The Chopstick Auction: A Study of the Exposure Problem in Multi-Unit Auctions

Multi-unit auctions are sometimes plagued by the so-called exposure problem. In this paper, we analyze a simple game called the ‘chopstick auction’ in which bidders are confronted with the exposure problem. We do so both in theory and in a laboratory experiment. In theory, the chopstick auction has an efficient equilibrium and is revenue equivalent with the second-price sealed-bid auction in which the exposure problem is not present. In the experiment, however, we find that the chopstick auction is less efficient than the second-price sealed-bid auction and that it yields more [the same] revenue if bidders are inexperienced [experienced].chopstick auction, exposure problem, laboratory experiment, second-price sealed-bid auction

Reverse Regulatory Arbitrage: An Auction Approach to Regulatory Assignments

In the years before the Financial Crisis, banks got to pick their regulators, engaging in a form of regulatory arbitrage that we now know was a race to the bottom. We propose to turn the tables on the banks by allowing regulators, specifically, bank examiners, to choose the banks they regulate. We call this “reverse regulatory arbitrage,” and we think it can help improve regulatory outcomes. Building on our prior work that proposes to pay bank examiners for performance — by giving them financial incentives to avoid bank failures — we argue that bank supervisory assignments should be set through an auction among examiners. Examiner bidding would generate information about examiners’ skills, experience and preferences, as well as information about each bank. Provided examiners bear the upside and downside of their regulatory behavior, a bidding system for regulatory assignments could improve the fit between examiners and the banks they supervise, thereby enhancing regulatory efficiency

Why Votes Have a Value

We perform an experiment where subjects pay for the right to participate in a shareholder vote. We find that experimental subjects are willing to pay a significant premium for the voting right even though there should be no such premium in our setup under full rationality. Private benefits from controlling the firm are absent from our setup and overconfidence cannot explain the size of the observed voting premium. The premium disappears in treatments where voting has no material consequences for the subjects. We conclude that individuals enjoy being part of a group that exercises power and are therefore willing to pay for the right to vote even when the impact of their own vote on their payoffs is negligible.Smoking, Voting, dual-class shares, paradox of voting, experimental economics

An Experimental Analysis of Ending Rules in Internet Auctions

A great deal of late bidding has been observed on internet auctions such as eBay, which employ a second price auction with a fixed deadline. Much less late bidding has been observed on internet auctions such as those run by Amazon, which employ similar auction rules, but use an ending rule that automatically extends the auction if necessary after the scheduled close until ten minutes have passed without a bid. This paper reports an experiment that allows us to examine the effect of the different ending rules under controlled conditions, without the other differences between internet auction houses that prevent unambiguous interpretation of the field data. We find that the difference in auction ending rules is sufficient by itself to produce the differences in late bidding observed in the field data. The experimental data also allow us to examine how individuals bid in relation to their private values, and how this behavior is shaped by the different opportunities for learning provided in the auction conditions.

Costly Bidding in Online Markets for IT Services

Internet-enabled markets are becoming viable venues for procurement of professional services. We investigate bidding behavior within the most active area of these early knowledge markets—the market for software development. These markets are important both because they provide an early view of the effectiveness of online service markets and because they have a potentially large impact on how software development services are procured and provided. Using auction theory, we develop a theoretical model that relates market characteristics to bidding and transaction behavior, taking into account costly bidding. We then test our model using data from an active online market for software development services, which yields contracts for 30%–40% of posted projects. In its current format, however, the studied market may induce excessive bidding by vendors. Consistent with our theoretical predictions and those of Carr (2003), higher-value projects attract significantly more bids, with lower average quality. Greater numbers of bids raise the cost to all participants, due to costly bidding and bid evaluation. Perhaps as a consequence, higher-value projects are also much less likely to be awarded

Late and Multiple Bidding in Second Price Internet Auctions: Theory and Evidence Concerning Different Rules for Ending an Auction

In second price internet auctions with a fixed end time, such as those on eBay, many bidders ‘snipe’, i.e., they submit their bids in the closing minutes or seconds of an auction. Late bids of this sort are much less frequent in auctions that are automatically extended if a bid is submitted very late, as in auctions conducted on Amazon. We propose a model of second price internet auctions, in which very late bids have a positive probability of not being successfully submitted, and show that sniping in a fixed deadline auction can occur even at equilibrium in auctions with private values, as well as in auctions with uncertain, dependent values. Sniping in fixed-deadline auctions also arises out of equilibrium, as a best reply to incremental bidding. However, the strategic advantages of sniping are eliminated or severely attenuated in auctions that apply the automatic extension rule. The strategic differences in the auction rules are reflected in the field data. There is more sniping on eBay than on Amazon, and this difference grows with experience. We also study the incidence of multiple bidding, and its relation to late bidding. It appears that one substantial cause of late bidding is as a strategic response to incremental bidding.

