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Efficiency versus transaction costs in multidimensional auctions: the case of Brazilian oil and gas lease auctions

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  • Miguel Vazquez
  • Michelle Hallack

Abstract

In Brazil, a scoring auction decides which firm has the right to explore oil and gas in a region. One of its dimensions is the amount of local content that firms are willing to implement. However, local content programs are subject to significant uncertainty and complexity so mal-adaptation costs are relevant. We characterize players’ bidding behavior when they have information on local content implementation and when they do not. We test those predictions using historical bids. Our tests suggest that the mechanism would be more efficient if the definition of local content programs was left out of the auction.

Suggested Citation

  • Miguel Vazquez & Michelle Hallack, 2017. "Efficiency versus transaction costs in multidimensional auctions: the case of Brazilian oil and gas lease auctions," IEFE Working Papers 94, IEFE, Center for Research on Energy and Environmental Economics and Policy, Universita' Bocconi, Milano, Italy.
    • Handle: RePEc:bcu:iefewp:iefewp94
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    More about this item

    Keywords

    Local content; Scoring auctions; Adaptation costs; Oil and gas industry.;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L74 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Construction

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