Rent extraction with securities plus cash

Tingjun Liu and Dan Bernhardt
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Tingjun Liu: The University of Hong Kong

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: Auctions employing steeper securities generate greater revenues when bidders have equal opportunity costs. However, when opportunity costs rise sufficiently quickly with valuations, security bids decrease in NPV and steeper securities reduce seller revenues. We show that when such adverse selection obtains, using combinations of securities with differing steepness can generate higher revenues than using securities of the same steepness. We determine the optimal combination of cash plus equity; identify a novel way of implementing the optimal mechanism via decreasing royalty rates ; establish the robustness of the mechanism; and identify when auction designs combining cash with steeper-than-equity securities increase seller revenues.

Date: 2019
New Economics Papers: this item is included in nep-des and nep-mic
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https://warwick.ac.uk/fac/soc/economics/research/w ... p_1212_bernhardt.pdf

Related works:
Journal Article: Rent Extraction with Securities Plus Cash (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1212

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