fangcheng Tang & Weizhou Zhong & Shunfeng Song, 2006. "Tenders with Different Risk Preferences in Construction Industry," Working Papers, University of Nevada, Reno, Department of Economics;University of Nevada, Reno , Department of Resource Economics 06-006, University of Nevada, Reno, Department of Economics;University of Nevada, Reno , Department of Resource Economics.
  3. Hu, Audrey & Offerman, Theo & Zou, Liang, 2011. "Premium auctions and risk preferences," Journal of Economic Theory, Elsevier, Elsevier, vol. 146(6), pages 2420-2439.
  4. Eso, Peter & Futo, Gabor, 1999. "Auction design with a risk averse seller," Economics Letters, Elsevier, Elsevier, vol. 65(1), pages 71-74, October.
  5. Estrella Alonso & Gustavo Juan Tejada, 2012. "The Auction Model with Lowest Risk in a Duopolistic Electricity Market," Económica, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata, vol. 0, pages 3-21, January-D.
  6. Menicucci, Domenico, 2006. "Full surplus extraction by a risk averse seller in correlated environments," Mathematical Social Sciences, Elsevier, Elsevier, vol. 51(3), pages 280-300, May.
  7. Goeree, Jacob K. & Offerman, Theo & Schram, Arthur, 2006. "Using first-price auctions to sell heterogeneous licenses," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 24(3), pages 555-581, May.
  8. Ángel Hernando Veciana, 2002. "(Sub-)Optimal Entry Fees," Working Papers. Serie AD, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 2002-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  9. Eso, Peter, 2005. "An optimal auction with correlated values and risk aversion," Journal of Economic Theory, Elsevier, Elsevier, vol. 125(1), pages 78-89, November.
  10. Audrey Hu & Liang Zou, 2008. "Auctions under Payoff Uncertainty: The Case with Heterogeneous Bidder-Aversion to Downside Risk," Tinbergen Institute Discussion Papers, Tinbergen Institute 08-044/1, Tinbergen Institute, revised 22 Apr 2008.

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