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Identification and Estimation of Risk Aversion in First Price Auctions With Unobserved Auction Heterogeneity

Serafin J. Grundl and Yu Zhu

No 2015-89, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We extent the point-identification result in Guerre, Perrigne, and Vuong (2009) to environments with one-dimensional unobserved auction heterogeneity. In addition, we also show a robustness result for the case where the exclusion restriction used for point identification is violated: We provide conditions to ensure that the primitives recovered under the violated exclusion restriction still bound the true primitives in this case. We propose a new Sieve Maximum Likelihood Estimator, show its consistency and illustrate its finite sample performance in a Monte Carlo experiment. We investigate the bias in risk aversion estimates if unobserved auction heterogeneity is ignored and explain why the sign of the bias depends on the correlation between the number of bidders and the unobserved auction heterogeneity. In an application to USFS timber auctions we find that the bidders are risk neutral, but we would reject risk neutrality without accounting for unobserved auction heterogeneity.

Keywords: Estimation; First Price Auction; Identification; Risk Aversion; Unobserved Heterogeneity (search for similar items in EconPapers)
Pages: 59 pages
Date: 2015-09-29
New Economics Papers: this item is included in nep-ecm and nep-upt
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http://www.federalreserve.gov/econresdata/feds/2015/files/2015089pap.pdf Full text (application/pdf)
http://dx.doi.org/10.17016/FEDS.2015.089 http://dx.doi.org/10.17016/FEDS.2015.089 (application/pdf)

Related works:
Journal Article: Identification and estimation of risk aversion in first-price auctions with unobserved auction heterogeneity (2019) Downloads
Working Paper: Identification and Estimation of Risk Aversion in First-Price Auctions with Unobserved Auction Heterogeneity (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2015-89

DOI: 10.17016/FEDS.2015.089

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