This paper analyzes the effects of buyer and seller risk aversion in Örst and secondprice auctions. The setting is the classic one of symmetric and independent private values, with ex ante homogeneous bidders. However, the seller is able to optimally set the reserve price. In both auctions the sellerís optimal reserve price is shown to decrease in his own risk aversion, and more so in the Örst-price auction. Thus, greater seller risk aversion increases the ex post e¢ ciency of both auctions, and especially that of the Örst-price auction. The sellerís optimal reserve price in the Örst-price, but not in the second-price, auction decreases in the buyersírisk aversion. Thus, greater buyer risk aversion also increases the ex post e¢ ciency of the Örst but not the second-price auction. At the interim stage, the Örst-price auction is preferred by all buyer types in a lower interval, as well as by the seller.

Keywords: Örst-price auction, second-price auction, risk aversion, reserve price
JEL classiÖcation: D44