A Walrasian Theory of Sovereign Debt Auctions with Asymmetric Information

Guillermo Ordonez, Daniel Neuhann and Harold Cole
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Daniel Neuhann: University of Texas at Austin

No 787, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: Sovereign bonds are highly divisible (since they are sold in large lots), usually of uncertain quality and sold to a large number of investors. As no bidder can individually affect the bond price, we develop a tractable Walrasian theory of Treasury auctions in which investors are asymmetrically informed about the quality of the bond. We characterize the price of the bond for different degrees of asymmetric information, both under price-discriminating (PD) and uniform-price (UP) protocols. We endogenize information acquisition and show that PD protocols are likely to induce multiple equilibria, one displaying asymmetric information, while UP protocols are unlikely to sustain equilibria with asymmetric information. This result has welfare implications as asymmetric information negatively affects the level and volatility of sovereign bond prices.

Date: 2017
New Economics Papers: this item is included in nep-mic
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Related works:
Working Paper: A Walrasian Theory of Sovereign Debt Auctions with Asymmetric Information (2018)
Working Paper: A Walrasian Theory of Sovereign Debt Auctions with Asymmetric Information (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed017:787

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