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The Handbook of Market Design$
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Nir Vulkan, Alvin E. Roth, and Zvika Neeman

Print publication date: 2013

Print ISBN-13: 9780199570515

Published to Oxford Scholarship Online: January 2014

DOI: 10.1093/acprof:oso/9780199570515.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (www.oxfordscholarship.com). (c) Copyright Oxford University Press, 2019. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 20 October 2019

Common‐Value Auctions with Liquidity Needs

Common‐Value Auctions with Liquidity Needs

An Experimental Test of a Troubled‐Assets Reverse Auction

(p.488) (p.489) Chapter 20 Common‐Value Auctions with Liquidity Needs
The Handbook of Market Design

Lawrence M. Ausubel

Peter Cramton

Emel Filiz‐Ozbay

Nathaniel Higgins

Erkut Y. Ozbay

Andrew Stocking

Oxford University Press

This chapter reports the results of an experimental test of alternative auction designs suitable for pricing and removing troubled assets from banks' balance sheets as part of the financial rescue planned by the U.S. Department of Treasury in the fall of 2008. All auction mechanisms tested here are structured so that many individual securities or pools of securities are auctioned simultaneously. Securities that are widely held are purchased in auctions for individual securities; securities with concentrated ownership are purchased as pools of related securities. Each experimental subject represents a bank which has private information about its liquidity need and the true common value of each security. The chapter studies bidding behavior and performance of sealed-bid uniform-price auctions and dynamic clock auctions. The clock and sealed-bid auctions resulted in similar prices. However, the clock auctions resulted in substantially higher bank payoffs, since the dynamic auction enabled the banks to better manage their liquidity needs. The clock auctions also reduced bidder error. The experiments demonstrated the feasibility of quickly implementing simple and effective auction designs to help resolve the crisis.

Keywords:   financial crisis, uniform-price auction, clock auction, market design, experiments, troubled assets, TARP

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