The Cost Effectiveness of the U.S. Export Enhancement Program Bonus Allocation Mechanism

The U.S. Export Enhancement Program is evaluated from the perspective of the cost effectiveness of its bonus allocation mechanism. The current mechanism resembles a discriminatory-price, common-value auction. However, auction theory suggests that a discriminatory auction may not be optimal in this setting for several reasons. This article evaluates the current format relative to an alternative, uniform-price auction. Estimation results reveal evidence of strategic bidder behavior under the current format and simulations suggest that adopting a uniform-price auction format for bonus allocation may yield considerable savings to the Treasury by eliminating incentives to pad bids and increasing participation in the auction. Copyright 2004, Oxford University Press.