Policy Implications of Auction Design for Imperfectly Competitive Markets

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2020

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How should regulators design their policies in imperfectly competitive environments where even a single economic agent has the power to affect the market outcomes? I address this question by studying policies imposed directly on the agents under consideration, such as revenue taxes on oil producers, as well as policies which affect the agents indirectly, as in the case of banks and income taxes faced by their clients. These examples are discussed further in Chapter 1.

In Chapter 2 of the dissertation, I study how firms make investment decisions in the upstream US oil market. I set up a model that describes how firms choose when to drill for oil and how the associated drilling incentives affect their competition for land leases. The model allows me to quantify performance of different tax policies directed at the firms, both in terms of revenues created for the state as well as the level of economic activity in the industry. I find that certain tax regimes can boost state revenue at no cost in economic activity.

In Chapter 3 of the dissertation, I approach the problem of land leases in oil and gas from a different angle. Together with the co-authors, we investigate the properties of contracts whose terms are contingent on post-sale outcomes. When firms compete for leases using such contracts as bids, they have an opportunity to determine their own future investment incentives. We develop a model which allows us to describe how firms choose contract terms and how post-auction outcomes are related to the type of the contract used during the sale. We find that for the seller the best performance is achieved with fixed royalty contracts.

In Chapter 4 of the dissertation, I consider how underwriters for municipal bonds are affected by policies directed at the final consumers of the bonds. Using a model for bond auctions, my co-authors and I describe how federal and state income tax policies reflect on the borrowing costs of the bond issuers. We find that higher taxes lead to more competition and lower borrowing rates for municipalities.

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Ordin, Andrey (2020). Policy Implications of Auction Design for Imperfectly Competitive Markets. Dissertation, Duke University. Retrieved from https://hdl.handle.net/10161/20901.

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