The optimal length of contracts with application to outsourcing

This paper resolves three empirical puzzles in outsourcing by formalizing the adaptation cost of long-term performance contracts. Side-trading with a new partner alongside a long- term contract (to exploit an adaptation-requiring investment) is usually less effective than switching to the new partner when the contract expires. So long-term contracts that prevent holdup of specific investments may induce holdup of adaptation investments. Contract length therefore trades of specific and adaptation investments. Length should increase with the importance and specificity of self-investments, and decrease with the importance of adaptation investments for which side-trading is ineffective. My general model also shows how optimal length falls with cross-investments and wasteful investments.Contract length, market forces, incomplete contracts, holdup

Home Bias in Online Employment

We study the nature of home bias in online employment, wherein the employer prefers workers from his/her own home country. Using a unique large-scale dataset from one of the major online labor platforms, we identify employers’ home bias in their online employment decisions. Moreover, we investigate the cause of employers’ home bias using a quasi-natural experiment wherein the platform introduces a monitoring system to facilitate employers to keep track of workers’ progress in time-based projects. After matching comparable fixed-price projects as a control group using propensity score matching, our difference-in-difference estimations show that the home bias does exist in online employment, and at least 54.0% of home bias is driven by statistical discrimination

Real-time optimization of an integrated production-inventory-distribution problem.

In today\u27s competitive business environment, companies face enormous pressure and must continuously search for ways to design new products, manufacture and distribute them in an efficient and effective fashion. After years of focusing on reduction in production and operation costs, companies are beginning to look into distribution activities as the last frontier for cost reduction. In addition, an increasing number of companies, large and small, are focusing their efforts on their core competencies which are critical to survive. This results in a widespread practice in industry that companies outsource one or more than one logistics functions to third party logistics providers. By using such logistics expertise, they can obtain a competitive advantage both in cost and time efficiency, because the third party logistics companies already have the equipment, system and experience and are ready to help to their best efforts. In this dissertation, we developed an integrated optimization model of production, inventory and distribution with the goal to coordinate important and interrelated decisions related to production schedules, inventory policy and truckload allocation. Because outsourcing logistics functions to third party logistics providers is becoming critical for a company to remain competitive in the market place; we also included an important decision of selecting carriers with finite truckload and drivers for both inbound and outbound shipments in the model. The integrated model is solved by modified Benders decomposition which solves the master problem by a genetic algorithm. Computational results on test problems of various sizes are provided to show the effectiveness of the proposed solution methodology. We also apply this proposed algorithm on a real distribution problem faced by a large national manufacturer and distributor. It shows that such a complex distribution network with 22 plants, 7 distribution centers, 8 customer zones, 9 products, 16 inbound and 16 outbound shipment carriers in a 12-month planning period can be redesigned within 33 hours. In recent years, multi-agent simulation has been a preferred approach to solve logistics and distribution problems, since these problems are autonomous, distributive, complex, heterogeneous and decentralized in nature and they require extensive intelligent decision making. Another important part in this dissertation involved a development of an agent-based simulation model to cooperate with the optimal solution given by the optimization model. More specifically, the solution given by the optimization model can be inputted as the initial condition of the agent-based simulation model. The agent-based simulation model can incorporate many other factors to be considered in the real world, but optimization cannot handle these as needed. The agent-based simulation model can also incorporate some dynamics we may encounter in the real operations, and it can react to these dynamics in real time. Various types of entities in the entire distribution system can be modeled as intelligent agents, such as suppliers, carriers and customers. In order to build the simulation model more realistic, a sealed bid multiunit auction with an introduction of three parameters a, ß and y is well designed. With the help of these three parameters, each agent makes a better decision in a simple and fast manner, which is the key to realizing real-time decision making. After building such a multi-agent system with agent-based simulation approach, it supports more flexible and comprehensive modeling capabilities which are difficult to realize in a general optimization model. The simulation model is tested and validated on an industrial-sized problem. Numerical results of the agent-based simulation model suggest that with appropriate setting of three parameters the model can precisely represent the preference and interest of different decision makers

Building Political Collusion: Evidence from Procurement Auctions

We investigate the relationship between the time politicians stay in office and the functioning of public procurement. To this purpose, we collect a data set on the Italian municipal governments and all the procurement auctions they administered between 2000 and 2005. Identification is achieved through the introduction of a two-term limit for the mayor in March 1993: since elections were not coordinated across cities, and previous terms were not counted in the limit, mayors appointed right before the reform could be reelected for two additional terms, while the others for one only. Our primary finding is that one extra term in office deteriorates public spending. In fact, it decreases the number of bidders and, most importantly, the winning rebate. Interestingly, we also find that the probability that the same firm is awarded more auctions, or that the winning firm is local, increases with time in office. These results are compatible with the predictions of a model of favoritism in repeated procurement auctions, where time reveals collusive types, thus increasing the value of illegal connections at the expense of higher procurement costs.procurement auction, collusion, public works, time in office