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Uncertainty, Experience and the "Winner's Curse" in OCS Lease Bidding

Author

Listed:
  • Otis W. Gilley

    (Department of Economics, The University of Alaska, Fairbanks, Alaska 99701)

  • Gordon V. Karels

    (Department of Economics, University of Nebraska, Omaha, Nebraska 68182)

  • Robert P. Leone

    (Department of Marketing, The University of Texas, Austin, Texas 78712)

Abstract

This paper presents an empirical test of the major hypothesis of the currently-accepted bidding models in two regions of differing tract value uncertainty. The most significant result is an empirical verification that the more bidders that bid on a particular parcel in the face of great uncertainty, the lower the bid levels of individual firms that participate given all else is constant. No such relationship was observed, however, in the sale where there was previous bidding experience and prior ownership of closely related tracks. Prior models have not been able to identify the inverse relationship because of a bias that occurs when only positive bids are employed in these models and the use of data where previous experience reduces uncertainty. In the analysis of the competitive bidding situation, we use a two-stage procedure which adjusts for this "selection bias" by allowing for the incorporation of information from the dichotomous bid/no-bid decision in the modeling of bid level.

Suggested Citation

  • Otis W. Gilley & Gordon V. Karels & Robert P. Leone, 1986. "Uncertainty, Experience and the "Winner's Curse" in OCS Lease Bidding," Management Science, INFORMS, vol. 32(6), pages 673-682, June.
    • Handle: RePEc:inm:ormnsc:v:32:y:1986:i:6:p:673-682
    DOI: 10.1287/mnsc.32.6.673
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    Citations

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    Cited by:

    1. Michel Mougeot & Florence Naegelen, 1991. "Malédiction du vainqueur et rationalité économique," Revue Économique, Programme National Persée, vol. 42(1), pages 29-50.
    2. Wladimir Andreff, 2014. "The Winner's Curse in Sports Economics," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01243890, HAL.
    3. Wladimir Andreff, 2014. "The Winner's Curse in Sports Economics," Post-Print halshs-01243890, HAL.
    4. Wladimir Andreff, 2012. "The Winner’s Curse: Why is the Cost of Mega Sporting Events so Often Underestimated?," Chapters, in: Wolfgang Maennig & Andrew Zimbalist (ed.), International Handbook on the Economics of Mega Sporting Events, chapter 4, Edward Elgar Publishing.

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    Keywords

    bidding;

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