Testing for Common Values in Canadian Treasury Bill Auctions

Ali Hortacsu and Jakub Kastl

No 07-053, Discussion Papers from Stanford Institute for Economic Policy Research

Abstract: We develop a test for common values in auctions in which some bidders possess information about rivals’ bids. This information causes a bidder to bid differently when she has a private value than when her value depends on rivals’ information. In a divisible good setting, such as treasury bill auctions, bidders with private values who obtain information about rivals’ bids use this information only to update their prior about the distribution of residual supply. In the model with a common value component, they also update their prior about the value of the good being auctioned.We apply the data from the Canadian treasury bill market, where some bidders have to route their bids through dealers who also submit bids on their own. Furthermore, we use the structural model to estimate the value of customer order flow to a dealer. We find that the extra information contained in customers’ bids leads on average to an increase in payoff equal to about 0.5 of a basis point, or 32% of the expected surplus of dealers from participating in these auctions.

Keywords: multiunit auctions; treasury auctions; structural estimation; nonparametric identification and estimation; test for common value (search for similar items in EconPapers)
JEL-codes: D44 (search for similar items in EconPapers)
Date: 2008-07
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Citations: View citations in EconPapers (2)

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