The longer term refinancing operations of the ECB

This paper employs individual bidding data to analyze the empirical performance of the longer term re?nancing operations (LTROs) of the European Central Bank (ECB). We investigate how banks’ bidding behavior is related to a series of exogenous variables such as collateral costs, interest rate expectations, market volatility and to individual bank characteristics like country of origin, size and experience. Panel regressions reveal that a bank’s bidding depends on bank characteristics. Yet, different bidding behavior generally does not translate into differences concerning bidder success. In contrast to the ECB’s main re?nancing operations, we ?nd evidence for the winner’s curse effect in LTROs. Our results indicate that LTROs do neither lead to market distortions nor to unfair auction outcomes. JEL Classification: E52, D44Auctions, Monetary Policy Instruments ECB, Winner’s Curse

The more the merrier? Number of bidders, information dispersion, renegotiation and winner’s curse in toll road concessions

We empirically assess the winner’s curse effect in auctions for toll road concessions. First, we investigate the overall winner’s curse effects on bidding behaviour. Second, we account for differing levels of common-value components. Third, we investigate whether the possibility of renegotiation affects the winner’s curse effect. Using a unique dataset of 49 concessions, we show that the winner’s curse effect is particularly strong, i.e. bidders bid less aggressively when they expect more competition. In addition, we observe that this effect is larger for projects where the common uncertainty is greater, and is dampened in weaker institutional frameworks, in which renegotiations are easier

The more the merrier? Number of bidders, information dispersion, renegotiation and winner’s curse in toll road concessions

We empirically assess the winner’s curse effect in auctions for toll road concessions. First, we investigate the overall winner’s curse effects on bidding behaviour. Second, we account for differing levels of common-value components. Third, we investigate whether the possibility of renegotiation affects the winner’s curse effect. Using a unique dataset of 49 concessions, we show that the winner’s curse effect is particularly strong, i.e. bidders bid less aggressively when they expect more competition. In addition, we observe that this effect is larger for projects where the common uncertainty is greater, and is dampened in weaker institutional frameworks, in which renegotiations are easier

The more the merrier? Number of bidders, information dispersion, renegotiation and winner’s curse in toll road concessions

We empirically assess the winner’s curse effect in auctions for toll road concessions. First, we investigate the overall winner’s curse effects on bidding behaviour. Second, we account for differing levels of common-value components. Third, we investigate whether the possibility of renegotiation affects the winner’s curse effect. Using a unique dataset of 49 concessions, we show that the winner’s curse effect is particularly strong, i.e. bidders bid less aggressively when they expect more competition. In addition, we observe that this effect is larger for projects where the common uncertainty is greater, and is dampened in weaker institutional frameworks, in which renegotiations are easier

Security Design in Initial Public Offerings

We investigate an IPO security design problem when information asymmetries across investors lead to a winner’s curse. Firms that are riskier in down markets can lower the cost of going public by using unit IPOs, in which equity and warrants are combined into a non-divisible package. Furthermore, firms that have a sizeable growth potential even in bad states of the world can fully eliminate the winner’s curse problem by making the warrants callable. Our theory is consistent with the prominent use of unit IPOs and produces empirical implications that differentiate it from existing theories

Inference on winners

Many questions in econometrics can be cast as inference on a parameter selected through optimization. For example, researchers may be interested in the effectiveness of the best policy found in a randomized trial, or the bestperforming investment strategy based on historical data. Such settings give rise to a winner’s curse, where conventional estimates are biased and conventional confidence intervals are unreliable. This paper develops optimal confidence sets and median-unbiased estimators that are valid conditional on the parameter selected and so overcome this winner’s curse. If one requires validity only on average over target parameters that might have been selected, we develop hybrid procedures that combine conditional and projection confidence sets and offer further performance gains that are attractive relative to existing alternatives

Matching auction with winner’s curse and imperfect financial markets

This paper explains how and why the Matching Auctions work better with Imperfect Financial Markets. We show that an efficient outsider can obtain a “good” project even if the insider has informational advantage

Increasing Competition and the Winner's Curse: Evidence from Procurement

We assess empirically the effects of the winner's curse which, in common-value auctions, counsels more conservative bidding as the number of competitors increases. First, we construct an econometric model of an auction in which bidders' preferences have both common- and private-value components, and propose a new monotone quantile approach which facilitates estimation of this model. Second, we estimate the model using bids from procurement auctions held by the State of New Jersey. For a large subset of these auctions, we find that median procurement costs rise as competition intensifies. In this setting, then, asymmetric information overturns the common economic wisdom that more competition is always desirable

A Winner’s Curse?: Promotions from the Lower Federal Courts

The standard model of judicial behavior suggests that judges primarily care about deciding cases in ways that further their political ideologies. But judicial behavior seems much more complex. Politicians who nominate people for judgeships do not typically tout their ideology (except sometimes using vague code words), but they always claim that the nominees will be competent judges. Moreover, it stands to reason that voters would support politicians who appoint competent as well as ideologically compatible judges. We test this hypothesis using a dataset consisting of promotions to the federal circuit courts. We find, using a set of objective measures of judicial performance, that competence seems to matter in promotions in that the least competent judges do not get elevated. But the judges who score the highest on our competence measures also do not get elevated. So, while there is no loser’s reward, there may be something of a winner’s curse, where those with the highest levels of competence hurt their chances of elevation

The winner’s curse: conditional reasoning & belief formation

We investigate the relevance of conditional reasoning and belief formation for the occurrence of the winner’s curse with the help of two experimental manipulations. First, we compare results from a very simple common-value auction game with results from a transformed version of this game that does not require any conditioning on future events. In human opponent settings, we observe significant differences in behavior across the two games. Second, we investigate subjects’ behavior when they face naïve computerized opponents and after they have faced them. We find that both strong and weak assistance in belief formation changes subjects’ play significantly in the auction game. Overall, the results suggest that the difficulty of conditioning on future events is at least as important in explaining frequent occurrences of the winner’s curse as is the challenge to form beliefs