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Estimating Auctions with Externalities: The Case of USFS Timber Auctions

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  • Joseph Kuehn

    (CSU East Bay)

Abstract

I introduce an empirical auction model where in addition to the private value that each bidder receives upon winning the auction, losing bidders incur a negative externality that depends on the identity of the rival winner. I show how the externalities and private value distributions can be identified and estimated in such a model. I then apply the model to U.S. Forest Service timber auctions. I find that mill bidders impose significant externalities on one another of between 10% and 22% of the heterogeneous portion of their valuation. This leads the timber tracts to be misallocated in 5.2% of the auctions in my sample.

Suggested Citation

  • Joseph Kuehn, 2019. "Estimating Auctions with Externalities: The Case of USFS Timber Auctions," The Review of Economics and Statistics, MIT Press, vol. 101(5), pages 791-807, December.
    • Handle: RePEc:tpr:restat:v:101:y:2019:i:5:p:791-807
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    1. Philip A. Haile & Han Hong & Matthew Shum, 2003. "Nonparametric Tests for Common Values in First-Price Sealed-Bid Auctions," Cowles Foundation Discussion Papers 1445, Cowles Foundation for Research in Economics, Yale University.
    2. Yao Luo & Yuanyuan Wan, 2018. "Integrated-Quantile-Based Estimation for First-Price Auction Models," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 36(1), pages 173-180, January.
    3. Gopal Das Varma, 2002. "Standard Auctions with Identity-Dependent Externalities," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 689-708, Winter.
    4. Philip A. Haile, 2001. "Auctions with Resale Markets: An Application to U.S. Forest Service Timber Sales," American Economic Review, American Economic Association, vol. 91(3), pages 399-427, June.
    5. Susan Athey & Jonathan Levin & Enrique Seira, 2011. "Comparing open and Sealed Bid Auctions: Evidence from Timber Auctions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 207-257.
    6. Elena Krasnokutskaya, 2011. "Identification and Estimation of Auction Models with Unobserved Heterogeneity," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 78(1), pages 293-327.
    7. Philip A. Haile & Elie Tamer, 2003. "Inference with an Incomplete Model of English Auctions," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 1-51, February.
    8. Philippe Jehiel & Benny Moldovanu, 1996. "Strategic Nonparticipation," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 84-98, Spring.
    9. Matt Shum & Phil Haile & Han Hong, 2003. "Nonparametric Tests for Common Values in First-Price Auctions," Economics Working Paper Archive 501, The Johns Hopkins University,Department of Economics.
    10. Jehiel, Philippe & Moldovanu, Benny & Stacchetti, Ennio, 1999. "Multidimensional Mechanism Design for Auctions with Externalities," Journal of Economic Theory, Elsevier, vol. 85(2), pages 258-293, April.
    11. 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.
    12. Aryal, Gaurab & Grundl, Serafin & Kim, Dong-Hyuk & Zhu, Yu, 2018. "Empirical relevance of ambiguity in first-price auctions," Journal of Econometrics, Elsevier, vol. 204(2), pages 189-206.
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    Cited by:

    1. Michele Fioretti & Jorge Tamayo, 2021. "Saving for a Dry Day: Coal, Dams, and the Energy Transition," Working Papers hal-03389152, HAL.
    2. Norbäck, Pehr-Johan & Persson, Lars & Svensson, Roger, 2017. "Verifying High Quality: Entry for Sale," Working Paper Series 1186, Research Institute of Industrial Economics.
    3. repec:hal:spmain:info:hdl:2441/1qif9fqehq930ovnr511k1el4f is not listed on IDEAS
    4. repec:hal:wpspec:info:hdl:2441/1qif9fqehq930ovnr511k1el4f is not listed on IDEAS

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    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L73 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Forest Products

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