J Econ (2012) 106:83–93 DOI 10.1007/s00712-011-0226-8 Interim efficient auctions with interdependent valuations Serkan Kucuksenel Received: 8 June 2010 / Accepted: 5 July 2011 / Published online: 21 July 2011 © Springer-Verlag 2011 Abstract We provide a characterization of interim efficient auctions and examine their properties in the presence of informational interdependent valuations. We show that buyers can be awarded the auctioned item less often than the efficient level. We also show that buyers obtain the item more often as the degree of heterogeneity in preferences increases, even though profitability of trade does not depend on the heterogeneity in preferences. Keywords Auctions · Interdependent values · Incentive efficiency JEL Classification C72 · D44 · D82 1 Introduction This paper studies interim efficient auctions in the presence of informational interde- pendent valuations. In these auctions, each agent’s valuation for the auctioned item depends not only on her own information, but also on the other agents’ private infor- mation. This implies that informational externalities are present. In this framework, efficient auction design given incentive and feasibility constraints is not usually pos- sible. The main objective of this paper is to construct interim efficient auctions (i.e., second best auctions that satisfy incentive and feasibility constraints) which can be used when efficient outcomes cannot be implemented. This set of auctions is also compelling, because it specifies all possible auction rules that we might observe in practice. S. Kucuksenel (B ) Department of Economics, Middle East Technical University, 06800 Ankara, Turkey e-mail: kuserkan@metu.edu.tr 123