Nonparametric Estimation of Court Auction in South Korea

Abstract

South Korean court auction has a distinctive feature which separates it from other court auctions. The court repeatedly auctions a property with a lower reservation price if it fails to sell. According to the conventional auction theory, the role of reservation price is to encourage competition while risking the possibility of miscarriage. From this perspective, the same property being repeatedly auctioned with lower reservation price might not stimulate competition as reservation price is supposed to do. Thus, it is important to assess if this failed commitment actually undermines the court's revenue from auction and consequently prevents from reimbursing creditors fully enough. In this regard, this paper tries to nonparametrically estimate bidders' value from South Korean court auction results.