Estimating risk aversion from ascending and sealed-bid auctions: the case of timber auction data

Jingfeng Lu and Isabelle Perrigne
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Isabelle Perrigne: Department of Economics, Pennsylvania State University, University Park, Pennsylvania, USA, Postal: Department of Economics, Pennsylvania State University, University Park, Pennsylvania, USA

Journal of Applied Econometrics, 2008, vol. 23, issue 7, 871-896

Abstract: Estimating bidders' risk aversion in auctions is a challenging problem because of identification issues. This paper takes advantage of bidding data from two auction designs to identify nonparametrically the bidders' utility function within a private value framework. In particular, ascending auction data allow one to recover the latent distribution of private values, while first-price sealed-bid auction data allow one to recover the bidders' utility function. This leads to a nonparametric estimator. An application to the US Forest Service timber auctions is proposed. Estimated utility functions display concavity, which can be partly captured by constant relative risk aversion. Copyright © 2008 John Wiley & Sons, Ltd.

Date: 2008
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Related works:
Working Paper: Estimating risk aversion from ascending and sealed-bid auctions: the case of timber auction data (2006)
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DOI: 10.1002/jae.1032

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