Optimal Auctions for Dual Risk Averse Bidders: Myerson meets Yaari

Résumé

We derive the revenue maximizing mechanism for a risk-neutral seller who faces Yaari's [1987] dual risk-averse bidders. The optimal mechanism oers \full- insurance" in the sense that each agent's utility is independent of other agents' reports. The seller excludes less types than under risk neutrality, and awards the object randomly to intermediate types. Subjecting intermediate types to a risky allocation while compensating them when losing allows the seller to collect larger payments from higher types. Relatively high types are anyway willing to pay more, and their allocation is efficient. Finally, a first-price auction maximizes revenue within the class of standard auctions.