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The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Mendola, Mariapia / Requate, Till / Schirle, Tammy / de Vries, Frans / Zulehner, Christine

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1935-1682
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Volume 9, Issue 1 (May 2009)

The Default-Prone U.S. Toxic Asset Auction Plan

Charles Zhoucheng Zheng
  • 1Iowa State University,
Published Online: 2009-05-06 | DOI: https://doi.org/10.2202/1935-1682.2272

Abstract

Applying auction theory to the toxic-asset rescue plan currently released by the United States Treasury Department, this paper demonstrates an equilibrium where moderately poor bidders outbid rich bidders in such auctions. After defeating their rich rivals and acquiring the toxic assets, such bidders will default on government-provided loans whenever the toxic assets turn out to be unsalvageable. An alternative mechanism is discussed.

Keywords: toxic assets; default; bankruptcy; auction theory; budget constraint

About the article

Published Online: 2009-05-06


Citation Information: The B.E. Journal of Economic Analysis & Policy, ISSN (Online) 1935-1682, DOI: https://doi.org/10.2202/1935-1682.2272. Export Citation

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