Distinguishing incentive from selection effects in auction-determined contracts

Laurent Lamy, Manasa Patnam and Michael Visser

Journal of Econometrics, 2023, vol. 235, issue 2, 1172-1202

Abstract: This paper develops a novel approach to estimate how contract and principal–agent characteristics influence a post-auction outcome when the matching between agents and principals derives from an auction process. We propose a control-function approach to account jointly for the endogeneity of contracts and matching. This consists of, first, estimating the primitives of an interdependent values auction model – which is shown to be non-parametrically identified from the bidding data – second, constructing control functions based on the distribution of the unobserved private signals conditional on the auction outcome. A Monte Carlo study shows that our augmented outcome equation corrects the endogeneity biases well, even in small samples. We apply our methodology to a labor market application and estimate the effect of sports players’ auction-determined wages on their individual performances. We also use our structural estimates to evaluate the strength of matching inefficiencies and assess counterfactual reservation wage policies.

Keywords: Econometrics of auctions; Econometrics of contracts; Endogenous matching; Polychotomous sample selection; Price-performance elasticity (search for similar items in EconPapers)
JEL-codes: C34 C57 D44 M52 Z22 (search for similar items in EconPapers)
Date: 2023
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Related works:
Working Paper: Distinguishing Incentive from Selection Effects in Auction-Determined Contracts (2023)
Working Paper: Distinguishing Incentive from Selection Effects in Auction-Determined Contracts (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:235:y:2023:i:2:p:1172-1202

DOI: 10.1016/j.jeconom.2022.10.003

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