How Risk Sharing may Enhance Efficiency of English Auctions

Audrey Hu, Theo Offerman and Liang Zou

Economic Journal, 2018, vol. 128, issue 610, 1235-1256

Abstract: English auctions are known to be ex post efficient under various circumstances. However, they are inefficient ex ante for risk†averse seller and bidders. Our analysis of the English premium auction (EPA) reveals that, while maintaining ex post efficiency, awarding a premium to the highest two bidders makes the auction more attractive to all risk†averse bidders. This result is remarkably general, as it holds with possible interdependent bidder valuations and affiliated types. When bidders exhibit independent types, the EPA can also benefit a risk†averse seller and therefore strictly improve ex ante, or interim, Pareto efficiency of the English auction.

Date: 2018
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