How Risk Sharing May Enhance Efficiency of English Auctions

22 Pages Posted: 8 May 2018

See all articles by Audrey Hu

Audrey Hu

University of Amsterdam - Faculty of Economics and Business (FEB)

Theo Offerman

University of Amsterdam - Faculty of Economics & Econometrics (FEE)

Liang Zou

University of Amsterdam - Faculty of Economics and Business (FEB)

Date Written: May 2018

Abstract

English auctions are known to be ex post efficient under various circumstances. However, they are inefficient ex ante for risk‐averse seller and bidders. Our analysis of the English premium auction (EPA) reveals that, while maintaining ex post efficiency, awarding a premium to the highest two bidders makes the auction more attractive to all risk‐averse bidders. This result is remarkably general, as it holds with possible interdependent bidder valuations and affiliated types. When bidders exhibit independent types, the EPA can also benefit a risk‐averse seller and therefore strictly improve ex ante, or interim, Pareto efficiency of the English auction.

Suggested Citation

Hu, Audrey and Offerman, Theo and Zou, Liang, How Risk Sharing May Enhance Efficiency of English Auctions (May 2018). The Economic Journal, Vol. 128, Issue 610, pp. 1235-1256, 2018, Available at SSRN: https://ssrn.com/abstract=3174983 or http://dx.doi.org/10.1111/ecoj.12439

Audrey Hu (Contact Author)

University of Amsterdam - Faculty of Economics and Business (FEB) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Theo Offerman

University of Amsterdam - Faculty of Economics & Econometrics (FEE) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 4294 (Phone)
+31 20 525 5283 (Fax)

Liang Zou

University of Amsterdam - Faculty of Economics and Business (FEB) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

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