The relation between variance and information rent in auctions
This paper examines the conventional wisdom, expressed in McAfee and McMillan's (1987) widely cited survey paper on auctions, that links increased variance of bidder values to increased information rent. We find that although the conventional wisdom does indeed hold in their (1986) model of a linear contract auction, this relationship is an artifact of that particular model and cannot be generalized. Using Samuelson's (1987) model, which is similar but allows for unobservable costs, we show that increased variance does not always imply increased information rent. Finally, we give the appropriate measure of dispersion (different from variance) that provides the link between the bidder value distribution and information rent.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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.:
- Chateauneuf, Alain & Cohen, Michele & Meilijson, Isaac, 2004.
"Four notions of mean-preserving increase in risk, risk attitudes and applications to the rank-dependent expected utility model,"
Journal of Mathematical Economics,
Elsevier, vol. 40(5), pages 547-571, August.
- Alain Chateauneuf & Michèle Cohen & Isaac Meilijson, 2004. "Four notions of mean preserving increase in risk, risk attitudes and applications to the Rank-Dependent Expected Utility model," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00212281, HAL.
- Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, number 9780521536721, February.
- Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, number 9780521551847, February.
- Francesco Decarolis, 2009. "When the highest bidder loses the auction: theory and evidence from public procurement," Temi di discussione (Economic working papers) 717, Bank of Italy, Economic Research and International Relations Area.
- Francesco Decarolis, 2009. "When the Highest Bidder Loses the Auction: Theory and Evidence from Public Procurement," 2009 Meeting Papers 130, Society for Economic Dynamics.
- Patrick Bajari & Lixin Ye, 2003. "Deciding Between Competition and Collusion," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 971-989, November.
- Patrick Bajari & Lixin Ye, 2001. "Deciding Between Competition and Collusion," Working Papers 01008, Stanford University, Department of Economics.
- Samuelson, William, 1987. "Auctions with Contingent Payments: Comment," American Economic Review, American Economic Association, vol. 77(4), pages 740-745, September.
- Elena Krasnokutskaya, 2004. "Identification and Estimation in Highway Procurement Auctions under Unobserved Auction Heterogeneity," PIER Working Paper Archive 05-006, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- R. Preston McAfee & John McMillan, 1986. "Bidding for Contracts: A Principal-Agent Analysis," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 326-338, Autumn.
- Susan Athey & Jonathan Levin & Enrique Seira, 2011. "Comparing open and Sealed Bid Auctions: Evidence from Timber Auctions," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 207-257.
- Susan Athey & Jonathan Levin & Enrique Seira, 2008. "Comparing Open and Sealed Bid Auctions: Evidence from Timber Auctions," Discussion Papers 08-012, Stanford Institute for Economic Policy Research.
- Susan Athey & Jonathan Levin & Enrique Seira, 2008. "Comparing Open and Sealed Bid Auctions: Evidence from Timber Auctions," NBER Working Papers 14590, National Bureau of Economic Research, Inc.
- Vuong, Q. & Laffont, J.J. & Elyakime, B. & Loisel, P., 1995. "Auctioning and Bargaining: An Econometric Study of Timber Auctions with Secret Reservation Prices," Papers 9502, Southern California - Department of Economics.
- Baldwin, Laura H & Marshall, Robert C & Richard, Jean-Francois, 1997. "Bidder Collusion at Forest Service Timber Sales," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 657-699, August.
- Marshall, R.C. & Richard J.F., 1995. "Bider Collusion at Forest Service Timber Sales," Papers 7-95-3, Pennsylvania State - Department of Economics.
- Krishna, Vijay, 2009. "Auction Theory," Elsevier Monographs, Elsevier, edition 2, number 9780123745071.
- Krishna, Vijay, 2002. "Auction Theory," Elsevier Monographs, Elsevier, edition 1, number 9780124262973.
- Patrick Bajari & Stephanie Houghton & Steve Tadelis, 2006. "Bidding for Incomplete Contracts: An Empirical Analysis," NBER Working Papers 12051, National Bureau of Economic Research, Inc.
- McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:28:y:2010:i:2:p:127-130. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.