CONTINUITY IN AUCTION DESIGN

J. Crémer and R. P. McLean (Econometrica 56, 1988, 1247-1257) have shown that the auctioneer can extract all the surplus when the private valuations of bidders are not statistically independent. The paper shows that this result does not necessarily arise under limited liability or risk aversion. Under limited liability and/or risk aversion, we prove that the functions corresponding to the auctionner's optimal expected gain and to the maximum total surplus are continuous in the space of possible information distributions. Thus by continuity, the auctioneer wil not be able to extract all the rents when bidders' private valuations are approximately independent. © 1991.