A theory of treasury auctions

I study a model of treasury auctions incorporating some of the important in stitutional features. A treasury auction is a repeated multi-unit common-va lue auction in which bidders bid demand functions. Another important auctio n with similar features is the variable-rate tender repo auction conducted by the European Central Bank. I discuss the appropriateness of the treasury auction model for analyzing repo auctions. Rankings based on differences in one-shot collusion opportunities among auc tions with no entry are found in the literature. These are possibly inappro priate for treasury auctions which take place at regular intervals, and all ow entry. I present a repeated auctions framework with a group of informed bidders, a nd free entry by uninformed outsiders. I restrict attention to the class of equilibria that satisfy a 'no-arbitrage' (no profitable entry by an uninfo rmed outsider) constraint, and rank discriminatory (pay-your-bid) and unifo rm-price auctions by revenue generated in the equilibria that are most favo rable to informed bidders. The main contribution of the paper is a ranking of Treasury revenue across a variety of institutional set-ups, and the impl ied policy prescriptions. (C) 2001 Elsevier Science Ltd. All rights reserve d.