Optimal privatisation using qualifying auctions

Publication Type:
Journal Article
Economic Journal, 2009, 119 (534), pp. 277 - 297
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This article explores use of auctions for privatising public assets. In our model, a single 'insider'bidder possesses information about the asset's common value. Bidders are privately informed about their costs of exploiting the asset. Due to the insider's presence, uninformed bidders face a strong winner's curse in standard auctions. We show that the optimal mechanism discriminates against the informationally advantaged bidder. It can be implemented via a two-stage 'qualifying auction'. In the first stage, non-binding bids are submitted to determine who enters the second stage, which consists of a standard second-price auction augmented with a reserve price. © The Author(s). Journal compilation © 2009 by the Royal Economic Society.
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