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Estimating unobserved individual heterogeneity using pairwise comparisons

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  • Krasnokutskaya, Elena
  • Song, Kyungchul
  • Tang, Xun

Abstract

We propose a new method for studying environments with unobserved individual heterogeneity. Based on model-implied pairwise inequalities, the method classifies individuals in the sample into groups defined by discrete unobserved heterogeneity with unknown support. We establish conditions under which the groups are identified and consistently estimated through our method. We show that the method performs well in finite samples through Monte Carlo simulation. We then apply the method to estimate a model of lowest-price procurement auctions with unobserved bidder heterogeneity, using data from the California highway procurement market.

Suggested Citation

  • Krasnokutskaya, Elena & Song, Kyungchul & Tang, Xun, 2022. "Estimating unobserved individual heterogeneity using pairwise comparisons," Journal of Econometrics, Elsevier, vol. 226(2), pages 477-497.
    • Handle: RePEc:eee:econom:v:226:y:2022:i:2:p:477-497
    DOI: 10.1016/j.jeconom.2020.11.009
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    Cited by:

    1. Martin Mugnier, 2022. "A Simple and Computationally Trivial Estimator for Grouped Fixed Effects Models," Papers 2203.08879, arXiv.org, revised Dec 2023.
    2. Yao Luo & Hidenori Takahashi, 2022. "Bidding for Contracts under Uncertain Demand: Skewed Bidding and Risk Sharing," Working Papers tecipa-732, University of Toronto, Department of Economics.
    3. Martin Mugnier, 2022. "Make the Difference! computationally Trivial Estimators for Grouped Fixed Effects Models," Working Papers 2022-07, Center for Research in Economics and Statistics.

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    More about this item

    Keywords

    Unobserved individual heterogeneity; Discrete unobserved heterogeneity; Pairwise comparisons; Nonparametric classification; Consistency;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models

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