Auction Design Without Quasilinear Preferences

55 Pages Posted: 19 Aug 2013

Date Written: August 6, 2013

Abstract

I analyze private value auction design and assume only that bidders are risk averse and have positive wealth effects (i.e. the good is normal). I show removing the standard quasilinearity restriction leads to qualitatively different solutions to the auction design problem with respect to both efficiency or revenue maximization.

On efficiency, I show that probabilistic allocations of the good can Pareto dominate the second price auction; and there is no dominant-strategy mechanism that is both Pareto efficient and individually rationality.

On revenue, I construct a probability demand mechanism with greater expected revenues than standard auctions when there are sufficiently many bidders. In addition, I take a new approach to studying bid behavior when types are multidimensional. Instead of characterizing bidder's interim incentive constraints, I place bounds on their bids, and I show that these bounds are sufficient for obtaining revenue comparisons.

Keywords: Auctions, Multidimensional Mechanism Design, Wealth Effects

JEL Classification: C70, D44, D82

Suggested Citation

Baisa, Brian, Auction Design Without Quasilinear Preferences (August 6, 2013). Available at SSRN: https://ssrn.com/abstract=2311753 or http://dx.doi.org/10.2139/ssrn.2311753

Brian Baisa (Contact Author)

Amherst College ( email )

Amherst, MA 01002
United States

HOME PAGE: http://https://www.amherst.edu/people/facstaff/bbaisa

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