A Procurement Auction for Toxic Assets with Asymmetric Information

Olivier Armantier, Charles Holt and Charles Plott ()

American Economic Journal: Microeconomics, 2013, vol. 5, issue 4, 142-62

Abstract: The proposed 2008 TARP auction was intended to remove "toxic" assets from portfolios of financially stressed banks. The Treasury selected a design whereby bids to sell different securities would be normalized by "reference prices" that reflect relative value estimates. We conduct a series of experiments indicating that a simple Reference Price Auction can be an effective mechanism for avoiding serious effects of adverse selection and strategic bid manipulation, even with inaccurate reference prices. Beyond the TARP auction, our results are relevant to various multi-object auctions with value heterogeneity.

JEL-codes: D44 D82 G21 (search for similar items in EconPapers)
Date: 2013
Note: DOI: 10.1257/mic.5.4.142
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Citations: View citations in EconPapers (10)

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