Auctioning control and cash-flow rights separately

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: We consider a classical auction setting in which an asset/project is sold to buyers who privately receive signals about expected payoffs, and payoffs are more sensitive to the signal of the bidder who controls the asset. We show that a seller can increase revenues by sometimes allocating cash-flow rights and control to different bidders, e.g., with the highest bidder receiving cash flows and the second-highest receiving control. Separation reduces a bidder’s information rent, which depends on the importance of his private information for the value of his awarded cash flows. As project payoffs are most sensitive to the information of the bidder who controls the project, allocating cash flow to another bidder lowers bidders’ informational advantage. As a result, when signals are close, the seller can increase revenues by splitting rights between the top two bidders.

Keywords: Control and cash flow rights; separation of rights; mechanism design; interdependent valuations JEL Codes: D44; D82 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-des, nep-gth, nep-ipr, nep-mic and nep-ppm
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1516

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