Optimal privatisation using qualifying auctions
Boone,J. Goeree,J.K.
Boone,J.
Goeree,J.K.
Abstract
This article explores use of auctions for privatising public assets. In our model, a single ‘insider’ bidder possesses information about the asset's common value. 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. We show that the optimal mechanism discriminates against the informationally advantaged bidder. It can be implemented via a two-stage ‘qualifying auction’. In the first stage, 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.
Description
Appeared earlier as CentER DP 2005-72
Date
2009
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Citation
Boone, J & Goeree, J K 2009, 'Optimal privatisation using qualifying auctions', Economic Journal, vol. 119, no. 534, pp. 277-297.