Liu, Tingjun and Bernhardt, Dan (2019) Rent extraction with securities plus cash. Working Paper. Coventry, UK: University of Warwick. Department of Economics. Warwick economics research papers series (WERPS) (1212). (Unpublished)

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Abstract

Auctions employing steeper securities generate greater revenues when bidders have equal opportunity costs. However, when opportunity costs rise sufficiently quickly with valuations, security bids decrease in NPV and steeper securities reduce seller revenues. We show that when such adverse selection obtains, using combinations of securities with differing steepness can generate higher revenues than using securities of the same steepness. We determine the optimal combination of cash plus equity; identify a novel way of implementing the optimal mechanism via decreasing royalty rates; establish the robustness of the mechanism; and identify when auction designs combining cash with steeper-than-equity securities increase seller revenues.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HF Commerce
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Auctions -- Econometric models, Security (Law) -- Econometric models
Series Name:	Warwick economics research papers series (WERPS)
Publisher:	University of Warwick. Department of Economics
Place of Publication:	Coventry, UK
ISSN:	0083-7350
Official Date:	July 2019
Dates:	Date Event July 2019 Published
Number:	1212
Institution:	University of Warwick
Status:	Not Peer Reviewed
Publication Status:	Unpublished
Access rights to Published version:	Open Access
Description:	A later version accepted in Journal of Finance (doi:10.1111/jofi.13018).
Related URLs:	Related item in WRAP

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