Anglo-Dutch Premium Auctions in Eighteenth-Century Amsterdam

62 Pages Posted: 7 Feb 2012 Last revised: 25 Jun 2012

See all articles by Lars Boerner

Lars Boerner

London School of Economics & Political Science (LSE) - Department of Economic History

Christiaan van Bochove

Department of History - Radboud University Nijmegen

Daniel Quint

Stanford University - Department of Economics

Date Written: June 20, 2012

Abstract

An Anglo-Dutch premium auction consists of an English auction followed by a Dutch auction, with a cash premium paid to the winner of the first round. We study such auctions used in the secondary debt market in eighteenth-century Amsterdam. This was among the first uses of auctions, or any structured market-clearing mechanism, in a financial market. We find that this market presented two distinct challenges - generating competition and aggregating information. We argue that the Anglo-Dutch premium auction is particularly well-suited to do both. Modeling equilibrium play theoretically, we predict a positive relationship between the uncertainty in a security's value and the likelihood of a second-round bid. Analyzing data on 16,854 securities sold in the late 1700s, we find empirical support for this prediction. This suggests that bidding behavior may have been consistent with (non-cooperative) equilibrium play, and therefore that these auctions were successful at generating competition. We also find evidence suggesting that these auctions succeeded at aggregating information. Thus, the Anglo-Dutch premium auction appears to have been an effective solution to a complex early market design problem.

Keywords: history of auctions, history of market design, Anglo-Dutch auctions, premium auctions

JEL Classification: D44, N23

Suggested Citation

Boerner, Lars and van Bochove, Christiaan and Quint, Daniel, Anglo-Dutch Premium Auctions in Eighteenth-Century Amsterdam (June 20, 2012). Available at SSRN: https://ssrn.com/abstract=2001074 or http://dx.doi.org/10.2139/ssrn.2001074

Lars Boerner (Contact Author)

London School of Economics & Political Science (LSE) - Department of Economic History ( email )

Houghton Street
London WC2A 2AE
United Kingdom

HOME PAGE: http://sites.google.com/site/larsboerner/

Christiaan Van Bochove

Department of History - Radboud University Nijmegen ( email )

Erasmusplein 1
Nijmegen, 6525HT
Netherlands

Daniel Quint

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

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