Estimating unobserved individual heterogeneity using pairwise comparisons

Elena Krasnokutskaya, Kyungchul Song and Xun Tang

Journal of Econometrics, 2022, vol. 226, issue 2, 477-497

Abstract: We propose a new method for studying environments with unobserved individual heterogeneity. Based on model-implied pairwise inequalities, the method classifies individuals in the sample into groups defined by discrete unobserved heterogeneity with unknown support. We establish conditions under which the groups are identified and consistently estimated through our method. We show that the method performs well in finite samples through Monte Carlo simulation. We then apply the method to estimate a model of lowest-price procurement auctions with unobserved bidder heterogeneity, using data from the California highway procurement market.

Keywords: Unobserved individual heterogeneity; Discrete unobserved heterogeneity; Pairwise comparisons; Nonparametric classification; Consistency (search for similar items in EconPapers)
JEL-codes: C12 C21 C31 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:226:y:2022:i:2:p:477-497

DOI: 10.1016/j.jeconom.2020.11.009

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