When and how to dismantle nuclear weapons

Lu, Jingfeng (2006): When and how to dismantle nuclear weapons.

Abstract

This paper first derives revenue-maximizing auctions with identity-specific externalities among all players (seller and buyers). Our main findings are as follows. Firstly, a modified second-price sealed-bid auction with appropriate entry fees and reserve price is revenue-maximizing. Secondly, seller may physically destroy the auctioned item if the item is unsold or use destroying the item as nonparticipation threat. Thirdly, the revenue-maximizing auction induces full participation of buyers. Fourthly, each losing buyer's payment includes an externality-correcting component that equals the allocative externality to him. These components eliminate the impact of externalities on strategic bidding behavior. The paper further studies revenue-maximizing auctions with financial externalities. One-to-one correspondences between revenue-maximizing auctions for settings with and without financial externalities are established through incorporating externality-correcting payments. This result provides a general method for designing revenue-maximizing auctions in different settings of financial externalities, since revenue-maximizing auctions can be obtained through transforming the revenue-maximizing auctions for the regular settings without externalities.

• Item Type: MPRA Paper
• Language: English
• Keywords: Auctions design; Endogenous participation; Externality
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D44 - Auctions; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design