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Applied and bridge studies study record
Market design, antitrust & regulationAuctions with Third-Party Welfare: A General Framework
STATUS · Manuscript in progressSSRN · Not yet posted
MECHANISM
Identify the incentive structure and the condition that would falsify the claim.
RULE CHANGE
Read the intervention only after the paper shows how the current payoff space fails to support system welfare.
READER USE
Use the summary to see where private gain creates system exposure, then check the study record.
Contribution — what this adds to the conversation
Extends mechanism design theory to include exogenous stakeholder welfare, providing a general theorem that nests existing sector-specific results. Offers a clear empirical strategy for estimating implicit welfare weights.
WHAT'S NEW · Introduces a novel welfare weight λ on non-bidding stakeholders and derives adjusted virtual values. The nesting of Hansen's corpus and the Prat bridge are original contributions. The revealed-λ estimator is a new empirical strategy.
The paper characterizes optimal auction design when a non-bidding stakeholder class is affected by the allocation outcome. The Auctions-with-Third-Party-Welfare Theorem adjusts virtual values by the expected marginal welfare cost on stakeholders, producing four systematic departures from the revenue-maximizing benchmark. Seven corollaries recover Robert G. Hansen's sector-specific auction results as special cases. A revealed-λ estimator is proposed for empirical implementation using Swedish and U.S. bankruptcy data.