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American Economic Journal: Microeconomics: Vol. 5 No. 4 (November 2013)

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A Procurement Auction for Toxic Assets with Asymmetric Information

Article Citation

Armantier, Olivier, Charles A. Holt, and Charles R. Plott. 2013. "A Procurement Auction for Toxic Assets with Asymmetric Information." American Economic Journal: Microeconomics, 5(4): 142-62.

DOI: 10.1257/mic.5.4.142

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.

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Download Data Set (5.18 MB) | Online Appendix (158.20 KB) | Author Disclosure Statement(s) (145.90 KB)

Authors

Armantier, Olivier (Federal Reserve Bank of New York)
Holt, Charles A. (U VA)
Plott, Charles R. (CA Institute of Technology)

JEL Classifications

D44: Auctions
D82: Asymmetric and Private Information; Mechanism Design
G21: Banks; Depository Institutions; Micro Finance Institutions; Mortgages

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