English auctions with ensuing risks and heterogeneous bidders

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Detail(s)

Original languageEnglish
Pages (from-to)33-44
Journal / PublicationJournal of Mathematical Economics
Volume76
Online published6 Mar 2018
Publication statusPublished - May 2018

Abstract

We establish conditions under which an English auction for an indivisible risky asset has an efficient ex post equilibrium when the bidders are heterogeneous in both their exposures to, and their attitudes toward, the ensuing risk the asset will generate for the winning bidder. Each bidder’s privately known type may affect both his risk attitude and the expected value of the asset’s return to the winner. An ex post equilibrium in which the winning bidder has the largest willingness to pay for the asset exists if two conditions hold: each bidder’s marginal utility of income is log-supermodular, and the vector-valued function mapping the type vector into the bidders’ expected values for the asset satisfies a weighted average crossing condition. However, this equilibrium need not be efficient. We show that it is efficient if each bidder’s expected value for the asset is nonincreasing in the types of the other bidders, or if the bidders exhibit nonincreasing absolute risk aversion, or if the asset is riskless.

Research Area(s)

  • English auction, Ensuing risk, Heterogeneous risk preferences, Interdependent values, Ex post equilibrium, Ex post efficiency

Bibliographic Note

Research Unit(s) information for this publication is provided by the author(s) concerned.

Citation Format(s)

English auctions with ensuing risks and heterogeneous bidders. / Hu, Audrey; Matthews, Steven A.; Zou, Liang.

In: Journal of Mathematical Economics, Vol. 76, 05.2018, p. 33-44.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review