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Auctioning Control and Cash‐Flow Rights Separately

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  • Tingjun Liu
  • Dan Bernhardt

Abstract

We consider a classical auction setting in which an asset/project is sold to buyers who privately receive signals about expected payoffs, and payoffs are more sensitive to a bidder's signal if he runs the project than if another bidder does. We show that a seller can increase revenues by sometimes allocating cash‐flow rights and control to different bidders, for example, with the highest bidder receiving cash flows and the second‐highest receiving control. Separation reduces a bidder's information rent, which depends on the importance of his private information for the value of his awarded cash flows. As project payoffs are most sensitive to a bidder's information if he controls the project, allocating cash flow to another bidder lowers bidders' informational advantage. As a result, when signals are close, the seller can increase revenues by splitting rights between the top two bidders.

Suggested Citation

  • Tingjun Liu & Dan Bernhardt, 2025. "Auctioning Control and Cash‐Flow Rights Separately," Econometrica, Econometric Society, vol. 93(3), pages 859-889, May.
  • Handle: RePEc:wly:emetrp:v:93:y:2025:i:3:p:859-889
    DOI: 10.3982/ECTA21343
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