The Winner's Curse under Behavioral Institutions

Nadine Chalß ()
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Nadine Chalß: Friedrich-Schiller-University Jena, Germany
Authors registered in the RePEc Author Service: Nadine Chlaß

No 2011-011, Jena Economics Research Papers from Friedrich-Schiller-University Jena

Abstract: Empirically, social dilemma under information asymmetry are often much less pronounced than theory predicts. Traders experience a winner's curse and maintain efficiency enhancing exchange of commodities when theory predicts none. Especially under competition, cursed parties undergo severe losses and thereby fund social welfare. Hence, if one cures the winner's curse, one often decreases social welfare. Here, I test how market efficiency can be maintained without individual losses. In a competitive common value auction, parties sidestep both market inefficiency and a winner's curse by judging quality-by-price, and setting price-by-quality.

Keywords: imperfect information; common value auction; price-quality relation (search for similar items in EconPapers)
JEL-codes: D61 D82 L13 (search for similar items in EconPapers)
Date: 2011-02-25
New Economics Papers: this item is included in nep-cta, nep-exp and nep-hpe
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Persistent link: https://EconPapers.repec.org/RePEc:jrp:jrpwrp:2011-011

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