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Published January 2009 | public
Journal Article

Optimal Privatisation Using Qualifying Auctions


This article explores use of auctions for privatising public assets. In our model, a single 'insider' bidder possesses information about the asset's common value. Bidders are privately informed about their costs of exploiting the asset. Due to the insider's presence, uninformed bidders face a strong winner's curse in standard auctions. We show that the optimal mechanism discriminates against the informationally advantaged bidder. It can be implemented via a two-stage 'qualifying auction'. In the first stage, non-binding bids are submitted to determine who enters the second stage, which consists of a standard second-price auction augmented with a reserve price.

Additional Information

© The Author(s). Journal compilation © Royal Economic Society 2009. Submitted: 16 August 2006 Accepted: 6 February 2008. Published Online: 9 December 2008. We gratefully acknowledge financial support from the National Science Foundation (SBR 0551014), the Gordon and Betty Moore Foundation and the Dutch National Science Foundation (VICI 453.03.606). We thank Henk Janssen, Fabio Michelucci and seminar participants at the University of Amsterdam and the University of Tilburg for useful comments.

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