Theory of public goods (W.H. Oakland). Incentives and the allocation of public goods (J.-J. Laffont). The economics of the local public sector (D.L. Rubinfeld). Markets, government, and the "new" political economy (R. Inman). Income maintenance and social insurance (A.B. Atkinson). The theory of cost-benefit analysis (J. Dreze, N.H. Stern). Pareto efficient and optimal taxation and the new new welfare economics (J.E. Stiglitz). Tax incidence (L. Kotlikoff, L. Summers).

Handbook of Public Economics

This paper examines bidding in over 1,700 knockout auctions used by a bidding cartel (or ring) of stamp dealers in the 1990s. The knockout was conducted using a variant of the model studied by Daniel Graham, Robert Marshall, and Jean-Francois Richard (1990). Following a reduced form examination of these data, damages, induced inefficiency, and the ring's benefit from colluding are estimated using a structural model in the spirit of Emmanuel Guerre, Isabelle Perrigne, and Quang Vuong (2000). A notable finding is that nonring bidders suffered damages that were of the same order of magnitude as those of the sellers.

/pdf/a-study-of-the-internal-organization-of-a-bidding-cartel-2209ldumx3.pdf

A Study of the Internal Organization of a Bidding Cartel

The first price auction is the auction procedure awarding the item to the highest bidder at the price equal to his bid. Much attention has been devoted to the two bidder case or to the symmetric case where the bidders' valuations are identically and independently distributed. We consider the general case where the valuations' distributions may be different. Furthermore, we allow an arbitrary number of bidders as well as mixed strategies. We show that every Bayesian equilibrium is an " essentially " pure equilibrium formed by bid functions whose inverses are solutions of a system of differential equations with boundary conditions. We then prove the existence of a Bayesian equilibrium. We prove the uniqueness of the equilibrium when the valuation distributions have a mass point at the lower extremity of the support. When every bidder's valuation distribution is one of two atomless distributions, we give assumptions under which the equilibrium is unique. The n-tuples of distributions that result from symmetric settings after some bidders have colluded satisfy these assumptions. We establish inequalities between equilibrium strategies when relations of stochastic dominance exist between valuation distributions.

First Price Auctions in the Asymmetric N Bidder Case

I examine a model of a uniform price auction of a perfectly divisible good with private informa tion in which the bidders submit discrete bidpoints rather than continuous downward sloping demand functions. 1 characterize necessary conditions for equilibrium bidding. The characterization reveals a close relationship between bidding in multiunit auctions and oligopolistic behaviour. I demonstrate that a recently proposed indirect approach to the revenue comparisons of discriminatory and uniform price auc tions is not valid if bid functions have steps. In particular, bidders may bid above their marginal valuation in a uniform price auction. In order to demonstrate that discrete bidding can have important consequences for empirical analysis I use my model to examine a data set consisting of individual bids in uniform price treasury auctions of the Czech government. I propose an alternative method for evaluating the perfor mance of the employed mechanism. My results suggest that the uniform price auction performs well, both in terms of efficiency of the allocation and in terms of revenue maximization. I estimate that the em ployed mechanism failed to extract at most 3 basis points in terms of the annual yield of T-bills worth of expected surplus while implementing an allocation resulting in almost all the efficient surplus. Failing to account for discreteness of bids would in my application result in overestimating the unextracted revenue by more than 50%.

/pdf/discrete-bids-and-empirical-inference-in-divisible-good-2nvx5bherj.pdf

Discrete Bids and Empirical Inference in Divisible Good 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.

/pdf/quadratic-core-selecting-payment-rules-for-combinatorial-3rhg7xtoer.pdf

Quadratic Core-Selecting Payment Rules for Combinatorial Auctions

When entry is exogenous, strong buyers should be discriminated against weak buyers to maximize revenues (Myerson 1981). When entry is endogenous so that entrants' expected payoffs do not depend on the proposed mechanism, optimal discrimination takes a completely different form. The revenue-maximizing equilibrium requires that there should be no discrimination with respect to entrants irrespective of their ex ante characteristics. Besides, those buyers who always participate should be discriminated against entrants independently of their strength. These predictions are independent of the equilibrium selection when the number of potential entrants grows large. The optimality of first-price auctions is also discussed. (JEL D44, H57)

/pdf/on-discrimination-in-auctions-with-endogenous-entry-4kpk6ik7sv.pdf

On Discrimination in Auctions with Endogenous Entry

Day and Milgrom (Int J Game Theory 36:393–407, 2008) argue that package auctions that select the seller’s minimum revenue in the Core are revenue-monotone. We show that no bidder-optimal Core-selecting auction can satisfy revenue-monotonicity for general preferences when there are at least three goods for sale, while the property holds for any bidder-optimal Core-selecting auction in environments with only two goods or if the characteristic function is submodular.

Core-selecting package auctions: a comment on revenue-monotonicity

From a theory viewpoint, the use of auctions with zero public reserve prices, also called absolute auctions, or of auctions with secret reserve prices, is somewhat puzzling despite being common. By allowing that buyers differ in their processing of past data regarding how the participation rate varies with the auction format and how reserve prices are distributed when secret, we show in a competitive environment that these auction formats may endogenously emerge. We also analyze how buyers with various sophistications and sellers with various costs sort into the different formats, thereby offering a range of testable predictions. Alternative approaches are reviewed.

On absolute auctions and secret reserve prices

The Shill Bidding Effect versus the Linkage Principle

Set-asides programs which consist in forbidding access to specific participants are commonly used in procurement auctions. We show that when the set of potential participants is composed of an incumbent (who bids for sure if allowed to) and of entrants who show up endogenously (in such a way that their expected rents are fixed by outside options), then it is always beneficial to exclude the incumbent in the second-price auction. This exclusion principle carries over to other auction formats that favor the incumbent and also to some environments with multiple incumbents. Whether it could be beneficial to exclude some kinds of entrants is also addressed. Various applications are discussed.

On the benefits of set-asides

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