Why Do Sellers at Auctions Bid for Their Own Items?
Theory and Evidence
Michael Beckmann
This paper illustrates, both theoretically and empirically, the determinants of seller bidding at auctions. Based on search theoretical considerations, seller bids are explained as the seller's rejection of submitted price offers that fall short of his reservation price. The search model allows to derive testable implications on the seller's bidding behavior. Using a unique data set from German auction houses, the estimation results provide evidence that supports the search theoretical implications. For example, seller bidding is complementary to the presence of bidding rings at auction. Moreover, art and antique auctions turn out to be particularly susceptible to seller bidding practices.
pp. 312-337
Discussion of "Why Do Sellers at Auctions Bid for Their Own Items?
Theory and Evidence"
Bernd Frick
Based on an elaborate formal model derived from search theory (as developed by labor economists several years ago), Michael Beckmann tries to answer a hitherto unresolved empirical question: Why do bidders at auctions sometimes bid for their own items? Beckmann's model is based on a simple but straightforward assumption: A person trying to sell an item at an auction will bid for his/her property as long as the amounts offered by potential buyers are lower than his/her reservation price. The reason is that the utility derived from keeping the property is higher than the utility derived from selling it at a low price. Beckmann uses a unique, representative cross-section data set with detailed information on a number of relevant variables from a sample of about 100 German auction houses. He tests, and mostly confirms, the implications of the model econometrically. In summary, the theoretical model is clear and convincing and the econometric method represents the state of the art.
pp. 338-339
Financing High-Tech Growth: The Role of Banks and Venture Capitalists
David B. Audretsch/Erik E. Lehmann
Using a data set of the firms listed on the Neuer Markt in Germany, we demonstrate that venture-backed firms differ from firms with other financial resources, especially debt. Thus, the results of this study support the hypothesis that small and innovative firms are more likely to be financed by venture capitalists rather than banks. We also provide evidence that the presence of venture capitalists enhance the growth rates of firms positively.
pp. 340-357
Discussion of "Financing High-Tech Growth:
The Role of Banks and Venture Capitalists"
Peter Witt
The paper is very well written and clearly structured. The empirical part of the paper is strong. The methodology is well chosen, the data set is unique. However, some more detailed comments are necessary regarding its theoretical basis. The perhaps most important shortcoming of the paper is the lack of a clear theoretical research question. My impression is that the authors state to empirically test many more theories than they actually do. Although the abstract is clear and precise in stating what the paper does, in the main part of the text it is a bit more difficult to see the core intention behind the empirical analysis. In what follows I briefly discuss some points that may be worth considering.
pp. 358-359
Managing Credit Risk with Credit and Macro Derivatives
Udo Broll/ Gerhard Schweimayer/Peter Welzel
We use the industrial organization approach to the microeconomics of banking, augmented by uncertainty and risk aversion, to examine credit derivatives and macro deriva - tives as instruments to hedge credit risk for a large commercial bank. In a partial-analytic framework we distinguish between the probability of default and the loss given default , model different forms of derivatives , and derive hedge rules and strong and weak separation properties between deposit and loan decisions on the one hand and hedging decisions on the other. We also suggest how bank-specific macro derivatives could be designed from common macro indexes which serve as underlyings of recently introduced financial products.
pp. 360-378
Discussion of "Managing Credit Risk with Credit and Macro Derivatives"
Thomas Hartmann-Wendels
Credit derivatives have become a widely used instrument that allows for actively managing credit risk. Despite the remarkable growth of credit derivative markets during the last ten years there is no comprehensive theory on how they should be used to optimize a bank's risk and return profile. The Broll et al . paper takes a first step in deriving optimal hedging rules for credit risk in various settings. In fact, as Froot/Stein (1998) have shown, there are three interrelated decision levels: (1) Given that a bank is exposed to credit risk, the first question that arises is whether and to what degree this risk should be hedged. (2) The optimal hedging decision should be anticipated when the bank decides about granting a defaultable loan. Furthermore, the possibility and the costs of hedging influence the risk premium the bank must charge for the loan. Loans and deposits are interrelated in the Broll et al. model because of economies or diseconomies of scope incorporated in the operational costs. (3) The third decision concerns capital structure: Because risk-averse bank behavior mirrors the objective of avoiding bankruptcy, capital structure affects both the hedging decision and the decision to take on a risk position. The capital structure decision is not explicitly modeled in the paper but implicitly incorporated in the shape of the utility function. All results are derived under very mild restrictions on the utility function, so no loss in generality is incurred by concentrating on the first two questions.
pp. 379-381
