Not quite fun for most...

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  • significance
    significance Posts: 436 Member
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    I understood that it was a simultaneous auction, but I still don't understand why there's no need for buy bids. If I am willing to sell my 3 units for $10K each, it doesn't follow that I'd be willing to buy another unit at the same price (much less another 10 units). Lets say I have a certain amount of land suitable to a high-value crop that requires my 3 units. I'd place a high value on the first 3 units of water I can hold on to. I may have a second water use open to me with a lower value. So if the price is $10K/unit, I'd want only 3 units, but if it's $7K per unit, I'd be glad to get 10 units. I might or might not have a third, still lower-value use option. So if the price drops to $2K/unit, I might still only want 10 units, or I might want 20.
  • Escultor
    Escultor Posts: 64
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    ok, If your minimum bid is sufficient to qualify in the top range of the number of bids, not the value of bids, you may get that really low end unit. In effect, if you're willing to sell at $x price, the assumption is that you will buy at the same price. That's what eliminates the endowment effect where we feel we chould be able to sell at one price but we're not willing to buy at the same price. We want the price we pay to be lower or the price we earn to be higher. I'll send you a PM to the original paper and a peer discussion.
  • Escultor
    Escultor Posts: 64
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    The author (DZ) wrote me with corrections. His explanation follows.

    E: Please tell me if I've got this right for the AiA.

    Everything put in the auction for allocation to member agencies in the greater water district. (A wholesale mechanism, not individuals.)
    Establish historic water rights for units per member (participating agency).
    Participants bid based on the number of units they are contributing to the total.


    (DZ)No, they bid based on # they want to BUY


    E: Order bids and bidders in descending order of sell price. Is it sell price or buy price?


    (DZ)of BID price. highest rejected bid is buy/sell price for all.


    E Count down from the top bid the number equal to the number of units available for minimum bid price. Is this also the maximum rejected bid?


    (DZ) 4 units means 5th highest bid (max rejected bid) sets price


    E Every bidder above this price purchases a unit of water at the minimum bid price for each sufficient bid. The unit price is the same for all participants.
    If all my bids are above the minimum, I sell all my water, but also buy the same number. This is called the indifferent seller. Is this an economic term or personal?


    (DZ) You BUY units for all bids that are accepted. You ALWAYS sell all your units. The net difference determines if you are net buyer, net sellers or indifferent seller (we're renaming this "neutral participant")


    E The participants who don't want to sell can bid high enough that they get their water out of the auction. There will still be net buyers and net sellers.


    (DZ) Yes

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