On the continuous equilibria of affiliated-value, all-pay auctions with private budget constraints

We consider all-pay auctions in the presence of interdependent, affiliated valuations and private budget constraints. For the sealed-bid, all-pay auction we characterize a symmetric equilibrium in continuous strategies for the case of N bidders. Budget constraints encourage more aggressive bidding among participants with large endowments and intermediate valuations. We extend our results to the war of attrition where we show that budget constraints lead to a uniform amplification of equilibrium bids among bidders with sufficient endowments. An example shows that with both interdependent valuations and private budget constraints, a revenue ranking between the two auction formats is generally not possible. Equilibria with discontinuous bidding strategies are discussed

Revenue comparisons for auctions when bidders have arbitrary types

This paper develops a methodology for characterizing expected revenue from auctions when bidders' types come from an arbitrary distribution. In particular, types may be multidimensional, and there may be mass points in the distribution. One application extends existing revenue equivalence results. Another application shows that first-price auctions yield higher expected revenue than second-price auctions when bidders are risk averse and face financial constraints. This revenue ranking extends to risk-averse bidders with general forms of non-expected utility preferences

Simultaneous Ascending Bid Auctions with Budget Constraints

We identify and analyze three distinct effects arising from potentially binding budget constraints in multi-unit ascending auctions. First, binding budgets clearly reduce the level of competition among bidders. Second, budget constraints may at the same time make it difficult to sustain collusive equilibria when bidders lack sufficient resources to ‘punish’ defectors. Third, the mere possibility, even if arbitrarily small, of binding budget constraints can reduce competition substantially because bidders can ‘pretend’ to be constrained, even if they are not. In this cases, measures restricting the participation of low-budget bidders, e.g. reserve prices, can increase social welfare

Three essays in economics and finance

This dissertation consists of three essays. The first essay is joint work with Dan Bernhardt. We endogenize entry to a security-bid auction, where participation is costly, and bidders must decide given their private valuations whether to participate. We first suppose that the minimum reserve security-bid yields the seller an expected revenue equal to the asset's stand-alone value to the seller. Demarzo et al. (2005) establish that with a fixed number of bidders, auctions with steeper securities yield the seller more revenues. Counterintuitively, we find that auctions with steeper securities also attract more entry, further enhancing the revenues from such auctions. We then establish that with optimal reserve securities, auctions with steeper securities always yield higher expected revenues. In the second essay, I consider a situation in which a winning bidder of an equity auction has an investment opportunity after the auction and the seller has private information about the return of the post-auction investment. I show that in such a situation, in contrast to the seminal "linkage principle" by Milgrom and Weber (1982), the seller's expected revenue may be higher when not disclosing her private information at all than when committing to publicly announce her private information regardless of whether it is positive or negative. The third essay is joint work with Keiichi Kawai. The securitization of structured finance products entails three types of inefficiency: the issuer's moral hazard when screening underlying assets (ex-ante inefficiency), the issuer's incentive to repackage underlying assets into separate securities even when doing so is socially inefficient (interim inefficiency), and adverse selection in the market (ex-post inefficiency). To analyze the interplay of these inefficiencies and their welfare implications, we consider a situation wherein buying medium-value assets and issuing medium-value securities are first-best. However, we show that the issuer not only buys low-value underlying assets but also repackages underlying assets to issue two types of securities of different values despite paying a socially wasteful cost