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Abstract

Estimating bidders' risk aversion in auctions is a challenging problem because of identification issues. This paper takes advantage of bidding data from two auction designs to identify nonparametrically the bidders' utility function within a private value framework. In particular, ascending auction data allow one to recover the latent distribution of private values, while first-price sealed-bid auction data allow one to recover the bidders' utility function. This leads to a nonparametric estimator. An application to the US Forest Service timber auctions is proposed. Estimated utility functions display concavity, which can be partly captured by constant relative risk aversion. Copyright © 2008 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.1032
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 23 (2008)
Issue (Month): 7 ()
Pages: 871-896

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Handle: RePEc:jae:japmet:v:23:y:2008:i:7:p:871-896

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Find related papers by JEL classification:

• D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
• C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

References

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1. Emmanuel Guerre & Isabelle Perrigne & Quang Vuong, 2000. "Optimal Nonparametric Estimation of First-Price Auctions," Econometrica, Econometric Society, vol. 68(3), pages 525-574, May.
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   • Levin, Jonathan & Athey, Susan, 2001. "Information and Competition in U.S. Forest Service Timber Auctions," Scholarly Articles 3612768, Harvard University Department of Economics.
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Cited by:

1. Xin An & Shulin Liu & Shuo Xu, 2011. "Piecewise Pseudo-Maximum Likelihood Estimation for Risk Aversion Case in First-Price Sealed-Bid Auction," Computational Economics, Society for Computational Economics, vol. 38(4), pages 439-463, November.
2. 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.

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