Descending Price Optimally Coordinates Search

Investigating potential purchases is often a substantial investment under uncertainty. Standard market designs, such as simultaneous or English auctions, compound this with uncertainty about the price a bidder will have to pay in order to win. As a result they tend to confuse the process of search both by leading to wasteful information acquisition on goods that have already found a good purchaser and by discouraging needed investigations of objects, potentially eliminating all gains from trade. In contrast, we show that the Dutch auction preserves all of its properties from a standard setting without information costs because it guarantees, at the time of information acquisition, a price at which the good can be purchased. Calibrations to start-up acquisition and timber auctions suggest that in practice the social losses through poor search coordination in standard formats are an order of magnitude or two larger than the (negligible) inefficiencies arising from ex-ante bidder asymmetries.Comment: JEL Classification: D44, D47, D82, D83. 117 pages, of which 74 are appendi

Using Auction Theory to Inform Takeover Regulation

This paper focuses on certain mechanisms that govern the sale of corporate assets. Under Delaware law, when a potential acquirer makes a serious bid for a target, the target's Board of Directors is required to act as would "auctioneers charged with getting the best price for the stock- holders at a sale of the company." The Delaware courts' preference for auctions follows from two premises. First, a firm's managers should maximize the value of their shareholders' investment in the company. Second, auctions maximize shareholder returns. The two premises together imply that a target's board should conduct an auction when at least two firms would bid sums that are nontrivially above the target's prebid market price.Auctions; Takeovers

Political drivers of and barriers to Public-Private Partnerships: The role of political involvement

The application and design of public-private partnerships between the extremes of purely public or purely private task fulfilment in public services is, in practice, subject to political processes. Decisions about PPPs (realisation, arrangement) are taken in the political arena and are therefore not theoretical optimisation exercises. The interests and resources of the actors who participate in the political decision-making process as well as the rules of the political process have a powerful influence on whether, in what areas, and in what form PPPs are realised. The distance between this output and solutions that are theoretically desirable given certain ideal goals (e.g. efficiency) and conditions can be referred to as political bias. So what role does the political process play in the realisation of PPPs, in the actual design of PPPs, and in their performance? Using public choice and institutional economics theory this paper analyses what chances of success PPPs have given the existing decision-making structures and the inherent incentives for participating actors, and in what way political influence is brought to bear in the first place. Furthermore, aspects of political science in this field (legitimacy, democratic control) are considered as well. Using PPPs there might be a trade-off between reduced democratic control, but also reinforced market control. It turns out that political involvement might be both an important driver as well as an obstacle for (efficient) PPPs and that it is likely to decrease efficiency either way. A case study for userfinancing PPPs in the transport sector highlights the problems of political renitency. --public-private partnership,politics,bureaucracy,public choice,contract theory,agency,tax state,transaction cost,governance,legitimacy,transport infrastructure,user financing

