Semiparametric Estimation of First-Price Auctions with Risk-Averse Bidders

In view of the non-identification of the first-price auction model with risk-averse bidders, this paper proposes some parametric identifying restrictions and a semiparametric estimator for the risk aversion parameter(s) and the latent distribution of private values. Specifically, we exploit heteroge...

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Bibliographic Details
Published in:The Review of economic studies 2011-01, Vol.78 (1), p.112-147
Main Authors: CAMPO, SANDRA, GUERRE, EMMANUEL, PERRIGNE, ISABELLE, VUONG, QUANG
Format: Article
Language:English
Subjects:
Auction theory
Auctions
Bidders
Bidding
Density estimation
Economic theory
Estimation
Estimation methods
Estimators
Parametric models
Price formation
Risk aversion
Semiparametric modeling
Studies
Timber
Utility functions
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Summary:In view of the non-identification of the first-price auction model with risk-averse bidders, this paper proposes some parametric identifying restrictions and a semiparametric estimator for the risk aversion parameter(s) and the latent distribution of private values. Specifically, we exploit heterogeneity across auctioned objects to establish semiparametric identification under a conditional quantile restriction of the bidders' private value distribution and a parametrization of the bidders' utility function. We develop a multistep semiparametric method and we show that our semiparametric estimator of the utility function parameter(s) converges at the optimal rate, which is slower than the parametric one but independent of the dimension of the exogenous variables thereby avoiding the curse of dimensionality. We then consider various extensions including a binding reserve price, affiliation among private values, and asymmetric bidders. The method is illustrated on U.S. Forest Service timber sales, and bidders' risk neutrality is rejected.
ISSN:0034-6527
1467-937X
DOI:10.1093/restud/rdq001