Empirical study on the Korean treasury auction focusing on the revenue comparison in multiple versus single price auction

This dissertation pursues to find an answer empirically to the question of therevenue ranking between the multiple price auction and the single price auction. I alsoattempt to get empirical clues in terms of the efficiency ranking between the two.Under the assumptions of symmetric bidders and private independent value (PIV), Iderive the optimal bidding conditions for both auction formats. Following thestructural model estimation approach, I estimate the underlying distribution of marketclearing price using the nonparametric resampling strategy and recover the bidders’unknown true valuations corresponding to each observed bid point. With theseestimated valuations of the bidders, I calculate what the upper bound of the revenuewould have been under the Vickery auction to perform the counterfactual revenuecomparison with the actual revenue. I find that, ex-post, the multiple price auctionyields more revenue to the Korean Treasury than the alternative. I also investigate theefficiency ranking by comparing the number of bids switched and the amount ofsurplus change which would occur when the bidders are assumed to report their truevaluations as their bids. I find that the multiple price auction is also superior to thealternative in efficiency which supports the current theoretical prediction. Finally, Iinvestigate the robustness of my model and empirical results by relaxing the previousassumptions. I, first, extend the model and estimation to the case of asymmetricbidders where the bidders are divided into two groups based on their size. It shows thatthe model and estimation framework are still valid and that the empirical findings arevery similar to the symmetric case. I also test for the presence of common value (CV)component in the bidders’ valuation function. I propose the simple regression modeladopting the idea of the policy experimental approach. I obtain quite an inconclusiveresult in general but find some evidence supporting PIV for relatively higher bid priceswhile supporting CV for lower bid prices.