HOW (NOT) TO SELL NUCLEAR-WEAPONS

We consider situations where a sale affects the ensuing interaction be tween potential buyers. These situations are modeled by assuming that an agent who does not acquire the object for sale incurs an identity-d ependent externality. We construct a revenue-maximizing auction Sor th e seller We observe that: I) outside options and participation constra ints are endogenous. 2) The seller extracts surplus also from agents w ho do not obtain the auctioned object. 3) The seller is better-off by not selling at all (while obtaining some payments) if externalities ar e much larger than valuations.