Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
10474735 | Journal of Economic Theory | 2005 | 12 Pages |
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.
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Authors
Péter EsÅ,