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An Optimal Auction with Moral Hazard

Arina Nikandrova and Romans Pancs
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Arina Nikandrova: Department of Economics, Mathematics & Statistics, Birkbeck

No 1504, Birkbeck Working Papers in Economics and Finance from Birkbeck, Department of Economics, Mathematics & Statistics

Abstract: We consider a single-item, independent private value auction environment with two bidders: the leader, who knows his valuation, and the follower, who exerts an effort that affects the probability distribution of his valuation, which he then learns. We provide sufficient conditions under which an ex-post efficient revenue-maximizing auction solicits bids sequentially and partially discloses the leaderÂ’s bid to the follower, thereby influencing the followerÂ’s effort. This disclosure rule, which is novel, is non-monotone and prescribes sometimes revealing only a pair to which the leaderÂ’s bid belongs and sometimes revealing the bid itself. The induced effort distortion relative to the first-best is discussed.

Keywords: Information Disclosure; Conjugate Disclosure; Optimal Auction; Moral Hazard. (search for similar items in EconPapers)
JEL-codes: D82 D83 (search for similar items in EconPapers)
Date: 2015-05
New Economics Papers: this item is included in nep-cta, nep-hpe and nep-mic
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https://eprints.bbk.ac.uk/id/eprint/15275 First version, 2015 (application/pdf)

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