NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Set-Asides and Subsidies in Auctions

Susan Athey, Dominic Coey, Jonathan Levin

NBER Working Paper No. 16851
Issued in March 2011
NBER Program(s):   IO   PE

Set-asides and subsidies are used extensively in government procurement and natural resource sales. We analyze these policies in an empirical model of U.S. Forest Service timber auctions. The model fits the data well both within the sample of unrestricted sales where we estimate the model, and when we predict (out of sample) bidder entry and prices for small business set-asides. Our estimates suggest that restricting entry to small businesses substantially reduces efficiency and revenue, although it does increase small business participation. An alternative policy of subsidizing small bidders would increase revenue and small bidder profit, while eliminating almost all of the efficiency loss of set-asides, and only slightly decreasing the profit of larger firms. We explain these findings by connecting to the theory of optimal auction design.

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Document Object Identifier (DOI): 10.3386/w16851

Published: Susan Athey & Dominic Coey & Jonathan Levin, 2013. "Set-Asides and Subsidies in Auctions," American Economic Journal: Microeconomics, American Economic Association, vol. 5(1), pages 1-27, February.

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