Governing Communities by Auction

Common interest communities have become the property form of choice for many Americans. As of 2010, sixty-two million Americans lived in common interest communities. Residents benefit from sharing the cost of common amenities – pools, lawns, gazebos – and from rules that ensure compliance with community expectations. But decisionmaking in common interest communities raises serious concerns about minority abuse and manipulation, a problem well known to all property law students. Decisions about which amenities will be provided and which rules will be enacted are typically made through some combination of delegation and voting. Delegates often act for their own benefit, and, for a variety of reasons, voting fails to capture the preferences of the community. This Article suggests a better way. Building upon the pioneering work of Vickrey, Clarke, and Groves, we propose a novel auction system that captures the intensity of resident preferences while preserving the honesty of declared preferences. The use of auction theory induces truthful revelation of preferences by participants and reflects the intensity of preference for any given policy outcome. As a result, our system allows communities to make better decisions and makes common interest communities more responsive to the needs of residents

Designing Coalition-Proof Reverse Auctions over Continuous Goods

This paper investigates reverse auctions that involve continuous values of different types of goods, general nonconvex constraints, and second stage costs. We seek to design the payment rules and conditions under which coalitions of participants cannot influence the auction outcome in order to obtain higher collective utility. Under the incentive-compatible Vickrey-Clarke-Groves mechanism, we show that coalition-proof outcomes are achieved if the submitted bids are convex and the constraint sets are of a polymatroid-type. These conditions, however, do not capture the complexity of the general class of reverse auctions under consideration. By relaxing the property of incentive-compatibility, we investigate further payment rules that are coalition-proof without any extra conditions on the submitted bids and the constraint sets. Since calculating the payments directly for these mechanisms is computationally difficult for auctions involving many participants, we present two computationally efficient methods. Our results are verified with several case studies based on electricity market data

License auctions with exit (and entry) options: Alternative remedies for the exposure problem

Inspired by some spectrum auctions, we consider a stylized license auction with incumbents and one entrant. Whereas the entrant values only the bundle of several units (synergy), incumbents are subject to non-increasing demand. The seller proactively encourages entry and restricts incumbent bidders. In this framework, an English clock auction gives rise to an exposure problem that distorts efficiency and impairs revenue. We consider three remedies: a (constrained) Vickrey package auction, an English clock auction with exit option that allows the entrant to annul his bid, and an English clock auction with exit and entry option that lifts the bidding restriction if entry failed

Quadratic Core-Selecting Payment Rules for Combinatorial Auctions

We report on the use of a quadratic programming technique in recent and upcoming spectrum auctions in Europe. Specifically, we compute a unique point in the core that minimizes the sum of squared deviations from a reference point, for example, from the Vickrey-Clarke-Groves payments. Analyzing the Karush-Kuhn-Tucker conditions, we demonstrate that the resulting payments can be decomposed into a series of economically meaningful and equitable penalties. Furthermore, we discuss the benefits of this combinatorial auction, explore the use of alternative reserve pricing approaches in this context, and indicate the results of several hundred computational runs using CATS data.Auctions, spectrum auctions, market design, package auction, clock auction, combinatorial auction

Design and Evaluation of Procurement Combinatorial Auctions

The main advantage of a procurement combinatorial auction (CA) is that it allows suppliers to express cost synergies through package bids. However, bidders can also strategically take advantage of this flexibility, by discounting package bids and "inflating" bid prices for single-items, even in the absence of cost synergies; the latter behavior can hurt the performance of the auction. It is an empirical question whether allowing package bids and running a CA improves performance in a given setting.Analyzing the actual performance of a CA requires evaluating cost efficiency and the margins of the winning bidders, which is typically private and sensitive information of the bidders. Thus motivated, in Chapter 2 of this dissertation, we develop a structural estimation approach for large-scale first-price CAs to estimate the firms' cost structure using the bid data. To overcome the computational difficulties arising from the large number of bids observed in large-scale CAs, we propose a novel simplified model of bidders' behavior based on pricing package characteristics. Overall, this work develops the first practical tool to empirically evaluate the performance of large-scale first-price CAs commonly used in procurement settings.In Chapter 3, we apply our method to the Chilean school meals auction, in which the government procures half a billion dollars' worth of meal services every year and bidders submit thousands of package bids. Our estimates suggest that bidders' cost synergies are economically significant in this application (~5%), and the current CA mechanism achieves high allocative efficiency (~98%) and reasonable margins for the bidders (~5%). We believe this is the first work in the literature that empirically shows that a CA performs well in a real-world application.We also conduct a counterfactual analysis to study the performance of the Vickrey-Clarke-Groves (VCG) mechanism in our empirical application. While it is well known in the literature that the VCG mechanism achieves allocative efficiency, its application in practice is at best rare due to several potential weaknesses such as prohibitively high procurement costs. Interestingly, contrary to the recent theoretical work, the results show that the VCG mechanism achieves reasonable procurement costs in our application. Motivated from this observation, Chapter 4 addresses such apparent paradox between the theory and our empirical application. Focusing on the high procurement cost issue, we study the impact of competition on the revenue performance of the VCG mechanism using an asymptotic analysis. We believe the findings in this chapter add useful insights for the practical usage of the VCG mechanism