Auction Design Critical for Rescue Plan

Lawrence M. Ausubel and Peter Cramton , The Economists’ Voice 5(5) , 1-3 , September 2008.

The Treasury proposes to invest $700 billion in mortgage-related securities to resolve the financial crisis, using market mechanisms such as reverse auctions to determine prices. A well-designed auction process can indeed be an effective tool for acquiring distressed assets at minimum cost to the taxpayer. However, a simplistic process could lead to higher cost and fewer securities purchased. It is critical for the auction process to be designed carefully.

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