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Deficit Reduction Through Diversity: How Affirmative Action at the FCC Increased Auction Competition

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Abstract

In recent auctions for paging licenses, the Federal Communications Commission has granted businesses owned by minorities and women substantial bidding credits. In this article, Professors Ayres and Cramton analyze a particular auction and argue that the affirmative action bidding preferences, by increasing competition among auction participants, increased the government's revenue by $45 million. Subsidizing the participation of new bidders can induce established bidders to bid more aggressively. The authors conclude that this revenue- enhancing effect does not provide a sufficient constitutional justification for affirmative action-but when such justification is independently present, affirmative actions can cost the government much less than is currently thought.

Suggested Citation

  • Ian Ayres & Peter Cramton, 1996. "Deficit Reduction Through Diversity: How Affirmative Action at the FCC Increased Auction Competition," Papers of Peter Cramton 96slr, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
  • Handle: RePEc:pcc:pccumd:96slr
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    File URL: http://www.cramton.umd.edu/papers1995-1999/96slr-deficit-reduction-through-diversity.pdf
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    Keywords

    Auctions; Affirmative Action;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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