Auctions with options to re-auction

A seller has one unit to sell using an English auction mechanism similar to internet auction markets, such as eBay. Bidders appear according to a random arrival process. The seller chooses a reserve price and duration for each auction. If the reserve is not met, the seller passes in the object and conducts another auction with a new, randomly chosen, set of bidders. We distinguish reserves that embody an institutional commitment not to sell below that price, from those that do not. In each case, we find the optimal reserve price and the optimal auction duration. Without price commitment, the equilibrium reserve is too low for allocative efficiency, whereas the optimal reserve with commitment is shown to be too high when the distribution of bidder valuations exhibits an increasing hazard rate. It might even be socially preferable to allow reserve price commitments. With respect to duration, a version of the Diamond paradox afflicts sellers who cannot commit to price; auctions facilitate valuable duration commitments that increase buyer competition and raise expected revenue. With commitment, price posting (equivalent to a zero-length auction) is the dominant selling mechanism.     

Bootstrapping Smooth Functions of Slope Parameters and Innovation Variances in VAR(∞) Models*

It is common to conduct bootstrap inference in vector autoregressive (VAR) models based on the assumption that the underlying data‐generating process is of finite‐lag order. This assumption is implausible in practice. We establish the asymptotic validity of the residual‐based bootstrap method for smooth functions of VAR slope parameters and innovation variances under the alternative assumption that a sequence of finite‐lag order VAR models is fitted to data generated by a VAR process of possibly infinite order. This class of statistics includes measures of predictability and orthogonalized impulse responses and variance decompositions. Our approach provides an alternative to the use of the asymptotic normal approximation and can be used even in the absence of closed‐form solutions for the variance of the estimator. We illustrate the practical relevance of our findings for applied work, including the evaluation of macroeconomic models.     

A Partial Rehabilitation of Hotelling's MC-Pricing Theorem

Harold Hotelling's celebrated theorem on the optimality of marginal cost pricing was criticized first by Frisch and later by Silberberg on the grounds that he did not use the marginal cost pricing condition in his original proof and hence that it did not constitute a valid proof. This note demonstrates that a key equation in Hotelling's proof is locally satisfied if and only if prices are set equal to marginal cost at the initial equilibrium and reexamines the validity of Hotelling's proof.     

International bimetallism and silver absorption in Singapore, 1840–73

This study reveals the mechanism underlying the silver trade in Singapore during the third quarter of the nineteenth century by analysing banking business and bullion arbitrage. After 1849, the California Gold Rush induced gold depreciation and silver appreciation in Singapore's bullion market, and arbitrage profits for silver imports from Britain emerged. At the same time, the expansion of banking business by eastern exchange banks enhanced the connectivity of Singapore's exchange market with London, and enabled bullion arbitrage between the two distant cities. As a result, there was an influx of silver from Britain. In addition, Dutch silver, which was exported to Java by the Netherlands after 1854, flowed into Singapore due to the unfavourable exchange policy of the Dutch government.     

A theory of competitive industry dynamics with innovation and imitation

Empirical evidence on industry life-cycle reveals a pattern in which innovation rates remain fairly stable or are perhaps even higher at early stages, while patenting increases sharply as the industry matures. This increase in patenting in later stages is accompanied by net exit and lower rates of output growth and price decline. In this paper, we develop a dynamic model of a competitive industry with innovation and imitation that is consistent with these stylized facts. We derive an equilibrium growth path, along which leading firms invest in increasing the stock of technological knowledge and choose not to prevent imitation by other firms as long as the industry remains relatively small. As the industry expands including new entry, the leaders' optimal amount of investment gradually declines. We show that under some rather general conditions, there would exist a scale of the industry where innovating firms would choose to start preventing free imitation, bringing further expansion of the industry through new entry to a halt and causing net exit.     

The measurement of waste with nonconvex technology

The measurement of waste problem is reconsidered with the generalization that nonconvex production technologies are allowed. A general equilibrium measure of waste allowing for nonconvexity in production is derived by extending the contributions by Debreu (1954) and Diewert (1981, 1985).     

Bidder Asymmetry in Infrastructure Procurement: Are There any Fringe Bidders?

Asymmetric auctions are among the most rapidly growing areas in the auction literature. The potential benefits from intensified auction competition could be enormous in the public procurement context. Entrant bidders are considered a key to enhance competition and break potential collusive arrangements among incumbent bidders. Asymmetric auction theory predicts that weak (fringe) bidders would bid more aggressively when they are faced with a strong (incumbent) opponent. Using data from official development projects, this paper shows that entrants actually submitted aggressive bids in the presence of incumbent(s) in the road sector and to a certain extent in the water sector. For electricity projects, the general competition effect is found to be particularly significant, but the entrant effect remains unclear. The results suggest that auctioneers should foster competition in public procurement, including fringe bidders, to contain public infrastructure investment costs.     

Interim efficient allocations under uncertainty

This paper considers an exchange economy under uncertainty with asymmetric information. Uncertainty is represented by multiple priors and posteriors of agents who have either Bewley's incomplete preferences or Gilboa-Schmeidler's maximin expected utility preferences. The main results characterize interim efficient allocations under uncertainty; that is, they provide conditions on the sets of posteriors, thus implicitly on the way how agents update the sets of priors, for non-existence of a trade which makes all agents better off at any realization of private information. For agents with the incomplete preferences, the condition is necessary and sufficient, but for agents with the maximin expected utility preferences, the condition is sufficient only. A couple of necessary conditions for the latter case are provided.