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The Czechoslovak Privatization Auction: An Empirical Investigation

Hillion, Pierre and Young, David S. (1995) The Czechoslovak Privatization Auction: An Empirical Investigation. Social Science Working Paper, 921. California Institute of Technology , Pasadena, CA. (Unpublished)

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The 1992 Czechoslovak mass-privatization program resembled a multiround Walrasian auction with tatonnement in which participants, endowed with points, bid simultaneously for non-uniform products, i.e., shares. The creation of this artificial primary market provides economists with a unique opportunity to investigate empirically (1) the role and aims of the auctioneer in a politically-motivated giveaway scheme, (2) the price-setting mechanism, and (3) the bidding strategies and rationality of the auction's participants. Unlike more conventional auctions, price discovery was only a secondary motive to the auctioneer. The principal aim was to transfer the shares quickly to the investing public in a politically acceptable manner. We show that the price-updating rules adopted alter each bidding round did achieve the auctioneer's principal aim, but they also served to inject noise. The results suggest an inherent tradeoff between socially acceptable outcomes in such auctions and efficient price discovery.

Item Type:Report or Paper (Working Paper)
Additional Information:The first draft of this paper was completed while the first author was a visiting professor at Caltech. We are grateful for comments and suggestions from seminar participants at the Australian Graduate School of Management, Caltech, Carnegie Mellon University, Cornell University, INSEAD, UCLA, the University of Lausanne, the University of Paris-Dauphine, the University of Southern California, the University of Toulouse, and the 1996 American Finance Association Meetings. We also thank P. Bossaerts, B. Gerard, A. Marcincin, M. Mejstrik, and M. Stepanek for helpful discussions and INSEAD for its financial support.
Group:Social Science Working Papers
Funding AgencyGrant Number
Subject Keywords:Privatization. Auctions. Economic transition
Series Name:Social Science Working Paper
Issue or Number:921
Record Number:CaltechAUTHORS:20170818-143118005
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:80627
Deposited By: Jacquelyn Bussone
Deposited On:18 Aug 2017 21:55
Last Modified:03 Oct 2019 18:33

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