Distinguishing Incentive from Selection Effects in Auction-Determined Contracts

Laurent Lamy, Manasa Patnam and Michael Visser
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Manasa Patnam: CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique

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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; Endogenous Matching; Polychotomous Sample Selection; Price-performance Elasticity (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-cta
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Published in Journal of Econometrics, inPress, ⟨10.1016/j.jeconom.2022.10.003⟩

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Related works:
Journal Article: 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:hal:journl:hal-03924664

DOI: 10.1016/j.jeconom.2022.10.003

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