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Auction design without quasilinear preferences

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  • Baisa, Brian

    (Department of Economics, Amherst College)

Abstract

I study the canonical private value auction model for a single good without the quasilinearity restriction. I assume only that bidders are risk averse and the indivisible good for sale is a normal good. I show removing quasilinearity leads to qualitatively different solutions to the auction design problem. Expected revenue is no longer maximized using standard auctions that allocate the good to the highest bidder. Instead, the auctioneer better exploits bidder preferences by using a mechanism that allocates the good to one of many different bidders, each with strictly positive probability. I introduce a probability demand mechanism that treats probabilities of winning the indivisible good like a divisible good in net supply one. With enough bidders, it has greater expected revenues than any standard auction; and under complete information, it implements a Pareto efficient allocation.

Suggested Citation

  • Baisa, Brian, 2017. "Auction design without quasilinear preferences," Theoretical Economics, Econometric Society, vol. 12(1), January.
    • Handle: RePEc:the:publsh:1951
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    References listed on IDEAS

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    More about this item

    Keywords

    Auctions; multidimensional mechanism design; wealth effects; risk aversion;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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