0% Vickrey

Al pobre Vickrey Giordani le expropió la reputación...
Al pobre Vickrey Giordani le expropió la reputación…

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.


  1. WRONG! Research confirms that all, repeat, all, modified-cat giraffes manage – one way or another- actually to stagger along. So There!

  2. Good article! They make the point that a firm obtaining $ through this mechanism is required to have the costs accurately reflected in its books. Especially with publicly-traded companies, it would be pretty hard to conceal the rate–or criminalize publication–under these circumstances.

    • That’s right. But of course the Venezuelan state is riddled with instances of incompatible rules – which always come in handy when you want to apply the law selectively. I can just about see Polar being fined for disclosing a non-CADIVI rate in financial disclosures they were also legally obligated to make!

  3. Please Francisco, do not waste your valuable time trying to explain how a Vickrey auction could relate to the new SICAD system. You can bet anything on the fact that Giordani does not know exactly what that type auction is or, what is its purpose or, how you can use it in a Banco Central USDollar auction. Long ago when he was an unknown university professor, not generally respected by his colleagues, he might have come across the name (and used it in typical frivolous manner), given that Mr. Vickrey was an Economics Nobel Prize winner. Giordani is an incompetent and irresponsible finance minister. He is to economics and finance what a witch doctor is to a PHD physician at MD Anderson Cancer Center.

  4. So, it is not really a Vickrey auction. That explains it. I was puzzled that they would use a Vickrey auction given that this system generates higher prices (something I presume they want to avoid, or, at least, balance against the goal of revenue maximization). Maybe they see a Vickrey aspect in that the cut-off price is set below the average? In any case, FR is right, if bidders pay their bidden price, the incentive structure of the auction does not promote truthful revelation. And from the perspective of the government this makes sense, because, again, revenue maximization would mean a high, black-market level price (and inflation). However, I am less convinced with FR’s explanation that the decision not to disclose the cut-off price is meant to limit the amount of underbidding. As he also acknowledges, this information cannot really be kept secret. I guess they do it not to seem as undermining the official exchange rate.

  5. The Giordani Vickrey auction is a beautiful thing–the final price is in the eye of the beholder– rumored: most bids 12-15, final price 9-10.

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