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Nonparametric Identification of Risk Aversion in First-Price Auctions Under Exclusion Restrictions

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  • Emmanuel Guerre
  • Isabelle Perrigne
  • Quang Vuong
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    Abstract

    This paper studies the nonparametric identification of the first-price auction model with risk averse bidders within the private value paradigm. First, we show that the benchmark model is nonindentified from observed bids. We also derive the restrictions imposed by the model on observables and show that these restrictions are weak. Second, we establish the nonparametric identification of the bidders' utility function under exclusion restrictions. Our primary exclusion restriction takes the form of an exogenous bidders' participation, leading to a latent distribution of private values that is independent of the number of bidders. The key idea is to exploit the property that the bid distribution varies with the number of bidders while the private value distribution does not. We then extend these results to endogenous bidders' participation when the exclusion restriction takes the form of instruments that do not affect the bidders' private value distribution. Though derived for a benchmark model, our results extend to more general cases such as a binding reserve price, affiliated private values, and asymmetric bidders. Last, possible estimation methods are proposed. Copyright 2009 The Econometric Society.

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    Bibliographic Info

    Article provided by Econometric Society in its journal Econometrica.

    Volume (Year): 77 (2009)
    Issue (Month): 4 (07)
    Pages: 1193-1227

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    Handle: RePEc:ecm:emetrp:v:77:y:2009:i:4:p:1193-1227

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    Cited by:
    1. Jingfeng Lu & Isabelle Perrigne, 2008. "Estimating risk aversion from ascending and sealed-bid auctions: the case of timber auction data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(7), pages 871-896.
    2. Gaurab Aryal & Isabelle Perrigne & Quang Vuong, 2011. "Nonidentification of Insurance Models with Probability of Accidents," ANU Working Papers in Economics and Econometrics 2011-552, Australian National University, College of Business and Economics, School of Economics.
    3. Hanming Fang & Xun Tang, 2011. "Inference of Bidders’ Risk Attitudes in Ascending Auctions with Endogenous Entry, Second Version," PIER Working Paper Archive 12-016, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 17 Apr 2012.
    4. Xavier d'Haultfoeuille & Philippe Février, 2010. "Identification of a Class of Adverse Selection Models with Contracts Variation," Working Papers 2011-27, Centre de Recherche en Economie et Statistique.
    5. Yingyao Hu & Matthew Shum, 2007. "Estimating First-Price Auctions with an Unknown Number of Bidders: A Misclassification Approach," Economics Working Paper Archive 541, The Johns Hopkins University,Department of Economics.
    6. Xavier d'Haultfoeuille & Philippe Février, 2011. "The Provision of Wage Incentives : A Structural Estimation Using Contracts Variation," Working Papers 2011-29, Centre de Recherche en Economie et Statistique.
    7. Xavier d'Haultfoeuille & Philippe Février, 2011. "Identification of Nonseparable Modes with Endogeneity and Discrete Instruments," Working Papers 2011-28, Centre de Recherche en Economie et Statistique.
    8. Marmer, Vadim & Shneyerov, Artyom & Xu, Pai, 2007. "What Model for Entry in First-Price Auctions? A Nonparametric Approach," Microeconomics.ca working papers marmer-07-11-22-02-26-44, Vancouver School of Economics, revised 18 Feb 2011.
    9. Gaurab Aryal & Isabelle Perrigne & Quang Vuong, 2011. "Identification of Insurance Models with Multidimensional Screening," ANU Working Papers in Economics and Econometrics 2011-538, Australian National University, College of Business and Economics, School of Economics.
    10. Cherchye, Laurens & Demuynck, Thomas & De Rock, Bram, 2013. "The empirical content of Cournot competition," Journal of Economic Theory, Elsevier, vol. 148(4), pages 1552-1581.
    11. Emmanuel Guerre & Camille Sabbah, 2009. "Uniform Bias Study and Bahadur Representation for Local Polynomial Estimators of the Conditional Quantile Function," Working Papers 648, Queen Mary, University of London, School of Economics and Finance.
    12. Marmer, Vadim & Shneyerov, Artyom, 2008. "Quantile-Based Nonparametric Inference for First-Price Auctions," Microeconomics.ca working papers marmer-08-01-17-12-16-12, Vancouver School of Economics, revised 16 May 2013.
    13. Lamy, Laurent, 2012. "The econometrics of auctions with asymmetric anonymous bidders," Journal of Econometrics, Elsevier, vol. 167(1), pages 113-132.
    14. A. Banerji & Neha Gupta, 2011. "Do Auction Bids Betray Expectations-Based Reference Dependent Preferences? A Test, Experimental Evidence, And Estimates Of Loss Aversion," Working papers 206, Centre for Development Economics, Delhi School of Economics.

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