Optimal Privatization Using Qualifying Auctions

Jan Boone and Jacob Goeree

No 5118, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper explores the use of auctions for privatizing public assets. In our model, a single ?insider? bidder (e.g. incumbent management of a government-owned firm) possesses information about the asset?s risky value. In addition, bidders are privately informed about their costs of exploiting the asset. Due to the insider?s presence, uninformed bidders face a strong winner?s curse in standard auctions with devastating consequences for revenues. We show that the optimal mechanism discriminates against the informationally advantaged bidder to ensure truthful information revelation. The optimal mechanism can be implemented via a simple two-stage ?qualifying auction.? In the first stage of the qualifying auction, non-binding bids are submitted to determine who enters the second stage, which consists of a standard second-price auction augmented with a reserve price.

Keywords: Privatization; Qualifying auction; Winner's curse; Information advantage (search for similar items in EconPapers)
JEL-codes: D44 D82 L33 (search for similar items in EconPapers)
Date: 2005-07
New Economics Papers: this item is included in nep-fmk
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Citations: View citations in EconPapers (5)

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Journal Article: Optimal Privatisation Using Qualifying Auctions (2009)
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