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Handbook of the Economics of Risk and Uncertainty
book

Handbook of the Economics of Risk and Uncertainty

by Mark Machina, W. Kip Viscusi
November 2013
Beginner content levelBeginner
896 pages
35h 10m
English
North Holland
Content preview from Handbook of the Economics of Risk and Uncertainty
Benjamin E. Hermalin
310
It is also 0 if
It is otherwise equal to 1. Knowing this, rewrite (6.3.29) as
It follows that σ = 1/3. Observe
Hence, in this example, the second-best mechanism employs the allocation rule:
In words, exchange occurs if and only if the buyer’s valuation exceeds the seller’s cost
by at least one-quarter of the buyer’s maximum valuation. Figure 6.4 illustrates for the
case in which
¯
b c
(“should” in the figure means if the first best is to be achieved).
45
6.3.3 The Money-on-the-Table Problem
From Proposition 6.13, the best outcome when subject to interim IR is exchange
whenever
V
B
(b, σ)
V
C
(c,
σ)
. Unless σ = 0, there exist v ...
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Publisher Resources

ISBN: 9780444536853