Title

The Relation Between Variance and Information Rents in Auctions

Department

Economics, Finance, & Quantitative Analysis

Document Type

Article

Publication Date

3-2010

Abstract

This paper examines the conventional wisdom, expressed in McAfee and McMillan's (1987) widely cited survey paper on auctions, that links increased variance of bidder values to increased information rent. We find that although the conventional wisdom does indeed hold in their (1986) model of a linear contract auction, this relationship is an artifact of that particular model and cannot be generalized. Using Samuelson's (1987) model, which is similar but allows for unobservable costs, we show that increased variance does not always imply increased information rent. Finally, we give the appropriate measure of dispersion (different from variance) that provides the link between the bidder value distribution and information rent.

Journal

International Journal of Industrial Organization

Journal ISSN

0167-7187

Volume

28

Issue

2

First Page

127

Last Page

130

Digital Object Identifier (DOI)

10.1016/j.ijindorg.2009.07.005