Smart Market for Woodchips

This paper presents the outline for a smart market geared to Quebec s woodchip industry. It aims to explain how such a market operates, and to show how it fits into or modifies the existing trading system. The proposed smart market has two main objectives. The first is to enhance the efficiency of the woodchip market. The electronic market is a favoured means of enhancing market flexibility and thus controlling the accumulation of unsold inventory. Such a mechanism maximizes the industry s overall profits by ensuring that each firm can identify all business opportunities within its reach and realize the additional profits associated with them. The second main objective is continuity of trade practices. Long-term contracts between sawmills and paper mills are an important market reality, and they will be an integral part of the smart market. The keystone of our proposal is the Optimized Periodic Market (OPM). Somewhat along the lines of the Encan électronique du porc (EÉP, or electronic pork auction), set up by the Fédération des producteurs de porcs du Québec (Quebec s pork producers federation), we are proposing to establish an electronic woodchip exchange which would open up periodically (monthly, for instance) to allocate Quebec s entire woodchip output. At the close of an electronic market session, exchanges for the month will be determined, and everyone will know who he is to receive his woodchips from, or who he is to deliver them to, along with the price of each transaction and the merchandise shipment schedule. The OPM fulfils three main functions: (1) it co-ordinates players actions with a view to reducing inventory surpluses and meeting paper mills needs as closely as possible; (2) it keeps transportation costs down by determining the least costly exchanges between sawmills and paper mills with respect to supply; and (3) it offers an effective tool for renegotiating long-term contracts. An OPM session is in three main stages: pre-sale, sale and after-sale. At the pre-sale stage, the system gathers the information it will use to determine optimum exchanges. This information concerns two key variables in the woodchip market: quality requirements, and transportation costs. Buyers first express their technical requirements: on a BBS, they indicate the quality of the woodchips they wish to purchase and the penalties that will be applied should delivery not be in compliance with the specified technical requirements. The sellers are then invited to provide a production cost indicator for their woodchips that meets each paper mill s requirements. Sellers must also indicate the unit transportation costs (UTC) which they will have to pay if they deliver to each of the buyers. An auction mechanism for transportation costs, where buyers and third parties will be able to try to lower transportation costs, may also be set up. The sale stage involves an auction which takes place in successive rounds. Buyers bids are demand schedules, and sellers bids are supply schedules. At the start of the opening round, buyers and sellers enter their bids through an electronic interface linked to a server. Sellers must also provide a list of the types of woodchips they wish to market, and this list will be valid for the duration of the sale. Depending on the classification of the woodchips they put up for sale and their ability to sort species, they will have the choice of offering low density chips, high density chips, and/or jack pine chips. Buyers take part in a single market grouping together the three types of woodchips. At the start of the opening round, they have to specify the minimum and maximum proportions of each type of woodchips they wish to acquire. When all the bids have been tallied, the system generates the quantities traded and the equilibrium price paid or received by each participant. In light of this information, players can raise or lower their bids in line with their assessment of the market. Buyers can also revise the proportions of each type of woodchips they are asking for. Another round is then initiated, ending with the re-optimization of the system and disclosure of the new allocations. If no one wishes to alter his bid after the prices and quantities are announced at the end of a round, the efficient bilateral exchanges become official, and the delivery schedule for the period is established. Bid changes from one round to the next are governed by an eligibility rule whose function is to give impetus to the market, to prompt participants to be active in the market, and to reveal their real needs as early as possible. The OPM is a medium-term market in that it lies between a long-term compensatory market and a short-term spot market. Sawmills and paper mills wishing to guarantee their supply by signing long-term agreements will be able to go the compensatory contract route. A long-term compensatory contract between a sawmill and a paper mill specifies a price and quantity of woodchips for each OPM period (each month). In this way, the paper mill is guaranteed a certain quantity of woodchips at a certain price, and the sawmill is guaranteed a price for a given portion of its output. Data from these compensatory contracts are then taken into consideration by the OPM. Somewhat like term markets, compensatory contracts are agreements on financial flow alone. It is the OPM which determines the actual exchanges of woodchips. The proposed market mechanism is designed to ensure that participation in the OPM is to everyone s benefit. With flexibility, transparency and the implementation of an open competitive mechanism, beneficial participation for all is one of the guiding principles of the smart market for woodchips. A participant bound by a compensatory contract is guaranteed to find himself, after an OPM session, in a situation at least as beneficial as that provided for in the contract. The spirit of the compensation mechanism is that if one of the partners receives an unfavourable price on the OPM, he will be compensated by his partner. In this way, the OPM compensation rule and renegotiation mechanism offer a procedure guaranteeing: (1) each participant the equivalent of what is negotiated in the long-term contract; and (2) all participants the possibility of discovering and realizing additional profits that are accessible but have not yet been realized. The proposed smart market is rounded out by a very short-term spot market on which sawmills will be able to liquidate their surpluses and paper mills will be able to procure additional quantities of woodchips, thus dealing with surpluses and unfilled requirements not anticipated in the OPM session. The spot market may be presented in the form of a BBS through which each facility will be able to initiate an auction.

The Impact of ISO 9000 Diffusion on Trade and FDI: A New Institutional Analysis

The effects of ISO 9000 diffusion on trade and FDI have gone understudied. We employ panel data reported by OECD nations over the 1995-2002 period to estimate the impact of ISO adoptions on country-pair economic relations. We find ISO diffusion to have no effect in developed nations, but to positively pull FDI (i.e., enhancing inward FDI) and positively push trade (i.e., enhancing exports) in developing nations

