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Abstract: 

Local government competitive debt auctions often occur in a first-price sealed-bid format in which (underwriters) firms submit their bids and the bid with the lowest interest cost wins the auction. Implicit in competitive auctions is the assumption that they are always “competitive.” Focusing on the role of information factors in auctions, this paper investigates the variables behind competition intensity in city and county first-price sealed-bid competitive auctions and identifies a set of important “product” (debt) features and “common information” covariates. These results offer decision tools to municipal government fiscal officers seeking to more efficiently administer their debt management function. Significant interest savings can be realized by actively structuring and timing debt sales toward an “optimal” threshold number of required bids in competitive auctions.

Keywords: Municipal debt management, competitive bid auction, competition factors, negotiated offerings, borrowing cost

Affiliations:  1: University of Georgia; 2: University of Georgia.