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Set-Asides and Subsidies in Auctions

  • Susan Athey

    ()

    (Department of Economics, Harvard University)

  • Dominic Coey

    ()

    (Department of Economics, Stanford University)

  • Jonathan Levin

    ()

    (Department of Economics, Stanford University)

Set-asides and subsidies are used extensively in government procurement and natural resource sales. We analyze these policies in an empirical model of U.S. Forest Service timber auctions. The model fits the data well both within the sample of unrestricted sales where we estimate the model, and when we predict (out of sample) bidder entry and prices for small business set-asides. Our estimates suggest that restricting entry to small businesses substantially reduces efficiency and revenue, although it does increase small business participation. An alternative policy of subsidizing small bidders would increase revenue and small bidder profit, while eliminating almost all of the efficiency loss of set-asides, and only slightly decreasing the profit of larger firms. We explain these findings by connecting to the theory of optimal auction design.

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File URL: http://www-siepr.stanford.edu/repec/sip/10-017.pdf
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Paper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 10-017.

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Date of creation: Feb 2011
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Handle: RePEc:sip:dpaper:10-017
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  1. Susan Athey, 2005. "Comparing Open and Sealed Bid Auctions: Theory and Evidence from Timber Auctions," Theory workshop papers 658612000000000098, UCLA Department of Economics.
  2. Athey, Susan, 2001. "Single Crossing Properties and the Existence of Pure Strategy Equilibria in Games of Incomplete Information," Econometrica, Econometric Society, vol. 69(4), pages 861-89, July.
  3. Levin, Jonathan & Athey, Susan, 2001. "Information and Competition in U.S. Forest Service Timber Auctions," Scholarly Articles 3612768, Harvard University Department of Economics.
  4. Matthew Shum, 2000. "Nonparametric Tests for Common Values," Econometric Society World Congress 2000 Contributed Papers 1598, Econometric Society.
  5. Guerre, E. & Perrigne, I. & Vuong, Q., 1995. "Nonparametric Estimation of First-Price Auctions," Papers 9504, Southern California - Department of Economics.
  6. Marion, Justin, 2007. "Are bid preferences benign? The effect of small business subsidies in highway procurement auctions," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1591-1624, August.
  7. repec:cup:cbooks:9780521536721 is not listed on IDEAS
  8. repec:cup:cbooks:9780521551847 is not listed on IDEAS
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