The Responsiveness of Tax Lien Investors in English Auctions to Matching Rules: Evidence from Illinois

Abstract

Auctions allowing competitors to match the current high bid are thought to be suboptimal, particularly compared to auctions where new bids must exceed the current high bid (Milgrom, 2004). To date no study has examined, empirically, the effect of allowing matching bids. A recent policy innovation in Illinois provides an opportunity to estimate the effect of matching on winning bids. Using administrative data from five suburban Illinois counties on the auction of 127,073 liens, we find that an English auction design that allows matching is associated with higher winning bids when compared to an English design that does not allow matching. These higher winning bids increase interest fees on tax delinquent property owners by 20 percent. The paper is the first to estimate the cost of matching on auction outcomes.