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Treasury Auctions, Uniform or Discriminatory?: An Agent-Based Approach

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  • Koesrindartoto, Deddy P.
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    Abstract

    This study explores the use of the agent based computational economics (ACE) technique to address the question of how a Treasury should auction its securities. In particular, this study explores whether a Treasury should use a discriminatory-price rule. Buyers are modeled as profit seekers that are capable of submitting strategic bids via reinforcement learning. The buyers' profits are determined by auction prices and ex-post competitive resale prices. Experimental designs focus on four treatment varibles: (1) the buyers' learning representation; (2) market structures; (3) volatility of security prices in the secondary market; and (4) relative capacity (RCAP). Experimental findings show that security price volatility in the secondary market has little effect on market outcomes. However, market outcomes are sensitive to market structures, RCAP, and the buyers' learning representation. The two different auction rules result in different, persistent, systematically patterned market outcomes. Moreover, these findings help to explain why discrepancies have arisen among previous Treasury auction studies.

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    File URL: http://www.econ.iastate.edu/sites/default/files/publications/papers/p3833-2004-06-23.pdf
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    Bibliographic Info

    Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 11988.

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    Date of creation: 23 Jun 2004
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    Handle: RePEc:isu:genres:11988

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    Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
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    Fax: +1 515.294.0221
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    Web page: http://www.econ.iastate.edu
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    Related research

    Keywords: agent-based computational economics; treasury auctions; discriminatory and unifome-price auction rules;

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    1. Leonardo Bartolini & Carlo Cottarelli, 1997. "Designing effective auctions for treasury securities," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 3(Jul).
    2. Alvin E. Roth, 2002. "The Economist as Engineer: Game Theory, Experimentation, and Computation as Tools for Design Economics," Econometrica, Econometric Society, vol. 70(4), pages 1341-1378, July.
    3. James Nicolaisen & Valentin Petrov & Leigh Tesfatsion, 2000. "Market Power and Efficiency in a Computational Electricity Market with Discriminatory Double-Auction Pricing," Computational Economics 0004005, EconWPA.
    4. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
    5. Erev, Ido & Roth, Alvin E, 1998. "Predicting How People Play Games: Reinforcement Learning in Experimental Games with Unique, Mixed Strategy Equilibria," American Economic Review, American Economic Association, vol. 88(4), pages 848-81, September.
    6. Robert Alan Feldman & Vincent Reinhart, 1995. "Flexible Estimation of Demand Schedules and Revenue Under Different Auction Formats," IMF Working Papers 95/116, International Monetary Fund.
    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 733-64.
    8. Nyborg, Kjell G. & Sundaresan, Suresh, 1996. "Discriminatory versus uniform Treasury auctions: Evidence from when-issued transactions," Journal of Financial Economics, Elsevier, vol. 42(1), pages 63-104, September.
    9. Natalia Fabra, 2003. "Tacit Collusion in Repeated Auctions: Uniform Versus Discriminatory," Journal of Industrial Economics, Wiley Blackwell, vol. 51(3), pages 271-293, 09.
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    Cited by:
    1. Monostori, Zoltan, 2013. "Diszkriminatív áras és egyenáras aukciók
      [Discriminatory versus uniform-price auctions]
      ," MPRA Paper 54254, University Library of Munich, Germany, revised Apr 2013.

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