Optimal privatisation using qualifying auctions

Publisher:
Blackwell
Publication Type:
Journal Article
Citation:
The Economic Journal, 2009, 119 (534), pp. 277 - 297
Issue Date:
2009-01
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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 assets common value. Bidders are privately informed about their costs of exploiting the asset. Due to the insiders presence, uninformed bidders face a strong winners 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.
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