Yvan Lengwiler

The Multiple Unit Auction with Variable Supply

Summary. The theory of multiple unit auctions traditionally assumes that the offered quantity is fixed. I argue that this assumption is not appropriate for many applications because the seller may be able and willing to adjust the supply as a function of the bidding. In this paper I address this shortcoming by analyzing a multi-unit auction game between a monopolistic seller who can produce arbitrary quantities at constant unit cost, and oligopolistic bidders. I establish the existence of a subgame-perfect equilibrium for price discriminating and for uniform price auctions. I also show that bidders have an incentive to misreport their true demand in both auction formats, but they do that in different ways and for different reasons. Furthermore, both auction formats are inefficient, but there is no unambiguous ordering among them. Finally, the more competitive the bidders are, the more likely the seller is to prefer uniform pricing over price discrimination, yet increased competition among bidders may or may not enhance efficiency.

Corruption in procurement auctions

We review different kinds of corruption that have been observed in procurement auctions and categorize them. We discuss means to avoid corruption, by choice of preferable auction formats, or with the help of technological tools, such as secure electronic bidding systems. Auctions that involve some soft elements, such as complex bids consisting of technical and financial proposals, are particularly prone to corruption. We do not believe that it is possible to eradicate corruption altogether in such situations, but we discuss means to make it less likely.

Heterogeneous Patience and the Term Structure of Real Interest Rates

Heterogeneous time preference has a profound impact on the wealth distribution and therefore on equilibrium asset prices. I identify two distinct effects on interest rates: an averaging effect due to Jensen’s inequality and a general equilibrium consumption timing effect. The averaging effect decreases and the timing effect increases real interest rates, and both effects induce an inverse term structure. More fundamentally, the model shows that asset prices need to be interpreted with caution. Evidence apparently pointing to non-standard preferences may simply be the result of heterogeneity.

Auctions and Corruption

In many auctions, the auctioneer is an agent of the seller. This delegation invites corruption. In this paper we propose a model of corruption, examine how corruption affects the auction game, how the anticipation of corruption affects bidding, and how it altogether changes the revenue ranking of typical auctions. In addition we characterize incentive schemes that may prevent corruption, and compare them to the fee schedules employed by major auction houses.

A Monetary Policy Simulation Game

The author presents a computer game that puts the player in the role of a central bank governor. The game is a stochastic simulation of a standard reduced form macro model, and the user interacts with this simulation by manipulating the interest rate. The problem the player faces is in many ways quite realistic—just as a real monetary authority, the player is confronted with a constant stream of shocks he cannot unambiguously identify, and his decisions affect the economy only with a considerable lag. These are two ingredients that make monetary policy decisions so challenging in reality and that also make playing this game successfully rather difficult. The game can be used for undergraduate or continuing education classes. An advanced mode allows the teacher (or student) to customize many aspects of the simulation and to experiment with different calibrations or different monetary feedback rules.

Should the Treasury Price Discriminate?. A Procedure for Computing Hypothetical Bid Functions

Ever since FRIEDMAN [1959], it has been debated whether the Treasury should sell bonds in a uniform or in a discriminatory auction. Empirical research on this topic has been confined to experiments in which both auctions were used. But these experiments inherently contain an identification problem, since differences cannot be attributed to the auction format alone. We develop a method for generating counterfactual data on discriminatory auctions, using real data from uniform-price Treasury bond auctions in Switzerland. Our method allows us to investigate the performance of the two auctions without relying on experiments and without the identification problem.

A model of money counterfeits

This note offers a game-theoretic analysis of the strategic interaction between a central bank and a counterfeiter. Counterfeit notes cause a potential loss for consumers because such notes are confiscated when detected. The central bank is assumed to choose a bank-note design that minimizes the sum of the production cost of the notes and of the expected loss to the noncounterfeiting part of the population. The counterfeiter maximizes his expected return. I find that this game has a pure-strategy subgame-perfect equilibrium, and this equilibrium is typically unique. Depending on parameter values (specifically on the face values of notes), there is either no counterfeiting or much counterfeiting in equilibrium. Intermediate cases are never an equilibrium.

On Some Auction Rules for Amicable Divorce in Equal Share Partnerships

Partnerships form and dissolve. Dissolution often requires a change in property rights, from joint to single ownership, in the hands of one of the partners. This calls for a dissolution rule that assigns full property rights to the partner who makes the best use of these assets, and assures fair compensation of those who give up their ownership rights. The present paper analyzes two simple auction rules to solve these problems.

The Origins of expected utility theory

This short contribution is not about Vinzenz Bronzin or about option pricing. Rather, the topic I would like to address is another important piece of economic theory, namely the theory of expected utility maximization. It is interesting to note just how many thinkers have contributed to it, and at the same time to realize that the earliest statements of the theory were the most powerful ones, and were followed by weaker conceptions. It just took the field of economics a surprisingly long time to grasp its full potential. I believe that the history of this great piece of theory is instructive, because it is an example of a powerful idea that was assimilated only very slowly and in a roundabout fashion.

The U.S. Tax Program for Swiss banks: what determined the penalties?

The U.S. Tax Program for Swiss banks is a very significant part of the recent history of the Swiss financial industry. It has accelerated the transformation of the Swiss banking industry from a system that relied on bank secrecy to a much more compliant one. It was also rather costly for the banks involved. This short paper tries to identify the determinants of the individual penalties that were levied by the DoJ. We find that U.S. assets under management is the most important determinant. However, the average size of the accounts, the behavior of the bank vis-à-vis its American clients, the solvency of the bank, and the point in time when the bank settled with the DoJ also matter.