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When and how to dismantle nuclear weapons

Jingfeng Lu

MPRA Paper from University Library of Munich, Germany

Abstract: This paper first derives revenue-maximizing auctions with identity-specific externalities among all players (seller and buyers). Our main findings are as follows. Firstly, a modified second-price sealed-bid auction with appropriate entry fees and reserve price is revenue-maximizing. Secondly, seller may physically destroy the auctioned item if the item is unsold or use destroying the item as nonparticipation threat. Thirdly, the revenue-maximizing auction induces full participation of buyers. Fourthly, each losing buyer's payment includes an externality-correcting component that equals the allocative externality to him. These components eliminate the impact of externalities on strategic bidding behavior. The paper further studies revenue-maximizing auctions with financial externalities. One-to-one correspondences between revenue-maximizing auctions for settings with and without financial externalities are established through incorporating externality-correcting payments. This result provides a general method for designing revenue-maximizing auctions in different settings of financial externalities, since revenue-maximizing auctions can be obtained through transforming the revenue-maximizing auctions for the regular settings without externalities.

Keywords: Auctions design; Endogenous participation; Externality (search for similar items in EconPapers)
JEL-codes: D44 D82 (search for similar items in EconPapers)
Date: 2006-12
References: Add references at CitEc
Citations: View citations in EconPapers (2)

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