4.7 Article

Leveling the Playing Field for Risk-Averse Agents in Security-Bid Auctions

期刊

MANAGEMENT SCIENCE
卷 68, 期 7, 页码 5441-5463

出版社

INFORMS
DOI: 10.1287/mnsc.2021.4080

关键词

securities; risk aversion; steepness; insurance; allocative efficiency; revenue; endogenous entry

向作者/读者索取更多资源

This study explores the behavior and effects of risk-averse bidders in security design auctions, finding that steeper securities attract more aggressive bidding from risk-averse bidders, resulting in increased allocative efficiency of the auction. Furthermore, the study analyzes the relationship between security design and auction formats.
We introduce risk-averse bidders in a security-bid auction to analyze how the security design affects bidders' equilibrium behavior and, as a result, the revenue and efficiency of the auction. We show that steeper securities provide more insurance because they allow bidders to smooth payoffs across realizations. Such insurance levels the playing field for more-risk-averse bidders, inducing them to bid more aggressively. As a consequence, the auction's allocative efficiency weakly increases when the seller switches from a flatter to a steeper security. Furthermore, we prove that when bidders are homogeneously and sufficiently risk averse, the only security that guarantees Pareto efficiency is the steepest, that is, a call option. We also determine the relationship between the security design and the auction format. In particular, we show that for convex and superconvex families of securities, the first-price auction yields higher expected revenues, provided a technical condition, whereas for subconvex families, the second price yields higher expected revenues, provided that bidders are moderately risk averse. Finally, we show that steeper securities also attract higher entry from an ex ante perspective, when entry is costly, and discuss the effects that the presence of risk aversion has on informal auctions.

作者

我是这篇论文的作者
点击您的名字以认领此论文并将其添加到您的个人资料中。

评论

主要评分

4.7
评分不足

次要评分

新颖性
-
重要性
-
科学严谨性
-
评价这篇论文

推荐

暂无数据
暂无数据