Securities Auctions under Moral Hazard: An Experimental Study
Shimon Kogan and
No 2006-E23, GSIA Working Papers from Carnegie Mellon University, Tepper School of Business
We study, both theoretically and in the lab, the performance of open outcry debt and equity auctions in the presence of both private information and hidden e¤ort in an independent private value setting. We characterize symmetric equilibrium bidding strategies and show that these lead to e¢ cient allocation. More interestingly, the revenue ranking between the debt and equity auctions depends on the returns to en- trepreneurial e¤ort. When returns are either very low or vary high, the equity auction leads to higher expected revenues to the seller than does the debt auction. When the returns to e¤ort are intermediate, we show that debt auctions can outperform equity auctions. We then test these predictions in a controlled laboratory setting and …nd broad support for the comparative predictions of the model.
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Journal Article: Securities Auctions under Moral Hazard: An Experimental Study (2010)
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