The Default-Prone U.S. Toxic Asset Auction Plan
AbstractApplying auction theory to the toxic-asset rescue plan currently released by the United States Treasury Department, this paper demonstrates an equilibrium where moderately poor bidders outbid rich bidders in such auctions. After defeating their rich rivals and acquiring the toxic assets, such bidders will default on government-provided loans whenever the toxic assets turn out to be unsalvageable. An alternative mechanism is discussed.
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Bibliographic InfoPaper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 13056.
Date of creation: 30 Mar 2009
Date of revision:
Publication status: Published in B.E. Journal of Economic Analysis & Policy, April 2009, vol. 9 no. 1 (Contributions)
Contact details of provider:
Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
More information through EDIRC
auction; toxic assets; default; rescue plan;
Other versions of this item:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-04-13 (All new papers)
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.:
- Zheng, Charles Zhoucheng, 2001.
"High Bids and Broke Winners,"
Staff General Research Papers
12665, Iowa State University, Department of Economics.
- Ottorino Chillemi & Claudio Mezzetti, 2014. "Optimal procurement mechanisms: bidding on price and damages for breach," Economic Theory, Springer, vol. 55(2), pages 335-355, February.
- Linus Wilson, 2011. "Troubling Research on Troubled Assets: Charles Zheng on the U.S. Toxic Asset Auction Plan," Econ Journal Watch, Econ Journal Watch, vol. 8(1), pages 33-38, January.
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