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Estimating risk aversion from ascending and sealed-bid auctions: the case of timber auction data

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Author Info
Lu, Jingfeng
Perrigne, Isabelle

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Abstract

Estimating bidders’ risk aversion in auctions is a challeging 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 us to recover the latent distribution of private values, while first-price sealed-bid auction data allow us 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.

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File URL: http://mpra.ub.uni-muenchen.de/948/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 948.

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Date of creation: Nov 2006
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Handle: RePEc:pra:mprapa:948

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Related research
Keywords: Risk Aversion; Nonparametric Identi.cation; Nonparametric and Semipara-metric Estimation; Timber Auctions.;

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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: General - - - Semiparametric and Nonparametric Methods

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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.
  2. Isabelle Perrigne & Quang Vuong, 2007. "Identification and Estimation of Bidders' Risk Aversion in First-Price Auctions," American Economic Review, American Economic Association, vol. 97(2), pages 444-448, May. [Downloadable!]
  3. Susan Athey & Jonathan Levin, 2001. "Information and Competition in U.S. Forest Service Timber Auctions," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 375-417, April. [Downloadable!] (restricted)
    Other versions:
  4. Jonathan Levin & Susan Athey & Enrique Seira, 2004. "Comparing Open and Sealed Bid Auctions: Theory and Evidence from Timber Auctions," Working Papers 2004.142, Fondazione Eni Enrico Mattei. [Downloadable!]
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  5. Péter Esö & Lucy White, 2004. "Precautionary Bidding in Auctions," Econometrica, Econometric Society, vol. 72(1), pages 77-92, 01. [Downloadable!] (restricted)
    Other versions:
  6. Chaudhuri, Probal, 1991. "Global nonparametric estimation of conditional quantile functions and their derivatives," Journal of Multivariate Analysis, Elsevier, vol. 39(2), pages 246-269, November. [Downloadable!] (restricted)
  7. Patrick Bajari & Ali Hortacsu, 2005. "Are Structural Estimates of Auction Models Reasonable? Evidence from Experimental Data," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 703-741, August.
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  8. Quang Vuong & Sandra Campo & Isabelle Perrigne, 2003. "Asymmetry in first-price auctions with affiliated private values," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(2), pages 179-207. [Downloadable!]
  9. Susan Athey & Philip A. Haile, 2002. "Identification of Standard Auction Models," Econometrica, Econometric Society, vol. 70(6), pages 2107-2140, November. [Downloadable!] (restricted)
  10. Palfrey, Thomas R. & Goeree, Jacob & Holt, Charles, 2000. "Quantal Response Equilibrium and Overbidding in Private-value Auctions," Working Papers 1073, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
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  11. Brendstrup, Bjarne & Paarsch, Harry J., 2006. "Identification and estimation in sequential, asymmetric, English auctions," Journal of Econometrics, Elsevier, vol. 134(1), pages 69-94, September. [Downloadable!] (restricted)
  12. 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. [Downloadable!] (restricted)
  13. Cox, James C & Smith, Vernon L & Walker, James M, 1988. " Theory and Individual Behavior of First-Price Auctions," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 61-99, March.
  14. Baldwin, Laura H & Marshall, Robert C & Richard, Jean-Francois, 1997. "Bidder Collusion at Forest Service Timber Sales," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 657-99, August.
  15. repec:att:wimass:1920013 is not listed on IDEAS
  16. 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. [Downloadable!] (restricted)
    Other versions:
  17. Thomas Palfrey, 2002. "Quantal Response Equilibrium and Overbidding in Private Value Auctions," Theory workshop papers 357966000000000089, UCLA Department of Economics. [Downloadable!]
  18. Emmanuel Guerre & Isabelle Perrigne & Quang Vuong, 2009. "Nonparametric Identification of Risk Aversion in First-Price Auctions Under Exclusion Restrictions," Econometrica, Econometric Society, vol. 77(4), pages 1193-1227, 07. [Downloadable!] (restricted)
  19. Christian Gollier, 2004. "The Economics of Risk and Time," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262572249.
  20. Powell, James L & Stock, James H & Stoker, Thomas M, 1989. "Semiparametric Estimation of Index Coefficients," Econometrica, Econometric Society, vol. 57(6), pages 1403-30, November. [Downloadable!] (restricted)
  21. Matthews, Steven, 1987. "Comparing Auctions for Risk Averse Buyers: A Buyer's Point of View," Econometrica, Econometric Society, vol. 55(3), pages 633-46, May. [Downloadable!] (restricted)
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  22. Sandra Campo ; Emmanuel Guerre ; Isabelle Perrigne ; Quang Vuong, 2003. "Semiparametric Estimation of First-price Auctions with Risk Averse Bidders," Working Papers 2003-09, Centre de Recherche en Economie et Statistique. [Downloadable!]
  23. Hansen, Robert G, 1985. "Empirical Testing of Auction Theory," American Economic Review, American Economic Association, vol. 75(2), pages 156-59, May. [Downloadable!] (restricted)
  24. Guerre, E. & Perrigne, I. & Vuong, Q., 1995. "Nonparametric Estimation of First-Price Auctions," Papers 9504, Southern California - Department of Economics.
  25. Athey, Susan & Haile, Philip A., 2007. "Nonparametric Approaches to Auctions," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 60 Elsevier. [Downloadable!] (restricted)
  26. Joris Pinkse & Guofu Tan, 2005. "The Affiliation Effect in First-Price Auctions," Econometrica, Econometric Society, vol. 73(1), pages 263-277, 01. [Downloadable!] (restricted)
  27. Maskin, Eric S & Riley, John G, 1984. "Optimal Auctions with Risk Averse Buyers," Econometrica, Econometric Society, vol. 52(6), pages 1473-1518, November. [Downloadable!] (restricted)
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