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

  • Jingfeng Lu

    (Department of Economics, National University of Singapore)

  • Isabelle Perrigne

    (Department of Economics, Pennsylvania State University, University Park, Pennsylvania, USA)

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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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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  26. Marshall, R.C. & Richard J.F., 1995. "Bider Collusion at Forest Service Timber Sales," Papers 7-95-3, Pennsylvania State - Department of Economics.
  27. Emmanuel Guerre & Isabelle Perrigne & Quang Vuong, 2000. "Optimal Nonparametric Estimation of First-Price Auctions," Econometrica, Econometric Society, vol. 68(3), pages 525-574, May.
  28. 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.
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