Krista Jabs Saral

Working Papers

Speculation and Demand Reduction in English Clock Auctions with Resale

Many auctions are followed by a resale market which occurs when the winner of the auction resells the item won to one of the participants from the original auction. The existence of such transactions may initially appear counter intuitive. However, this paper will show that active inter-bidder resale results from payoff maximizing decisions in the auction that take into account the incentives of a resale opportunity. Specifically, I examine how the existence of an inter-bidder resale opportunity impacts bidder behavior in an English clock auction, and to what extent altering the bargaining power of the final buyer and reseller in the resale market determines the strategies followed in the initial auction, in an attempt to understand the existence of these inter-bidder transactions. Theoretical and behavioral analysis is used to develop hypotheses of speculation (bidding above value) and demand reduction (bidding below value) which are directly tested in a controlled experimental setting. While value bidding is a dominant strategy in a standard English clock auction without resale, when resale is allowed, this theoretical claim is weaker.

An Analysis of Market-based and Statutory Limited Liability in Second Price Auctions

In auctions where bidders are uncertain of their value and are fully liable for their bids, there exists the potential for losses if bids exceed realized values. Theoretically, bids will be higher if bidders are able to mitigate this downside loss through some form of limited liability. To determine the impact of differing forms of limited liability, this paper theoretically and experimentally examines a second price auction with uncertain private values in three environments: market-based limited liability, statutory limited liability, and full liability. Market-based limited liability is induced through inter-bidder resale following the auction. Statutory limited liability is created through a default penalty option in the event that a bidder would make a loss. Bids are theoretically shown to be higher under resale and the penalty default environments than under full liability. The experimental results confirm more aggressive bidding for resale and the low penalty default treatments, but not by as much as theory predicts. Notably, under the high default penalty bidders are not bidding significantly more than under full liability, despite the theoretical prediction that they should.

Entrepreneurship and Team Participation: An Experimental Study (with David Cooper)

Entrepreneurs are surprisingly likely to not have any partners. There are obvious advantages to forming partnerships – greater liquidity, increased gains from specialization, and the superior decision making associated with groups. Nonetheless, only a small minority of entrepreneurs (10%, excluding family businesses) have any partners. A number of possible explanations exist for this puzzling phenomenon, including an inability to locate suitable partners, fear of moral hazard, over-confidence, and a preference for not working in groups. Utilizing a unique subject population that includes entrepreneurs, we present experimental evidence designed to determine whether entrepreneurs prefer to work alone or in a team. The results of our experiments indicate that entrepreneurs, while no less likely to be good teammates, are substantially less interested in joining teams. This suggests that efforts to encourage partnership among entrepreneurs may run contrary to the preferences of this group.