Deriving an estimate of the optimal reserve price: An application to British Columbian timber sales*

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Abstract

In this paper, I use a simple game-theoretic model of behaviour at oral, ascendingprice auctions within the independent private-values paradigm to put structure upon data from a sample of timber sales held in the province of British Columbia, Canada where, to a first approximation, the independent private-values paradigm appears appropriate. I then estimate several different empirical specifications and use the methods of Vuong to decide which model is closer to the truth than the others. Under different assumptions concerning the seller's valuation of the timber, estimates of the optimal reserve price are calculated.

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*

This paper represents a revision of some research contained in University of British Columbia Discussion Papers 89-14 and 91-19. That work was initially funded by grants from the University of British Columbia and the Forest Economics and Policy Analysis Research Unit, but the work presented here was funded by the SSHRC of Canada.

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