Peter Eso

Bribing and signaling in second price auctions

Abstract We examine whether a two-bidder, second-price auction for a single good (with private, independent values) is immune to a simple form of collusion, where one bidder may bribe the other to commit to stay away from the auction (i.e. submit a bid of zero). In either of two cases—where the potential bribe is fixed or allowed to vary—the only robust equilibria involve bribing. In the fixed-bribe case, there is a unique such equilibrium. In the variable bribes case, all robust equilibria involve low briber-types revealing themselves through the amount they offer, while all high types offer the same bribe; only one such equilibrium is continuous. Bribing in all cases causes inefficiency.

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 use a full rent extracting mechanism for any positive correlation of the valuations even if the buyers were risk neutral.

Designing Optimal Benefit Rules for Flexible Retirement

Abstract This paper applies mechanism design to find an optimal nonlinear pension benefit rule for flexible retirement. The economic problem can be formulated as a nonlinear dynamic optimization with an isoperimetric constraint. Our major result is as follows: If the social welfare function is strictly concave, then the incentives to postpone retirement should be dampened.