Security bid auctions for agency contracts

Byoung Jun () and Elmar Wolfstetter

No 1303, Discussion Paper Series from Institute of Economic Research, Korea University

Abstract: A principal uses security bid auctions to award an incentive contract to one among several agents in the presence of hidden action and hidden information. Securities range from cash to equity and call options. “Steeper†securities are better surplus extractors that narrow the gap between the two highest valuations, yet reduce effort incentives. In view of this trade-off, a hybrid share auction that includes a (possibly negative) cash reward to the winner, a minimum share, and an option to call a fixed wage contract, tends to outperform all other auctions, although it it is not an optimal mechanism. However, by adding output targets to hybrid share auctions one can (arbitrary closely) implement the optimal mechanism.

Keywords: Auctions and security design; agency problems; mechanism design (search for similar items in EconPapers)
JEL-codes: D21 D43 D44 D45 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-cta
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Security bid auctions for agency contracts (2014)
Working Paper: Security Bid Auctions for Agency Contracts (2013)
Working Paper: Security bid auctions for agency contracts (2012)
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