To bid or not to bid: An investigation into economic incentives underling auction participation

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Date
2012
Authors
DePiper, Geret Sean
Advisor
Lipton, Douglas W
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Abstract
This dissertation investigates the individual characteristics correlated with auction participation decisions using data from two commercial fishing license buybacks. I use the joint empirical analysis of stated and revealed preferences, with two major findings emerging. First, the results of my analysis suggest that individuals with relatively low willingness to accept values and low engagement in the fishery faced problems with the participation decision which prevented them from tendering bids in the auction. This has serious policy implications given that the efficiency of reverse auctions relies on buying goods back from individuals who value them the least. The low participation rate suggests that the licenses bought back represent between 47 - 64 percent of the maximum achievable with the same funds under a first best outcome. Second, fishermen are frequently modeled as strict profit maximizers and harvest histories are often assumed to serve as a good proxy for expected future profits in many circumstances. I find evidence against both of these assumptions. Indicators for bequest and enjoyment values are associated with an increased bid equivalent to that of a $6,500 - $20,000 increase in annual profits. Indicators of bequest and enjoyment values are also significantly correlated with the decision of whether to tender a bid at all. Expected future usage patterns are an important consideration in the participation decisions, and the expected usage can differ significantly from past usage patterns. These results suggest that market experience plays an important role in auction participation decisions, and the problems which develop from inexperience should be addressed explicitly through the auction design.
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