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Credit auctions and bid caps

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  • Lagziel, David

Abstract

In this paper we offer two contributions to the field of credit auctions. First, we compare first- and second-price credit auctions and provide solvency-dependent conditions such that one mechanism dominates the other in terms of expected payoffs of all the parties involved. In addition, we present a new possibility of using bid caps in credit auctions. We study the equilibria in the capped mechanisms and show that bid caps can increase the seller's expected payoff and, in some cases, the expected payoffs of all sides (a win–win situation).

Suggested Citation

  • Lagziel, David, 2019. "Credit auctions and bid caps," Games and Economic Behavior, Elsevier, vol. 113(C), pages 416-422.
    • Handle: RePEc:eee:gamebe:v:113:y:2019:i:c:p:416-422
    DOI: 10.1016/j.geb.2018.10.010
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    Cited by:

    1. David Lagziel & Ehud Lehrer, 2019. "A Bias of Screening," American Economic Review: Insights, American Economic Association, vol. 1(3), pages 343-356, December.

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    More about this item

    Keywords

    Credit auctions; Defaulting; First-price auctions; Second-price auctions; Bid-caps;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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