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Identification and Estimation of Auction Models with Unobserved Heterogeneity

  • Elena Krasnokutskaya
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    In many procurement auctions, the bidders' unobserved costs depend both on a common shock and on idiosyncratic private information. Assuming a multiplicative structure, I derive sufficient conditions under which the model is identified and propose a non-parametric estimation procedure that results in uniformly consistent estimators of the cost components' distributions. The estimation procedure is applied to data from Michigan highway procurement auctions. Private information is estimated to account for 34% of the variation in bidders' costs. It is shown that accounting for unobserved auction heterogeneity has important implications for the evaluation of the distribution of rents, efficiency, and optimal auction design. Copyright 2011, Oxford University Press.

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    File URL: http://hdl.handle.net/10.1093/restud/rdq004
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    Article provided by Oxford University Press in its journal The Review of Economic Studies.

    Volume (Year): 78 (2011)
    Issue (Month): 1 ()
    Pages: 293-327

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    Handle: RePEc:oup:restud:v:78:y:2011:i:1:p:293-327
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