Random Variable

The distinctive feature of a commodity auction is that all the suitors are sophisticated corporations, so there are no bargains. Auctions of this sort have the potential for misconduct, so they would need to be internationally verified.

Each key decision could be guided by standards. Citizens would then know what to demand of their governments. Those that refused to adopt them would be revealed as crooked.

That’s Paul Collier, author of The Bottom Billion, in an interview with Marketplace.

Auctions do a good job of revealing the true price of the commodity. Why? If your reserve price isn’t met by the winner, you can offer it to the second highest bidder for the reserve price itself. This incentivises bidders to reveal their true preferences.

I think we’ll be seeing a lot more well thought out “mechanism design” based policies in the future.