AN EXAMINATION OF A DEVELOPMENT RIGHTS PURCHASE PROGRAM FOR ALASKA AGRICULTURAL LANDS

A report submitted to the Department of Natural Resources, State of Alaska, in accordance with terms of research contract OCTO 1142.Many Alaskans are concerned about the conversion of highly productive agricultural lands to nonagricultural uses now occurring in the state. Land on the urban fringes of Anchorage and Fairbanks that once produced vegetables and grains or supported dairy farms appears most vulnerable to this conversion. As major population centers grow, residential, shopping center and industrial land uses displace agriculture because they render greater returns. This displacement is viewed by some as not being in society's best interest. Those concerned about the loss of agricultural lands argue that these lands are some of the best agricultural lands in the state and are vital to maintaining the agricultural economy of the state. In addition, it is suggested that their preservation will help to maintain a much desired way of life and to provide needed open space. The state and municipal governments in Alaska have made attempts to intervene in the land market to slow down or stop agricultural land conversion. Methods employed to date include tax incentives and the sale of only the agricultural rights on state or municipal lands. This report discusses the feasibility of an alternative means of preserving agricultural lands, namely, the public purchase of development rights from private landowners. Under this voluntary arrangement, private agricultural landowners would be compensated for giving up their option to develop their land for nonagricultural purposes.Introduction: Overview, Plan of Report -- Market Failure and the Allocation of Agricultural Land Resources -- Agricultural Land Conversion in Alaska -- Present and Potential Agricultural Development in Alaska: Introduction, Present Agricultural Situation, Agricultural Lands for Future Development, Future Agricultural Development in Alaska -- Purchase of Development Rights: Suffolk County: History, Maryland, New Jersey, Massachusetts and Connecticut, Definition of Development Rights, Strengths and Weaknesses of Development Rights Purchases -- Applicability of a Development Rights Program in Alaska: Introduction, Development Rights Survey in Alaska: Response, Farm Size of Respondents, Interest in Selling Development Rights, Market Values of Cleared and Uncleared Agricultural Lands, Value of Development Rights, Distance from a Population Center, Interest in Selling Development Rights, and Perceived Value of Development Rights -- Economic Size Agricultural Operations -- Potential Costs of a Purchase of Development Rights Program: Other Costs -- Benefits of Development Rights Acquisition: Maintenance of the Local Agricultural Economy, Locally Produced Food, Open Space and Other Public Good Amenities, Removal of Uncertainty -- Other Agricultural Land Control Tools: Comparison of Agricultural Land Preservation Tools -- Summary and Conclusions -- References -- Appendix A: Operation of of Purchase of Development Rights Programs -- Appendix B: Alaska Agricultural Lands Survey -- Appendix C: Additional Comments from Respondents -- Appendix D: Alternative Agricultural Land Control Technique

The Impact of ISO 9000 Diffusion on Trade and FDI: A New Institutional Analysis

The effects of ISO 9000 diffusion on trade and FDI have gone understudied. We employ panel data reported by OECD nations over the 1995-2002 period to estimate the impact of ISO adoptions on country-pair economic relations. We find ISO diffusion to have no effect in developed nations, but to positively pull FDI (i.e., enhancing inward FDI) and positively push trade (i.e., enhancing exports) in developing nations. ZUSAMMENFASSUNG - (Der Einfluss der Verbreitung des ISO 9000 Standards auf Außenhandel und ausländische Direktinvestitionen: eine neue institutionelle Analyse) Die Folgen der Verbreitung des ISO 9000 Standards auf den Außenhandel und ausländische Direktinvestitionen wurden bislang noch nicht ausreichend untersucht. In diesem Papier werden Datensätze von OECD-Mitgliedsstaaten im Zeitraum von 1995 - 2002 verwendet, um die Auswirkung von ISO-Einführungen auf bilaterale Außenhandelsaktivitäten zu untersuchen. Es zeigt sich, dass die Anwendung der ISO-Norm keine Auswirkungen auf den Handel zwischen entwickelten Ländern hat. In Entwicklungsländern dagegen führt die Einführung der ISO 9000 Norm dazu, dass die ins Land geholten ausländischen Direktinvestitionen (FDI) steigen und dass der Außenhandel - messbar an der Steigerung des Exportvolumens - positiv beeinflusst wird.FDI, Trade, Transaction Costs, Institutions

Real Option Pricing in Mixed-use Development Projects

The application of real options theory to commercial real estate has developed rapidly during the last 15 Years. In particular, several pricing models have been applied to value real options embedded in development projects. In this study we use a case study of a mixed use development scheme and identify the major implied and explicit real options available to the developer. We offer the perspective of a real market application by exploring different binomial models and the associated methods of estimating the crucial parameter of volatility. We include simple binomial lattices, quadranomial lattices and demonstrate the sensitivity of the results to the choice of inputs and method.

Designing and Executing a Fair Revlon Auction

The author analyzes the role of corporate boards of directors during takeover and control transactions, specifically in regards to auctions. Courts have consistently considered unfair auction attempts in light of the importance of the business judgment rule. The author examines Delaware case law and highlights the Revlon case, which holds that once an auction begins, the board’s duty shifts from preservation of the corporate entity to maximization of value shareholders will receive from the sale. The author argues that a good understanding of auction theory will not only give courts a better perspective through which to examine directors’ actions but also will give directors more information on how to run auctions and respond to bids

Designing and Executing a Fair Revlon Auction

The author analyzes the role of corporate boards of directors during takeover and control transactions, specifically in regards to auctions. Courts have consistently considered unfair auction attempts in light of the importance of the business judgment rule. The author examines Delaware case law and highlights the Revlon case, which holds that once an auction begins, the board’s duty shifts from preservation of the corporate entity to maximization of value shareholders will receive from the sale. The author argues that a good understanding of auction theory will not only give courts a better perspective through which to examine directors’ actions but also will give directors more information on how to run auctions and respond to bids