Advanced Search
MyIDEAS: Login

How Risk Sharing may enhance Efficiency in English Auctions

Contents:

Author Info

  • Audrey Hu

    (University of Amsterdam)

  • Theo Offerman

    (University of Amsterdam)

  • Liang Zou

    (University of Amsterdam)

Registered author(s):

    Abstract

    We investigate the possibility of enhancing efficiency by awarding premiums to a set of highest bidders in an English auction— in a setting that extends Maskin and Riley (1984, Econometrica 52: 1473-1518) in three aspects: (i) the seller can be risk averse, (ii) the bidders can have heterogeneous risk preferences, and (iii) the auction can have a binding reserve price. Our analysis reveals that the premium has an intricate joint effect on risk sharing and expected revenue, which in general benefits risk averse bidders. When the seller is more risk averse than the pivotal bidder –a condition often verifiable by deduction prior to the auction –the premium also benefits the seller and therefore leads to a Pareto improvement of the English auction. We discuss how this finding is related to the seller’s degree of risk aversion, the reserve price, the riskiness of the object for sale, the degree of heterogeneity in risk preferences among the bidders, and the number of the potential bidders.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://papers.tinbergen.nl/14015.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 14-015/I.

    as in new window
    Length:
    Date of creation: 24 Jan 2014
    Date of revision:
    Handle: RePEc:dgr:uvatin:20140015

    Contact details of provider:
    Web page: http://www.tinbergen.nl

    Related research

    Keywords: Risk sharing; Pareto efficiency; Premium auction; English auction; Reserve price; Ensuing risk; Heterogeneous risk preferences;

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Eso, Peter & Futo, Gabor, 1999. "Auction design with a risk averse seller," Economics Letters, Elsevier, vol. 65(1), pages 71-74, October.
    2. Jeremy Bulow & Paul Klemperer, 2009. "Why Do Sellers (Usually) Prefer Auctions?," Economics Papers 2009-W05, Economics Group, Nuffield College, University of Oxford.
    3. Professor Paul Klemperer, 2000. "What Really Matters in Auction Design," Microeconomics 0004008, EconWPA.
    4. Jewitt, Ian, 1987. "Risk Aversion and the Choice between Risky Prospects: The Preservation of Comparative Statics Results," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 73-85, January.
    5. Steven A. Matthews, 1985. "Comparing Auctions for Risk Averse Buyers: A Buyer's Pointof View," Discussion Papers 664R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    6. Hu, Audrey & Offerman, Theo & Onderstal, Sander, 2011. "Fighting collusion in auctions: An experimental investigation," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 84-96, January.
    7. repec:feb:framed:0074 is not listed on IDEAS
    8. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, 03.
    9. Holt, Charles A, Jr, 1980. "Competitive Bidding for Contracts under Alternative Auction Procedures," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 433-45, June.
    10. Crawford, Vincent P, 1985. "Efficient and Durable Decision Rules: A Reformulation," Econometrica, Econometric Society, vol. 53(4), pages 817-35, July.
    11. Harris, Milton & Raviv, Artur, 1981. "Allocation Mechanisms and the Design of Auctions," Econometrica, Econometric Society, vol. 49(6), pages 1477-99, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:dgr:uvatin:20140015. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Antoine Maartens (+31 626 - 160 892)).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.