Identification and Inference in First-Price Auctions with Risk Averse Bidders and Selective Entry

Xiaohong Chen (), Matthew Gentry, Tong Li and Jingfeng Lu
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Xiaohong Chen: Cowles Foundation, Yale University, https://economics.yale.edu/people/faculty/xiaohong-chen

No 2257, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We study identification and inference in first-price auctions with risk averse bidders and selective entry, building on a flexible entry and bidding framework we call the Affiliated Signal with Risk Aversion (AS-RA) model. Assuming that the econometrician observes either exogenous variation in the number of potential bidders (N) or a continuous instrument (z) shifting opportunity costs of entry, we provide a sharp characterization of the nonparametric restrictions implied by equilibrium bidding. Given variation in either competition or costs, this characterization implies that risk neutrality is nonparametrically testable in the sense that if bidders are strictly risk averse, then no risk neutral model can rationalize the data. In addition, if both instruments (discrete N and continuous z) are available, then the model primitives are nonparametrically point identified. We then explore inference based on these identification results, focusing on set inference and testing when primitives are set identified. Keywords: Auctions, entry, risk aversion, identification, set inference.

Keywords: Auctions; Entry; Risk aversion; Identification; Set inference (search for similar items in EconPapers)
JEL-codes: C57 D44 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2020-09
New Economics Papers: this item is included in nep-des, nep-ecm and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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