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An optimal auction with correlated values and risk aversion

Abstract:

We consider an auction setting where the buyers are risk averse with correlated private valuations (CARA preferences, binary types), and characterize the optimal mechanism for a risk neutral seller. We show that the optimal auction extracts all buyer surplus whenever the correlation is sufficiently strong (greater than 1/3 in absolute value), no matter how risk averse the buyers are. In contrast, we note that a sufficiently risk-averse seller would not ...

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Publication status:
Published
Peer review status:
Peer reviewed
Version:
Accepted Manuscript

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Publisher copy:
10.1016/j.jet.2004.06.005

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Publisher:
Elsevier Inc.
Journal:
Journal of Economic Theory Journal website
Volume:
125
Issue:
1
Publication date:
2005-01-01
DOI:
URN:
uuid:33713cde-d844-4ed1-94ff-571098bbd3de
Local pid:
oai:economics.ouls.ox.ac.uk:14791

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