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SelectedWorks

Market Design

Finance

1996

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Full-Text Articles in Social and Behavioral Sciences

Deficit Reduction Through Diversity: How Affirmative Action At The Fcc Increased Auction Competition, Peter Cramton, Ian Ayres Jan 1996

Deficit Reduction Through Diversity: How Affirmative Action At The Fcc Increased Auction Competition, Peter Cramton, Ian Ayres

Peter Cramton

In recent auctions for paging licenses, the Federal Communications Commission has granted businesses owned by minorities and women substantial bidding credits. In this article, Professors Ayres and Cramton analyze a particular auction and argue that the affirmative action bidding preferences, by increasing competition among auction participants, increased the government’s revenue by $45 million. Subsidizing the participation of new bidders can induce established bidders to bid more aggressively. The authors conclude that this revenue-enhancing effect does not provide a sufficient constitutional justification for affirmative action—but when such justification is independently present, affirmative actions can cost the government much less ...