English Auctions with Ensuing Risks and Heterogeneous Bidders

Audrey Hu (), Steven Matthews () and Liang Zou ()
Additional contact information
Audrey Hu: University of Amsterdam,Tinbergen Institute
Liang Zou: University of Amsterdam

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: We establish conditions under which an English auction for an indivisible risky asset has an efficient ex post equilibrium when the bidders are heterogeneous in both their exposures to, and their attitudes toward, the ensuing risk the asset will generate for the winning bidder. Each bidder's privately known type is unidimensional, but may affect both his risk attitude and the expected value of the asset's return to the winner. An ex post equilibrium in which the winning bidder has the largest willingness to pay for the asset exists if two conditions hold: each bidder's marginal utility of income is log-supermodular, and the vector-valued function mapping the type vector into the bidders' expected values for the asset satisfies a weighted average crossing condition. However, this equilibrium need not be efficient. We show that it is efficient if each bidder's expected value for the asset is nonincreasing in the types of the other bidders, or if the bidders exhibit nonincreasing absolute risk aversion or if the asset is riskless.

Keywords: English auction; ensuing risk; heterogeneous risk preferences; interdependent values; ex post equilibrium; ex post efficiency (search for similar items in EconPapers)
JEL-codes: D44 D82 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2015-02-25
New Economics Papers: this item is included in nep-mic and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: English auctions with ensuing risks and heterogeneous bidders (2018)
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