The Czechoslovak Privatization Auction : An Empirical Investigation

The 1992 Czechoslovak mass privatization program resembled a multi-round Walrasian auction with tatonnement, in which participants, endowed with points, bid simultaneously for non-uniform products, i.e., shares. The creation of this artificial primary market provides economists with a unique opportunity to empirically investigate 1) the role of the auctioneer in a politically-motivated giveaway scheme, 2) the price-setting mechanism, and 3) the bidding strategies and rationality of the auction's participants. The paper analyzes the information content of the prices that emerged from the bidding process and condsiders the usefulness of the auction as a mechanism to reveal value. Unlike more conventional auctions, however, price discovery was only a secondary motive to the auctioneer. Instead, the auctioneer's pricipal aim was to transfer the shares to the investing public in a politically acceptable manner. The evidence shows that the price-updating rules adopted after each bidding round did achieve the auctioneer's principle aim, but also served to inject noise. The results further suggest an inherent tradeoff between socially acceptable outcomes in such auctions and efficient price discovery