TY - JOUR
T1 - Security bid auctions for agency contracts
AU - Jun, Byoung Heon
AU - Wolfstetter, Elmar G.
N1 - Funding Information:
The Authors would like to thank Cuihong Fan, Andrzej Skrzypacz, the associate editor, and two anonymous referees for their detailed and constructive comments. Research support by the National Research Foundation of Korea funded by the Korean Government (NRF-2010-330-B00085), the Deutsche Forschungsgemeinschaft (DFG), SFB Transregio 15, “Governance and Efficiency of Economic Systems”, and the National Natural Science Foundation of China (Grant: 71371116) is gratefully acknowledged.
Publisher Copyright:
© 2014, Springer-Verlag Berlin Heidelberg.
PY - 2014/11/28
Y1 - 2014/11/28
N2 - A principal uses security bid auctions to award an incentive contract to one among several agents in the presence of hidden action and hidden information. Securities range from cash to equity and call options. “Steeper” securities are better surplus extractors, yet reduce effort incentives. In view of this trade-off, a hybrid share auction that includes a cash reward to the winner, a minimum share, and an option to call a fixed wage contract, tends to outperform all other auctions, although it is not an optimal mechanism. However, by adding output targets a hybrid share auction can (arbitrary closely) implement the optimal mechanism.
AB - A principal uses security bid auctions to award an incentive contract to one among several agents in the presence of hidden action and hidden information. Securities range from cash to equity and call options. “Steeper” securities are better surplus extractors, yet reduce effort incentives. In view of this trade-off, a hybrid share auction that includes a cash reward to the winner, a minimum share, and an option to call a fixed wage contract, tends to outperform all other auctions, although it is not an optimal mechanism. However, by adding output targets a hybrid share auction can (arbitrary closely) implement the optimal mechanism.
KW - Agency problems
KW - Auctions and security design
KW - Mechanism design
UR - http://www.scopus.com/inward/record.url?scp=84912098626&partnerID=8YFLogxK
U2 - 10.1007/s10058-014-0165-2
DO - 10.1007/s10058-014-0165-2
M3 - Article
AN - SCOPUS:84912098626
SN - 1434-4742
VL - 18
SP - 289
EP - 319
JO - Review of Economic Design
JF - Review of Economic Design
IS - 4
ER -