Optimal Privatization Using Qualifying Auctions

This paper explores the use of auctions for privatizing public assets.In our model, a single "insider" bidder (e.g. incumbent management of a government-owned firm) possesses information about the asset's risky value.In addition, bidders are privately informed about their costs of exploiting the asset.Due to the insider's presence, uninformed bidders face a strong winner's curse in standard auctions with devastating consequences for revenues.We show that the optimal mechanism discriminates against the informationally advantaged bidder to ensure truthful information revelation.The optimal mechanism can be implemented via a simple two-stage "qualifying auction."In the first stage of the qualifying auction, non-binding bids are submitted to determine who enters the second stage, which consists of a standard second-price auction augmented with a reserve price.privatization;qualifying auction;winner’s curse;information advantage

An experimental study of costly coordination

This paper reports data for coordination game experiments with random matching. The experimental design is based on changes in an effort-cost parameter, which do not alter the set of Nash equilibria nor do they alter the predictions of adjustment theories based on imitation or best response dynamics. As expected, however, increasing the effort cost lowers effort levels. Maximization of a stochastic potential function, a concept that generalizes risk dominance to continuous games, predicts this reduction in efforts. An error parameter estimated from initial two-person, minimum-effort games is used to predict behavior in other three-person coordination games

An explanation of anomalous behavior in models of political participation

This paper characterizes behavior with “noisy” decision making for models of political interaction characterized by simultaneous binary decisions. Applications include: voting participation games, candidate entry, the volunteer's dilemma, and collective action problems with a contribution threshold. A simple graphical device is used to derive comparative statics and other theoretical properties of a “quantal response” equilibrium, and the resulting predictions are compared with Nash equilibria that arise in the limiting case of no noise. Many anomalous data patterns in laboratory experiments based on these games can be explained in this manner

Competitive Bidding in Auctions with Private and Common Values

The objects for sale in most auctions display both private and common value characteristics. This salient feature of many real-world auctions has not yet been incorporated into a strategic analysis of equilibrium bidding behavior. This paper reports such an analysis in the context of a stylized model in which bidders receive a private value signal and an independent common value signal. We show that more uncertainty about the common value results in lower efficiency and higher profits for the winning bidder. Information provided by the auctioneer decreases uncertainty, which improves efficiency and increases the seller's revenue. These positive effects of public information disclosure are stronger the more precise the information. Efficiency and revenues are also higher when more bidders enter the auction. Since our model nests both the private and common value case it may lead to an improved specification of empirical models of auctions.Auctions, inefficiencies, information disclosure, competition.

Ten Little Treasures of Game Theory and Ten Intuitive Contradictions

This paper reports laboratory data for a series of two-person games that are played only once. These games span the standard categories: static and dynamic games with complete and incomplete information. For each game, the treasure is a treatment for which behavior conforms quite nicely to the predictions of the Nash equilibrium or relevant refinement. In each case we change a key payoff parameter in a manner that does not alter the equilibrium predictions, but this theoretically neutral payoff change has a major (often dramatic) effect on observed behavior. These contradictions are generally consistent with simple economic intuition and with a model of iterated noisy introspection for one-shot games.Nash equilibrium, noncooperative games, experiments, bounded rationality, introspection

In Search of Stars: Network Formation among Heterogeneous Agents

This paper reports the results of a laboratory experiments on network formation among heterogeneous agents. The experimental design extends the basic Bala-Goyal (2000) model of network formation with decay and two-way flow of benefits by allowing for agents with lower linking costs or higher benefits to others. We consider treatments where agents’ types are common knowledge and treatments where agents’ types are private information. In all treatments, the (efficient) equilibrium network has a “star” structure. We find that with homogeneous agents, equilibrium predictions fail completely. In Contrast, with heterogeneous agents stars frequently occur, often with the high-value or low- cost agent in the center. Stars are not borne but rather develop: in treatments with a high-value agents, the network’s centrality, stability, and efficiency all increase over time. Our results suggest that agents’ heterogeneity is a major determinant for the predominance of star-like structures in real-life social networks.microeconomics ;

False Consensus Voting and Welfare Reducing Polls

We consider a process of costly majority voting where people anticipate that others have similar preferences. This perceived consensus of opinion is the outcome of a fully rational Bayesian updating process where individuals consider their own tastes as draws from a population. We show that the correlation in preferences lowers expected turnout. The intuition is that votes have a positive externality on those who don’t participate, which reduces incentives to participate. We study the effects of the public release of information (“polls”) on participation levels. We find that polls raise expected turnout but reduce expected welfare because they stimulate the “wrong” group to participate. As a result, polls frequently predict the wrong outcome. While this lack of prediction power is usually attributed to an imperfect polling technology, we show it may result from the reaction of rational voters to the poll’s accurate information.Majority Voting; Correlated Preferences; False Consensus; Pre-election Polls