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Set-Asides and Subsidies in Auctions

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  • Susan Athey

    ()
    (Department of Economics, Harvard University)

  • Dominic Coey

    ()
    (Department of Economics, Stanford University)

  • Jonathan Levin

    ()
    (Department of Economics, Stanford University)

Abstract

Set-asides and subsidies are used extensively in government procurement and natural resource sales. We analyze these policies in an empirical model of U.S. Forest Service timber auctions. The model fits the data well both within the sample of unrestricted sales where we estimate the model, and when we predict (out of sample) bidder entry and prices for small business set-asides. Our estimates suggest that restricting entry to small businesses substantially reduces efficiency and revenue, although it does increase small business participation. An alternative policy of subsidizing small bidders would increase revenue and small bidder profit, while eliminating almost all of the efficiency loss of set-asides, and only slightly decreasing the profit of larger firms. We explain these findings by connecting to the theory of optimal auction design.

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Bibliographic Info

Paper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 10-017.

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Date of creation: Feb 2011
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Handle: RePEc:sip:dpaper:10-017

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Keywords: set-asides; subsidies; natural resources; timber; auctions;

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References

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  1. Athey, S., 1997. "Sigle Crossing Properties and the Existence of Pure Strategy Equilibria in Games of Incomplete Information," Working papers 97-11, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, number 9780521536721, April.
  3. Matthew Shum, 2000. "Nonparametric Tests for Common Values," Econometric Society World Congress 2000 Contributed Papers 1598, Econometric Society.
  4. Susan Athey & Jonathan Levin, 1999. "Information and Competition in U.S. Forest Service Timber Auctions," NBER Working Papers 7185, National Bureau of Economic Research, Inc.
  5. Marion, Justin, 2007. "Are bid preferences benign? The effect of small business subsidies in highway procurement auctions," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1591-1624, August.
  6. Jonathan Levin & Susan Athey & Enrique Seira, 2004. "Comparing Open and Sealed Bid Auctions: Theory and Evidence from Timber Auctions," Working Papers 2004.142, Fondazione Eni Enrico Mattei.
  7. Guerre, E. & Perrigne, I. & Vuong, Q., 1995. "Nonparametric Estimation of First-Price Auctions," Papers 9504, Southern California - Department of Economics.
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Cited by:
  1. Rahul Deb & Mallesh Pai, 2013. "Symmetric Auctions," Working Papers tecipa-486, University of Toronto, Department of Economics.
  2. Jun Nakabayashi, 2009. "Small Business Set-asides in Procurement Auctions: An Empirical Analysis," Tsukuba Economics Working Papers 2009-005, Economics, Graduate School of Humanities and Social Sciences, University of Tsukuba, revised Nov 2009.
  3. Klenio Barbosa & Pierre C. Boyer, 2012. "Discrimination in Dynamic Procurement Design with Learning-by-doing," CESifo Working Paper Series 3947, CESifo Group Munich.
  4. Kirkegaard, René, 2013. "Handicaps in incomplete information all-pay auctions with a diverse set of bidders," European Economic Review, Elsevier, vol. 64(C), pages 98-110.
  5. Butler, Jeffrey & Carbone, Enrica & Conzo, Pierluigi & Spagnolo, Giancarlo, 2012. "Reputation and Entry," SITE Working Paper Series 21, Stockholm Institute of Transition Economics, Stockholm School of Economics.
  6. Che, Yeon-Koo & Gale, Ian & Kim, Jinwoo, 2013. "Efficient assignment mechanisms for liquidity-constrained agents," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 659-665.
  7. James W. Roberts & Andrew Sweeting, 2011. "When Should Sellers Use Auctions?," NBER Working Papers 17624, National Bureau of Economic Research, Inc.

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