A Study of the Effects of Competition in the Tax-exempt Bond Market

Abstract

This is a study of the effects of competition upon underwriting costs, reoffering yields, and the financing costs to issuers of tax-exempt bonds. It provides estimates of the marginal effects of changes in the degree of competition, as measured by independent bids submitted by underwriters syndicates, upon the terms of newly issued tax-exempt bonds holding constant default risk, issue size, level of interest rates, etc. The paper is of theoretical interest because it applies Stigler's theory of information to the explanation of phenomena--in particular, the behavior of reoffering yields--that cannot be explained with the neoclassical model of competition which implicitly postulates that information is a free good