Voucher Auctions

Voucher auctions are non-standard, multiple-good allocation mechanisms. Variants of such schemes were used to privatize companies in Eastern and Central Europe in the 1990s. The satisfaction of several constraints---political feasibility, perceived fairness, presence of financially constrained participants, expedience, etc.---motivated their initial adoption. The simplest variant of such a scheme works as follows. Each bidder is endowed by the mechanism with a budget of bidding vouchers. Vouchers have no value outside of the mechanism and are used to place bids for shares of items (for instance, shares of firms). Shares in a given item, for example, can be allocated to each person in proportion to their bid for that item. Generally, such mechanisms can have wide application in many multiple-asset allocation problems where initial endowments or entitlements are ill-defined and standard mechanisms, such as ``traditional'' auctions, cannot be implemented. Despite the use of such mechanism, their efficiency properties and bidders' equilibrium behavior have received little attention. This paper addresses this gap in the literature by providing both a theoretical and an experimental (laboratory) analysis of the voucher auction in an independent private-value setting. Voucher auctions, in simple settings, have intuitively appealing, well-behaved equilibria. Several comparative static exercises are considered. Additionally, laboratory evidence suggests that players often manage to navigate the workings of the mechanism well lending to the notion that voucher auctions can be useful second-best alternatives when optimal mechanisms are either unknown or impractical.