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Risk aversion and asymmetry in procurement auctions: Identification, estimation and application to construction procurements

  • Campo, Sandra
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    This article studies a model of asymmetric risk averse bidding within the independent private value paradigm. The inherent asymmetry in cost and risk aversion imposes an original restriction on the observed bid data, an exact equality which leads to the model semiparametric identification and estimation. The unobserved arguments of this equality need to be simulated in order to estimate the bidders’ Constant Relative Risk Aversion or Constant Absolute Risk Aversion parameters and their heterogeneous cost distributions. In the Los Angeles City Hall construction contracts offered between 1994 and 2003, the model and methodology help reveal that financial asymmetries affect the firms’ cost distribution, while experience influences their degree of risk aversion.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0304407611001746
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    Article provided by Elsevier in its journal Journal of Econometrics.

    Volume (Year): 168 (2012)
    Issue (Month): 1 ()
    Pages: 96-107

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    Handle: RePEc:eee:econom:v:168:y:2012:i:1:p:96-107
    Contact details of provider: Web page: http://www.elsevier.com/locate/jeconom

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    9. 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.
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