A Hypothetical Reverse Auction

[Fenris]

(Note: this is not a reverse auction in the usual sense (http://en.wikipedia.org/wiki/Reverse_auction) of the word. It's just the best phrase I could come up with.)

From Mother Jones (http://www.motherjones.com/mojo/2009/03/cities-are-selling-stimulus-funds-each-other): Cities in California are auctioning off their stimulus grants.

The grant is specifically designated for transportation purposes: so a city that doesn't need or want to spend the money there will "sell" the grant to another city that wants it.

La Habra Heights, a city of 6,000, has sold its $500,000 in federal funds to the city of Westlake Village for $310,000 cash. Irwindale, population 1,500, also sold its $500,000 to Westlake Village, for $325,000 cash.

The city of Rolling Hills, population 1,900, sold its $500,000 share to the city of Rancho Palos Verdes for $305,000 cash. The city of Avalon has reached an agreement to swap its $500,000 with L.A. County.

The cities exchange the grant, which is limited and specific, for general funds that they can use however they like. In a weird way, it's like getting an unwanted gift certificate for Christmas, and selling it at a discount to someone who will actually use it.


But that, while very interesting, wasn't really what grabbed me. It was the weird economics of the situation. After all, the bidding cities aren't really spending anything: they're getting back more money than they pay out. Their "bid" is just a willingness to accept less money than anyone else.

So here's the hypothetical reverse auction thought experiment: suppose I auctioned a million-dollar grant here. Your "bid" is how much less than a million you want: "I'll take $500,000," and so forth. Bidding lasts for twenty-four hours.

How much (little?) would you ultimately be willing to bid? How low is the winner likely to get?

õ
Curious!

[Paul McEnery]

(Note: this is not a reverse auction in the usual sense (http://en.wikipedia.org/wiki/Reverse_auction) of the word. It's just the best phrase I could come up with.)

From Mother Jones (http://www.motherjones.com/mojo/2009/03/cities-are-selling-stimulus-funds-each-other): Cities in California are auctioning off their stimulus grants.

The grant is specifically designated for transportation purposes: so a city that doesn't need or want to spend the money there will "sell" the grant to another city that wants it.

La Habra Heights, a city of 6,000, has sold its $500,000 in federal funds to the city of Westlake Village for $310,000 cash. Irwindale, population 1,500, also sold its $500,000 to Westlake Village, for $325,000 cash.

The city of Rolling Hills, population 1,900, sold its $500,000 share to the city of Rancho Palos Verdes for $305,000 cash. The city of Avalon has reached an agreement to swap its $500,000 with L.A. County.

The cities exchange the grant, which is limited and specific, for general funds that they can use however they like. In a weird way, it's like getting an unwanted gift certificate for Christmas, and selling it at a discount to someone who will actually use it.


But that, while very interesting, wasn't really what grabbed me. It was the weird economics of the situation. After all, the bidding cities aren't really spending anything: they're getting back more money than they pay out. Their "bid" is just a willingness to accept less money than anyone else.

So here's the hypothetical reverse auction thought experiment: suppose I auctioned a million-dollar grant here. Your "bid" is how much less than a million you want: "I'll take $500,000," and so forth. Bidding lasts for twenty-four hours.

How much (little?) would you ultimately be willing to bid? How low is the winner likely to get?

õ
Curious!

I was thinking it's like selling off your food stamps for booze and smokes, myself.

[Fenris]

I was thinking it's like selling off your food stamps for booze and smokes, myself.

*Shrug* That depends on whether they actually need the money for roads, more than... well, whatever else they wanted. For all I know, they could be expanding local welfare programs: which would kind of be putting the analogy in reverse.

õ
But I don't know either way!

[MacQuarrie]

UPDATE: The MTA is pulling the plug on the plan. They say the Transit funds are a use it or lose it deal. I believe they're doing this so they can continue to ignore the Gold Line extension. The big power brokers in LA Transit are all based in the west side and sneer at the eastern valleys where the majority of people live.

Every community along the proposed Gold Line route has approved and funded development, all permits and clearances are in order, and they could start digging tomorrow. Instead, the MTA wants to build a "subway to the sea" to transport people from Downtown to Santa Monica. Every community along the way has sworn o fight them, lawsuits have been filed, opposition is mounting, and no clearances or right-of-way has been secured. But they're going to do that one first anyway.

The LA transportation people are idiots and snobs.

[Fenris]

UPDATE: The MTA is pulling the plug on the plan. They say the Transit funds are a use it or lose it deal.

Huh! (http://www.masstransitmag.com/online/printer.jsp?id=8157) Well, so much for that.

MTA CEO Roger Snoble said in a statement that "Metro is trying to allow some flexibility to the cities, but there is no provision to allow stimulus money to be swapped with general fund money.

"This is simply not the intent of the Metro board. We will reject anything that is inconsistent with the board's intent," Snoble wrote.

