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An optimal auction with correlated values and risk aversion [An article from: Journal of Economic Theory]
Book Details
Author(s)P. Eso
PublisherElsevier
ISBN / ASINB000RR89HM
ISBN-13978B000RR89H9
AvailabilityAvailable for download now
MarketplaceUnited States 🇺🇸
Description
This digital document is a journal article from Journal of Economic Theory, published by Elsevier in . The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.
Description:
We consider an auction setting where the buyers are risk averse with correlated private valuations (CARA preferences, binary types), and characterize the optimal mechanism for a risk-neutral seller. We show that the optimal auction extracts all buyer surplus whenever the correlation is sufficiently strong (greater than 1/3 in absolute value), no matter how risk averse the buyers are. In contrast, we note that a sufficiently risk-averse seller would not use a full rent extracting mechanism for any positive correlation of the valuations even if the buyers were risk neutral.
Description:
We consider an auction setting where the buyers are risk averse with correlated private valuations (CARA preferences, binary types), and characterize the optimal mechanism for a risk-neutral seller. We show that the optimal auction extracts all buyer surplus whenever the correlation is sufficiently strong (greater than 1/3 in absolute value), no matter how risk averse the buyers are. In contrast, we note that a sufficiently risk-averse seller would not use a full rent extracting mechanism for any positive correlation of the valuations even if the buyers were risk neutral.
