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
Armantier, Olivier, Charles A. Holt, and Charles R. Plott.
"A Procurement Auction for Toxic Assets with Asymmetric Information."
American Economic Journal: Microeconomics,
Asymmetric and Private Information; Mechanism Design
Banks; Depository Institutions; Micro Finance Institutions; Mortgages