Bid preference in license auctions: Affirmative action can achieve economic efficiency

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Abstract

If allocative externalities are present among bidders such as when they interact subsequent to the auction, their valuations for the item may differ from their contributions to the social welfare. This paper shows that bid preference in auctions given to those bidders who can contribute more to the social welfare relative to their valuations is an effective measure to achieve efficiency, that is, social welfare maximization. This paper therefore provides a rationale in terms of efficiency for the practice of granting affirmative action bid preferences to minorities or other designated groups. This insight may be applicable to the broader issue of affirmative action programs in general as well.

Original languageEnglish
Pages (from-to)593-604
Number of pages12
JournalInternational Journal of Industrial Organization
Volume24
Issue number3
DOIs
Publication statusPublished - 2006 May 1

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Keywords

  • Affirmative action
  • Allocative externality
  • Bid preference
  • License auction

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance

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