Kang, Boo-Sung (2004-12). Empirical study on the Korean treasury auction focusing on the revenue comparison in multiple versus single price auction. Doctoral Dissertation. Thesis uri icon

abstract

  • This dissertation pursues to find an answer empirically to the question of the revenue ranking between the multiple price auction and the single price auction. I also attempt to get empirical clues in terms of the efficiency ranking between the two. Under the assumptions of symmetric bidders and private independent value (PIV), I derive the optimal bidding conditions for both auction formats. Following the structural model estimation approach, I estimate the underlying distribution of market clearing price using the nonparametric resampling strategy and recover the bidders?? unknown true valuations corresponding to each observed bid point. With these estimated valuations of the bidders, I calculate what the upper bound of the revenue would have been under the Vickery auction to perform the counterfactual revenue comparison with the actual revenue. I find that, ex-post, the multiple price auction yields more revenue to the Korean Treasury than the alternative. I also investigate the efficiency ranking by comparing the number of bids switched and the amount of surplus change which would occur when the bidders are assumed to report their true valuations as their bids. I find that the multiple price auction is also superior to the alternative in efficiency which supports the current theoretical prediction. Finally, I investigate the robustness of my model and empirical results by relaxing the previous assumptions. I, first, extend the model and estimation to the case of asymmetric bidders where the bidders are divided into two groups based on their size. It shows that the model and estimation framework are still valid and that the empirical findings are very similar to the symmetric case. I also test for the presence of common value (CV) component in the bidders?? valuation function. I propose the simple regression model adopting the idea of the policy experimental approach. I obtain quite an inconclusive result in general but find some evidence supporting PIV for relatively higher bid prices while supporting CV for lower bid prices.
  • This dissertation pursues to find an answer empirically to the question of the
    revenue ranking between the multiple price auction and the single price auction. I also
    attempt to get empirical clues in terms of the efficiency ranking between the two.
    Under the assumptions of symmetric bidders and private independent value (PIV), I
    derive the optimal bidding conditions for both auction formats. Following the
    structural model estimation approach, I estimate the underlying distribution of market
    clearing price using the nonparametric resampling strategy and recover the bidders??
    unknown true valuations corresponding to each observed bid point. With these
    estimated valuations of the bidders, I calculate what the upper bound of the revenue
    would have been under the Vickery auction to perform the counterfactual revenue
    comparison with the actual revenue. I find that, ex-post, the multiple price auction
    yields more revenue to the Korean Treasury than the alternative. I also investigate the
    efficiency ranking by comparing the number of bids switched and the amount of
    surplus change which would occur when the bidders are assumed to report their true
    valuations as their bids. I find that the multiple price auction is also superior to the
    alternative in efficiency which supports the current theoretical prediction. Finally, I
    investigate the robustness of my model and empirical results by relaxing the previous
    assumptions. I, first, extend the model and estimation to the case of asymmetric
    bidders where the bidders are divided into two groups based on their size. It shows that
    the model and estimation framework are still valid and that the empirical findings are
    very similar to the symmetric case. I also test for the presence of common value (CV)
    component in the bidders?? valuation function. I propose the simple regression model
    adopting the idea of the policy experimental approach. I obtain quite an inconclusive
    result in general but find some evidence supporting PIV for relatively higher bid prices
    while supporting CV for lower bid prices.

publication date

  • December 2004