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A Procurement Auction for Toxic Assets with Asymmetric Information

A Procurement Auction for Toxic Assets with Asymmetric Information Abstract The proposed 2008 TARP auction was intended to remove “toxic” assets from portfolios of financially stressed banks. The Treasury selected a design whereby bids to sell different securities would be normalized by “reference prices” that reflect relative value estimates. We conduct a series of experiments indicating that a simple Reference Price Auction can be an effective mechanism for avoiding serious effects of adverse selection and strategic bid manipulation, even with inaccurate reference prices. Beyond the TARP auction, our results are relevant to various multi-object auctions with value heterogeneity. (JEL D44, D82, G21 ) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

A Procurement Auction for Toxic Assets with Asymmetric Information

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References (23)

Publisher
American Economic Association
Copyright
Copyright © 2013 by the American Economic Association
Subject
Articles
ISSN
1945-7685
eISSN
1945-7685
DOI
10.1257/mic.5.4.142
Publisher site
See Article on Publisher Site

Abstract

Abstract The proposed 2008 TARP auction was intended to remove “toxic” assets from portfolios of financially stressed banks. The Treasury selected a design whereby bids to sell different securities would be normalized by “reference prices” that reflect relative value estimates. We conduct a series of experiments indicating that a simple Reference Price Auction can be an effective mechanism for avoiding serious effects of adverse selection and strategic bid manipulation, even with inaccurate reference prices. Beyond the TARP auction, our results are relevant to various multi-object auctions with value heterogeneity. (JEL D44, D82, G21 )

Journal

American Economic Journal: MicroeconomicsAmerican Economic Association

Published: Nov 1, 2013

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