Auctioning Off with a Split Mind: Privatization Under Political Constraints

28 Pages Posted: 5 Jan 2013

See all articles by Maria Angeles de Frutos

Maria Angeles de Frutos

Universidad Carlos III de Madrid - Department of Economics

Lambros Pechlivanos

Athens University of Economics and Business - Department of International and European Economic Studies

Date Written: October 1, 2010

Abstract

When privatizing, governments have conflicting objectives, like raising revenues and minimizing induced unemployment. We construct two mechanisms that take into account both criteria: a first-score auction in which bidders bid both in terms of price and retained excess labor, and a first-price auction in which bidders bid only over price but they also commit to keep a predetermined by the government number of employees. When bidders differ in their costs of accommodating excess labor, the resulting competition softens, and governments may optimally want to appear strong against labor redundancies. In the first auction this is done by setting a scoring rule that does not correspond to their genuine preferences, and in the second by announcing a smaller labor requirement. Nonetheless, such policies require strong commitment ability.

Keywords: multi-objective auctions, multidimensional private information, privatization

JEL Classification: D44, D82, L33

Suggested Citation

de Frutos, Maria Angeles and Pechlivanos, Lambros, Auctioning Off with a Split Mind: Privatization Under Political Constraints (October 1, 2010). Available at SSRN: https://ssrn.com/abstract=2196345 or http://dx.doi.org/10.2139/ssrn.2196345

Maria Angeles De Frutos

Universidad Carlos III de Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain

Lambros Pechlivanos (Contact Author)

Athens University of Economics and Business - Department of International and European Economic Studies ( email )

Patission 76
GR-10434 Athens
Greece
+30 210 8203728 (Phone)

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