So after much confusion, I finally found a reasonable explanation of the SICAD’s Auction mechanism, courtesy of Bank of America. The long and the short of it is that there’s just nothing Vickrey about this auction – it’s a straight Giordani botch:
The auction designed by Venezuelan authorities for the dollar auctions is not a modified Vickrey auction. It is known in the literature as a “Pay-as-Bid” auction […] In the pay-as-bid and first-price auctions, buyers have an incentive to misrepresent the value they put on the good by shading their bids. Because they do this, the goods do not go to those who put greater value on them, generating inefficient outcomes.This is precisely the distortion that the Vickrey auction was designed to correct.
The essence of the Vickrey mechanism is that by having people pay a price that is not directly related to their bid, it generates the incentive for them to truthfully reveal how much the good is worth to them.
In other words, SICAD auctions are modified Vickrey auctions in exactly the same way a cat is a modified giraffe.Caracas Chronicles is 100% reader-supported. Support independent Venezuelan journalism by making a donation.