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Set-Asides and Subsidies in Auctions

  • Susan Athey
  • Dominic Coey
  • Jonathan Levin

Set-asides and subsidies are used extensively in government procurement and resource sales. We analyze these policies in an empirical model of US Forest Service timber auctions. The model fits the data well both within the sample of unrestricted sales used for estimation, and when we predict (out-of-sample) outcomes for small business set-asides. Our estimates suggest that restricting entry substantially reduces efficiency and revenue, although it increases small business participation. An alternative policy of subsidizing small bidders would increase revenue and small bidder profit, with little efficiency cost. We explain these findings by connecting to the theory of optimal auction design. (JEL D44, H57, L73, Q23)

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Article provided by American Economic Association in its journal American Economic Journal: Microeconomics.

Volume (Year): 5 (2013)
Issue (Month): 1 (February)
Pages: 1-27

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Handle: RePEc:aea:aejmic:v:5:y:2013:i:1:p:1-27
Note: DOI: 10.1257/mic.5.1.1
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  1. Guerre, E. & Perrigne, I. & Vuong, Q., 1995. "Nonparametric Estimation of First-Price Auctions," Papers 9504, Southern California - Department of Economics.
  2. Athey, Susan, 2001. "Single Crossing Properties and the Existence of Pure Strategy Equilibria in Games of Incomplete Information," Econometrica, Econometric Society, vol. 69(4), pages 861-89, July.
  3. Susan Athey, 2005. "Comparing Open and Sealed Bid Auctions: Theory and Evidence from Timber Auctions," Theory workshop papers 658612000000000098, UCLA Department of Economics.
  4. Levin, Jonathan & Athey, Susan, 2001. "Information and Competition in U.S. Forest Service Timber Auctions," Scholarly Articles 3612768, Harvard University Department of Economics.
  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. Matthew Shum, 2000. "Nonparametric Tests for Common Values," Econometric Society World Congress 2000 Contributed Papers 1598, Econometric Society.
  7. repec:cup:cbooks:9780521536721 is not listed on IDEAS
  8. repec:cup:cbooks:9780521551847 is not listed on IDEAS
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