The Default-Prone U.S. Toxic Asset Auction Plan
Applying auction theory to the toxic-asset rescue plan currently released by the United States Treasury Department, this paper demonstrates an equilibrium where moderately poor bidders outbid rich bidders in such auctions. After defeating their rich rivals and acquiring the toxic assets, such bidders will default on government-provided loans whenever the toxic assets turn out to be unsalvageable. An alternative mechanism is discussed.
|Date of creation:||30 Mar 2009|
|Publication status:||Published in B.E. Journal of Economic Analysis & Policy, April 2009, vol. 9 no. 1 (Contributions)|
|Contact details of provider:|| Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070|
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- Zheng, Charles Z., 2001.
"High Bids and Broke Winners,"
Journal of Economic Theory,
Elsevier, vol. 100(1), pages 129-171, September.
- Yeon-Koo Che & Ian Gale, 1998. "Standard Auctions with Financially Constrained Bidders," Review of Economic Studies, Oxford University Press, vol. 65(1), pages 1-21.
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