Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/89665
Authors: 
Jun, Byoung Heon
Wolfstetter, Elmar G.
Year of Publication: 
2013
Series/Report no.: 
CESifo Working Paper 4554
Abstract: 
A principal uses security bid auctions to award an incentive contract to one among several agents in the presence of hidden action and hidden information. Securities range from cash to equity and call options. “Steeper” securities are better surplus extractors that narrow the gap between the two highest valuations, yet reduce effort incentives. In view of this trade-off, a hybrid share auction that includes a (possibly negative) cash reward to the winner, a minimum share, and an option to call a fixed wage contract, tends to outperform all other auctions, although it is not an optimal mechanism. However, by adding output targets to hybrid share auctions one can (arbitrary closely) implement the optimal mechanism.
Subjects: 
auctions and security design
agency problems
mechanism design
JEL: 
D21
D43
D44
D45
Document Type: 
Working Paper

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