Affiliation was introduced by Milgrom and Weber (1982) through the positive dependence intuition, that is, high value of one bidder’s estimate makes high values of the others’ estimates more likely. However, positive dependence has many alternative definitions; we show that affiliation is one of the most restrictive among them. This poses the question whether affiliation’s main implications (equilibrium existence and the revenue ranking of auctions) remain valid for other formalizations of positive dependence. We show that both implications can indeed be generalized in the context of private values, and give counterexamples for further generalizations.

Most developing economies rely on foreign capital to finance their infrastructure needs. These projects are usually structured as long-term (25-35 year) franchises that pay in local currency. If investors evaluate their returns in terms of foreign currency, exchange rate volatility introduces risk that may reduce the level of investment below what would be socially optimal. In this paper, we propose a mechanism with very general features that hedges exchange rate fluctuation by adjusting the concession period. Such mechanism does not imply additional costs to the government and could be offered as a zero-cost option to lenders and investors exposed to currency fluctuations. We illustrate the general mechanism with three alternative specifications and use data from a 25-year highway franchise to simulate how they would play out in eight different countries that exhibit diverse exchange rate trajectories.