Distinguishing incentive from selection effects in auction-determined contracts

Laurent Lamy (), Manasa Patnam () and Michael Visser ()
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Laurent Lamy: CIRED - Centre International de Recherche sur l'Environnement et le Développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École nationale des ponts et chaussées - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique
Manasa Patnam: International Monetary Fund (IMF)
Michael Visser: 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; Econometrics of contracts; Endogenous matching; Polychotomous sample selection; Price-performance elasticity (search for similar items in EconPapers)
Date: 2023-08
Note: View the original document on HAL open archive server: https://hal.science/hal-04382099v1
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Published in Journal of Econometrics, 2023, 235 (2), pp.1172-1202. ⟨10.1016/j.jeconom.2022.10.003⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04382099

DOI: 10.1016/j.jeconom.2022.10.003

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