tag:blogger.com,1999:blog-5043138489010794057.post2090959379124298369..comments2024-03-16T17:49:39.343+05:30Comments on Urbanomics: Winner's curse and market failures in resource allotmentsUrbanomicshttp://www.blogger.com/profile/16956198290294771298noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-5043138489010794057.post-10194189623917003692012-05-24T15:00:37.734+05:302012-05-24T15:00:37.734+05:30The stock market lost confidence, partly due to th...The stock market lost confidence, partly due to the concept that telecoms were similar to dot com (both were categorised as 'high technology' in the listings) and share prices tumbled. As they did so the ratio of debt to assets based on share price changed making the telephone operators effective credit rating look insecure.Relationship Bankinghttp://businessloans.doobizz.com/bank-loans-2/2011/12/relationship-banking/556/noreply@blogger.comtag:blogger.com,1999:blog-5043138489010794057.post-71230390618279357342011-05-12T23:53:07.275+05:302011-05-12T23:53:07.275+05:30"the correction of any market imperfections a..."the correction of any market imperfections at a post-bidding stage is much easier when compared to the correction of decision-makers' selfish motives."<br /><br />thanks srikant. that is an excellent point. <br /><br />yes anon, as such contracts and bidding becomes more common, expectations will change and the moral hazard will be mitigated. <br /><br />thanks KP about the reference to the 'clawback provisions' in such contracts if they are made on discretionary basis. they can be deterrent to excessively generous allotments. but, given the fact that these allotments are themselves discretionary and meant to benefit certain interests, how do we ensure that these provisions are part of the contractual obligations?Urbanomicshttps://www.blogger.com/profile/16956198290294771298noreply@blogger.comtag:blogger.com,1999:blog-5043138489010794057.post-59086519652813027092011-05-12T13:37:24.120+05:302011-05-12T13:37:24.120+05:30Dear Gulzar,
There are three distinct issues here...Dear Gulzar,<br /><br />There are three distinct issues here<br /><br />- One is the design of auctions to ensure that the eventual outcome is through competitive bidding ( no cartels / rigging etc)<br /><br />- The second problem is one of over bidding, which represents expected returns over time - which is a question of judgement. This also represents the cost of shutting out competition.<br /><br />- the third and the most difficult part is transparency and integrity, which is severely compromised. This is because the fundamental view of power seekers in our political systems is that their exercise of discretionary power is outside the purview of the law. It is this discretionary capability that makes power attractive.<br /><br />Unless there are clawback provisions to recover monies and harsh penalties - dissociated from the outcomes of their actions (moral hazard) - politicians and bureaucrats hardly suffer a downside of any consequence. <br /><br />Democracy and elections are hardly the mechanisms to dispense justice for what constitutes a wilful criminal compromise.<br /><br />One is an issue of design, two an issue of judgement, but three is what works continuously to pervert one and two.<br /><br />I think politicians and bureaucrats have come to believe that this kind of rent seeking is par for the course.<br /><br />regards,KP.KPhttps://www.blogger.com/profile/06553866275918658507noreply@blogger.comtag:blogger.com,1999:blog-5043138489010794057.post-78913087226212407352011-05-12T03:34:01.439+05:302011-05-12T03:34:01.439+05:30Competetive biddings like that of 3G are rare exce...Competetive biddings like that of 3G are rare exceptions in Indian markets and hence the incidence of winners curse shouldn't be a concern. When such transparent biddings become more common and governments abstain from contract renegotiations, the players will become more disciplined and realistic about their bids over time. Governments can sure play a positive role by utilizing the proceeds or royalties in demand stimulation exercises or investing in public infrastructure that can directly or indirectly benefit the markets.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5043138489010794057.post-37875157660971839232011-05-11T19:57:36.233+05:302011-05-11T19:57:36.233+05:30You have rightly analysed the scenario. It is simi...You have rightly analysed the scenario. It is similar to a rat race. One a rat race between the state governments in order to win the prized investors, and the other a rat race between the private investors in order to get hold of some public resource. In the first case, whereas the problems of unintentional mischief like the information asymmetry etc. can be rectified with good intent, those relating to absence of integrity in the decision makers is more difficult to overcome. Similarly, the correction of any market imperfections at a post-bidding stage is much easier when compared to the correction of decision-makers' selfish motives. -- Srikantnskhttps://www.blogger.com/profile/15809094701396015856noreply@blogger.com