Identification and Estimation of Risk Aversion in First-Price Auctions with Unobserved Auction Heterogeneity

Serafin Grundl and Yu Zhu

Staff Working Papers from Bank of Canada

Abstract: This paper shows point identification in first-price auction models with risk aversion and unobserved auction heterogeneity by exploiting multiple bids from each auction and variation in the number of bidders. The required exclusion restriction is shown to be consistent with a large class of entry models. If the exclusion restriction is violated, but weaker restrictions hold instead, the same identification strategy still yields valid bounds for the primitives. We propose a sieve maximum likelihood estimator. A series of Monte Carlo experiments illustrate that the estimator performs well in finite samples and that ignoring unobserved auction heterogeneity can lead to a significant bias in risk-aversion estimates. In an application to U.S. Forest Service timber auctions we find that the bidders are risk neutral, but we would reject risk neutrality without accounting for unobserved auction heterogeneity.

Keywords: Econometric; and; statistical; methods (search for similar items in EconPapers)
JEL-codes: C14 C57 D44 L00 (search for similar items in EconPapers)
Pages: 70 pages
Date: 2016
New Economics Papers: this item is included in nep-pr~, nep-ore and nep-upt
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.bankofcanada.ca/wp-content/uploads/2016/05/swp2016-23.pdf

Related works:
Journal Article: Identification and estimation of risk aversion in first-price auctions with unobserved auction heterogeneity (2019)
Working Paper: Identification and Estimation of Risk Aversion in First Price Auctions With Unobserved Auction Heterogeneity (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:16-23

Access Statistics for this paper

More papers in Staff Working Papers from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by ().