Optimal Privatization Using Qualifying Auctions

This paper explores the use of auctions for privatizing public assets.In our model, a single "insider" bidder (e.g. incumbent management of a government-owned firm) possesses information about the asset's risky value.In addition, bidders are privately informed about their costs of exploiting the asset.Due to the insider's presence, uninformed bidders face a strong winner's curse in standard auctions with devastating consequences for revenues.We show that the optimal mechanism discriminates against the informationally advantaged bidder to ensure truthful information revelation.The optimal mechanism can be implemented via a simple two-stage "qualifying auction."In the first stage of the qualifying auction, non-binding bids are submitted to determine who enters the second stage, which consists of a standard second-price auction augmented with a reserve price.privatization;qualifying auction;winner’s curse;information advantage

Optimal Market Design

This paper introduces three methodological advances to study the optimal design of static and dynamic markets. First, we apply a mechanism design approach to characterize all incentive-compatible market equilibria. Second, we conduct a normative analysis, i.e. we evaluate alternative competition and innovation policies from a welfare perspective. Third, we introduce a reliable way to measure competition in dynamic markets with nonlinear pricing. We illustrate the usefulness of our approach in several ways. We reproduce the empirical finding that innovation levels are higher in markets with lower price-cost margins, yet such markets are not necessarily more competitive. Indeed, we prove the Schumpeterian conjecture that more dynamic markets characterized by higher levels of innovation should be less competitive. Furthermore, we demonstrate how our approach can be used to determine the optimal combination of market regulation and innovation policies such as R&D subsidies or a weakening of the patent system. Finally, we show that optimal markets are characterized by strictly positive price-cost margins.competition policy;dynamic markets;competition measures;Schumpeter;mechanism design

One man, one bid

© 2016 Elsevier Inc. We compare two mechanisms to implement a simple binary choice, e.g. adopt one of two proposals. We show that when neither alternative is ex ante preferred, simple majority voting cannot implement the first best outcome. We introduce a simple bidding mechanism where votes can be bought at a quadratic cost and voters receive rebates equal to the average of others' payments. This mechanism is budget-balanced, individually rational, and fully efficient in the limit. Moreover, the mechanism redistributes from those that gain from the outcome to those that lose and everyone is better off under bidding compared to voting. We test the two mechanisms in the lab using an environment with “moderate” and “extremist” voters. The observed efficiency losses under voting are close to theoretical predictions and significantly larger than under bidding. Because of redistribution, the efficiency gain from bidding benefits mostly the moderate voters

Optimal Privatization Using Qualifying Auctions

This paper explores the use of auctions for privatizing public assets.In our model, a single "insider" bidder (e.g. incumbent management of a government-owned firm) possesses information about the asset's risky value.In addition, bidders are privately informed about their costs of exploiting the asset.Due to the insider's presence, uninformed bidders face a strong winner's curse in standard auctions with devastating consequences for revenues.We show that the optimal mechanism discriminates against the informationally advantaged bidder to ensure truthful information revelation.The optimal mechanism can be implemented via a simple two-stage "qualifying auction."In the first stage of the qualifying auction, non-binding bids are submitted to determine who enters the second stage, which consists of a standard second-price auction augmented with a reserve price

Noisy Introspection in the 11–20 Game

© 2017 Royal Economic Society Previous experiments based on the 11–20 game have produced evidence for the level-k model with observed levels of strategic thinking consistently ranging from 0 to 3. Our baseline treatment uses the 11–20 game and replicates previous results. We apply four models of strategic thinking to the baseline-treatment data and use these to predict behaviour and beliefs in five other treatments that employ games with a very similar structure. The best predictive performance is achieved by models that incorporate ‘common knowledge of noise’. A model of noisy introspection, which does so, predicts behaviour remarkably well

Do we need the W(n>3)W^{(n>3)} constraints to solve the (1,q)(1,q) models coupled to 2D gravity?

We prove that all the correlation functions in the $(1,q)$ models are calculable using only the Virasoro and the $W^{(3)}$ constraints. This result is based on the invariance of correlators with respect to an interchange of the order of the operators they contain. In terms of the topological recursion relations, it means that only two and three contacts and the corresponding degenerations of the underlying surfaces are relevant. An algorithm to compute correlators for any $q$ and at any genus is presented and demonstrated through some examples. On route to these results, some interesting polynomial identities, which are generalizations of Abel's identity, were discovered. }Comment: 26 page