Estimating Unobserved Individual Heterogeneity Using Pairwise Comparisons

Elena Krasnokutskaya (), Kyungchul Song and Xun Tang

Papers from arXiv.org

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.

Date: 2019-08, Revised 2020-11
New Economics Papers: this item is included in nep-ecm
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