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Rent extraction with securities plus cash
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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 (Unpublished)
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Official URL: https://warwick.ac.uk/fac/soc/economics/research/w...
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) | ||||
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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: |
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Number: | 1212 | ||||
Institution: | University of Warwick | ||||
Status: | Not Peer Reviewed | ||||
Publication Status: | Unpublished | ||||
Access rights to Published version: | Open Access (Creative Commons) | ||||
Description: | A later version accepted in Journal of Finance (doi:10.1111/jofi.13018). |
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Date of first compliant deposit: | 29 August 2019 | ||||
Date of first compliant Open Access: | 29 August 2019 | ||||
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