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Auctioning control and cash-flow rights separately

Author

Listed:
  • Liu, Tingjun

    (The University of Hong Kong)

  • Bernhardt, Dan

    (University of Illinois & University of Warwick)

Abstract

We consider a classical auction setting in which an asset/project is sold to buyers who privately receive signals about expected payoffs, and payoffs are more sensitive to the signal of the bidder who controls the asset. We show that a seller can increase revenues by sometimes allocating cash-flow rights and control to different bidders, e.g., with the highest bidder receiving cash flows and the second-highest receiving control. Separation reduces a bidder’s information rent, which depends on the importance of his private information for the value of his awarded cash flows. As project payoffs are most sensitive to the information of the bidder who controls the project, allocating cash flow to another bidder lowers bidders’ informational advantage. As a result, when signals are close, the seller can increase revenues by splitting rights between the top two bidders.

Suggested Citation

  • Liu, Tingjun & Bernhardt, Dan, 2024. "Auctioning control and cash-flow rights separately," The Warwick Economics Research Paper Series (TWERPS) 1516, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:1516
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    File URL: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/2024/twerp_1516_-_bernhardt.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Control and cash flow rights ; separation of rights ; mechanism design ; interdependent valuations JEL Codes: D44 ; D82;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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