Auctions with Tokens: Monetary Policy as a Mechanism Design Choice
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arXiv
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| Format: | Preprint |
| Published: |
2023
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| _version_ | 1866915568035037184 |
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| author | Canidio, Andrea |
| author_facet | Canidio, Andrea |
| contents | I study a repeated auction in which payments are made with a blockchain token created and initially owned by the auction designer. Unlike the ``virtual money'' previously examined in mechanism design, such tokens can be saved and traded outside the mechanism. I show that the present-discounted value of expected revenues equals that of a conventional dollar auction, but revenues accrue earlier and are less volatile. The optimal monetary policy burns the tokens used for payment, a practice common in blockchain-based protocols. I also show that the same outcome can be reproduced in a dollar auction if the auctioneer issues a suitable dollar-denominated security. This equivalence breaks down with moral hazard and contracting frictions: with severe contracting frictions the token auction dominates, whereas with mild contracting frictions the dollar auction combined with a dollar-denominated financial instrument is preferred. |
| format | Preprint |
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arxiv_https___arxiv_org_abs_2301_13794 |
| institution | arXiv |
| publishDate | 2023 |
| record_format | arxiv |
| spellingShingle | Auctions with Tokens: Monetary Policy as a Mechanism Design Choice Canidio, Andrea Theoretical Economics Distributed, Parallel, and Cluster Computing I study a repeated auction in which payments are made with a blockchain token created and initially owned by the auction designer. Unlike the ``virtual money'' previously examined in mechanism design, such tokens can be saved and traded outside the mechanism. I show that the present-discounted value of expected revenues equals that of a conventional dollar auction, but revenues accrue earlier and are less volatile. The optimal monetary policy burns the tokens used for payment, a practice common in blockchain-based protocols. I also show that the same outcome can be reproduced in a dollar auction if the auctioneer issues a suitable dollar-denominated security. This equivalence breaks down with moral hazard and contracting frictions: with severe contracting frictions the token auction dominates, whereas with mild contracting frictions the dollar auction combined with a dollar-denominated financial instrument is preferred. |
| title | Auctions with Tokens: Monetary Policy as a Mechanism Design Choice |
| topic | Theoretical Economics Distributed, Parallel, and Cluster Computing |
| url | https://arxiv.org/abs/2301.13794 |