Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86819
Authors: 
Hu, Audrey
Zou, Liang
Year of Publication: 
2008
Series/Report no.: 
Tinbergen Institute Discussion Paper 08-044/1
Abstract: 
This paper characterizes the optimal first-price auction (FPA) and second-price auction (SPA) for selling rights, contracts, or licenses that involve ensuing payoff uncertainty for the winning bidder. The distribution of the random payoff is common knowledge, except that bidders have private degrees of aversion to downside-risk. In this model, the optimal FPA entails a lower reserve price, a higher expected revenue, and higher expected utilities for at least some or all bidders than the optimal SPA does, which suggests that FPA dominates SPA in terms of both allocative and Pareto efficiency. Increasing risk or risk aversion generally leads to lower equilibrium bids.
Subjects: 
auction
downside risk
risk aversion
payoff uncertainty
allocative efficiency
Pareto efficiency
JEL: 
D44
Document Type: 
Working Paper

Files in This Item:
File
Size
324.17 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.