So there, little cities!



I believe they're doing this so they can continue to ignore the Gold Line extension. The big power brokers in LA Transit are all based in the west side and sneer at the eastern valleys where the majority of people live.

Every community along the proposed Gold Line route has approved and funded development, all permits and clearances are in order, and they could start digging tomorrow. Instead, the MTA wants to build a "subway to the sea" to transport people from Downtown to Santa Monica. Every community along the way has sworn o fight them, lawsuits have been filed, opposition is mounting, and no clearances or right-of-way has been secured. But they're going to do that one first anyway.

I have to tell you, I don't even know what the Gold Line is. (Except what I can infer from your paragraph, obviously.)

õ
But I hope you get it someday!

[Fabian]

I have to tell you, I don't even know what the Gold Line is. (Except what I can infer from your paragraph, obviously.)

õ
But I hope you get it someday!

From wikipedia


The Metro Gold Line of the Los Angeles County Metro Rail is a light rail line in Los Angeles County. It is the newest rail addition to the Metro system. It operates between Downtown Los Angeles and eastern Pasadena. The Southwest Museum, Chinatown, and the shops of Old Town Pasadena are some of the tourist attractions that can be accessed via the Gold Line. The Gold Line has two other official names: the C Line and Line 804. These are rarely used by residents, but occasionally appear on documents.

I personally have never ridden it as the LA metro travels pretty slowly through some areas. I know there's some other proposed rail lines to make travel between Orange and LA County easier but I'm not sure which are even going to be funded.

[Fenris]

Ah, I see. Thank you, Fabian!

õ
I see more details of Mac's frustration, then!

[Paul McEnery]

Ah, I see. Thank you, Fabian!

õ
I see more details of Mac's frustration, then!

Indeed. In outline, it looks like a no-brainer. More public transportation = less global warming, more labour flexibility for less dough, jobs for construction people, jobs for the transportation industry. Hard to see the downside.

Until we deal with California's little issue.

[FunkyGreenJerusalem]

UPDATE: The MTA is pulling the plug on the plan. They say the Transit funds are a use it or lose it deal. I believe they're doing this so they can continue to ignore the Gold Line extension. The big power brokers in LA Transit are all based in the west side and sneer at the eastern valleys where the majority of people live.

Every community along the proposed Gold Line route has approved and funded development, all permits and clearances are in order, and they could start digging tomorrow. Instead, the MTA wants to build a "subway to the sea" to transport people from Downtown to Santa Monica. Every community along the way has sworn o fight them, lawsuits have been filed, opposition is mounting, and no clearances or right-of-way has been secured. But they're going to do that one first anyway.

The LA transportation people are idiots and snobs.

Hey - they'll tell you what transport system you want and need, alright?

[VanEyck]

How much (little?) would you ultimately be willing to bid? How low is the winner likely to get?


Well, from a pure economics point of view, everyone should be willing to go as low as their cost of bidding. In other words, if it costs me $.01 to actually make a bid, then I should be willing to bid as much as $999,999.99 (this is the breakeven point for me).

For this reason, the winner of the bid should be the person with the lowest cost of bidding. And he will pocket the difference between his bid, and the next highest bid.

[Grazzt]

Well, from a pure economics point of view, everyone should be willing to go as low as their cost of bidding. In other words, if it costs me $.01 to actually make a bid, then I should be willing to bid as much as $999,999.99 (this is the breakeven point for me).

For this reason, the winner of the bid should be the person with the lowest cost of bidding. And he will pocket the difference between his bid, and the next highest bid.

I think it also depends on the restrictions of the grant. The reason they were selling the federal funds was because they didn't want to build the transit system, for whatever reason. In this case, we don't know the restrictions on the grant Fenris is giving. I'm sure people would be willing to bid higher on a million dollars that must be used to start a business than a million dollars that must be spent on new floppies at your LCS.

[VanEyck]

I think it also depends on the restrictions of the grant. The reason they were selling the federal funds was because they didn't want to build the transit system, for whatever reason. In this case, we don't know the restrictions on the grant Fenris is giving. I'm sure people would be willing to bid higher on a million dollars that must be used to start a business than a million dollars that must be spent on new floppies at your LCS.

I was responding to Fenris' hypothetical $1M grant. He didn't mention any restrictions.

[darkhanamaru]

The LA transportation people are idiots and snobs.

If anyone is interested this is the very long final report by the Southern California Association of Goverments (SCAG) on the gold line.

http://www.scag.ca.gov/publications/pdf/2007/Gold_Line_FINALReport_040907.pdf

From the report it looks as if the cities served by the Gold Line are more Hispanic, African-American, in some cases Asian, and across the board, poorer than the west side. This type of extension looks like it would be good for workforce development and the land around it would be appealing to developers for high-density development which is a win for working people and the environment. of course, as macquarrie, has previously stated, the west side could give two shits. Typical LA.