The Effect of Sale Methods on the Interest Rate of Municipal Bonds: A Heterogeneous Endogenous Treatment Estimation

Conventional wisdom argues that competitive bidding, compared to negotiated sale, can reduce the interest cost of municipal bonds in the primary market. Studies correcting for self‐selection bias have mixed findings. However, these studies are subject to some potential methodological issues. This study circumvents these pit‐falls and provides an estimate of the heterogeneous average treatment effect (ATE). After correcting for the endogeneity bias of sale method and its interaction effect, on average competitive sale still significantly lowers the interest rate, but the interest cost advantage decreases as issuer experience increases.