Econometrica: Oct, 1956, Volume 24, Issue 4

The Application of Linear Programming to Competitive Bond Bidding

https://doi.org/0012-9682(195610)24:4<413:TAOLPT>2.0.CO;2-#
p. 413-428

Jerome Percus, Leon Quinto

This article applies linear programming to a field hitherto untouched by it. Competitive bidding for serial bonds issued by governments and other public authorities is currently based on the "net interest cost" method. The authors examine and describe the factors which enter into net interest cost and provide a method for adjusting those variables most subject to the control of the bond bidders. Since the bidder presenting the lowest net interest cost to the issuing authority wins the issue, the object of these adjustments is to minimize a given bidder's net interest cost. The linear programming problem which arises from the minimization requirement is of a form which admits of an explicit solution. This solution is given and a practical method for its computation is provided.