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An Optimal Auction with Moral Hazard

Author

Listed:
  • Arina Nikandrova

    (Department of Economics, Mathematics & Statistics, Birkbeck)

  • Romans Pancs

    (University of Rochester)

Abstract

We consider a single-item, independent private value auction environment with two bidders: the leader, who knows his valuation, and the follower, who exerts an effort that affects the probability distribution of his valuation, which he then learns. We provide sufficient conditions under which an ex-post efficient revenue-maximizing auction solicits bids sequentially and partially discloses the leaderÂ’s bid to the follower, thereby influencing the followerÂ’s effort. This disclosure rule, which is novel, is non-monotone and prescribes sometimes revealing only a pair to which the leaderÂ’s bid belongs and sometimes revealing the bid itself. The induced effort distortion relative to the first-best is discussed.

Suggested Citation

  • Arina Nikandrova & Romans Pancs, 2015. "An Optimal Auction with Moral Hazard," Birkbeck Working Papers in Economics and Finance 1504, Birkbeck, Department of Economics, Mathematics & Statistics.
    • Handle: RePEc:bbk:bbkefp:1504
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    File URL: https://eprints.bbk.ac.uk/id/eprint/15275
    File Function: First version, 2015
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    Cited by:

    1. Nikandrova, Arina & Pancs, Romans, 2017. "Conjugate information disclosure in an auction with learning," Journal of Economic Theory, Elsevier, vol. 171(C), pages 174-212.

    More about this item

    Keywords

    Information Disclosure; Conjugate Disclosure; Optimal Auction; Moral Hazard.;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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