| Abstract: | Whether competitive bidding or negotiated sale leads to lower borrowing cost for municipal debt issuers has been studied extensively in municipal finance research. There is a potential self-selection bias when estimating the relative cost effectiveness of these two methods of sale. This article argues that sale method can be viewed as a certification mechanism as issuers self-select themselves into either competitive or negotiated groups based on their perception of the underlying degree of information asymmetry. By correcting for this self-selection bias, we find that for issues with no or little information asymmetry, neither sale method has a significant cost advantage over the other. |
