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Optimal Privatisation Using Qualifying Auctions

  • Jan Boone
  • JacobK. Goeree

This article explores use of auctions for privatising public assets. In our model, a single 'insider' bidder possesses information about the asset's common value. Bidders are privately informed about their costs of exploiting the asset. Due to the insider's presence, uninformed bidders face a strong winner's curse in standard auctions. We show that the optimal mechanism discriminates against the informationally advantaged bidder. It can be implemented via a two-stage 'qualifying auction'. In the first stage, non-binding bids are submitted to determine who enters the second stage, which consists of a standard second-price auction augmented with a reserve price. Copyright � The Author(s). Journal compilation � Royal Economic Society 2009.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0297.2008.02213.x
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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 119 (2009)
Issue (Month): 534 (01)
Pages: 277-297

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Handle: RePEc:ecj:econjl:v:119:y:2009:i:534:p:277-297
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  1. Klemperer, Paul, 2000. "What Really Matters in Auction Design," CEPR Discussion Papers 2581, C.E.P.R. Discussion Papers.
  2. Bulow, Jeremy I. & Huang, Ming & Klemperer, Paul, 1996. "Toeholds and Takeovers," CEPR Discussion Papers 1486, C.E.P.R. Discussion Papers.
  3. Hernando-Veciana, Angel, 2004. "Successful uninformed bidding," Games and Economic Behavior, Elsevier, vol. 48(1), pages 29-53, July.
  4. Bulow, Jeremy & Roberts, John, 1989. "The Simple Economics of Optimal Auctions," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1060-90, October.
  5. Ye, Lixin, 2007. "Indicative bidding and a theory of two-stage auctions," Games and Economic Behavior, Elsevier, vol. 58(1), pages 181-207, January.
  6. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Kagel, John & Pevnitskaya, Svetlana & Ye, Lixin, 2008. "Indicative bidding: An experimental analysis," Games and Economic Behavior, Elsevier, vol. 62(2), pages 697-721, March.
  8. Angel Hernando-Veciana & Michael Tröge, 2005. "The Insider's Curse," Microeconomics 0503012, EconWPA.
  9. Larson, Nathan, 2009. "Private value perturbations and informational advantage in common value auctions," Games and Economic Behavior, Elsevier, vol. 65(2), pages 430-460, March.
  10. Welch, D. & Fremond, O., 1998. "The Case-by-Case Approach to Privatization. Techniques and Examples," Papers 403, World Bank - Technical Papers.
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