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Inference with an Incomplete Model of English Auctions

  • Philip A. Haile
  • Elie Tamer

While English auctions are the most common in practice, their rules typically lack sufficient structure to yield a tractable theoretical model without significant abstractions. Rather than relying on one stylized model to provide an exact interpretation of the data, we explore an incomplete model based on two simple assumptions: bidders neither bid more than their valuations nor let an opponent win at a price they would be willing to beat. Focusing on the symmetric independent private values paradigm, we show that this limited structure enables construction of informative bounds on the distribution function characterizing bidder demand, on the optimal reserve price, and on the effects of observable covariates on bidder valuations. If the standard theoretical model happens to be the true model, our bounds collapse to the true features of interest. In contrast, when the true dataâ€generating process deviates in seemingly small ways from that implied by equilibrium in the standard theoretical model, existing methods can yield misleading results that need not even lie within our bounds. We report results from Monte Carlo experiments illustrating the performance of our approach and comparing it to others. We apply our approach to U.S. Forest Service timber auctions to evaluate reserve price policy.

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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 111 (2003)
Issue (Month): 1 (February)
Pages: 1-51

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Handle: RePEc:ucp:jpolec:v:111:y:2003:i:1:p:1-51
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  1. John G. Riley & William Samuelson, 1979. "Optimal Auctions," UCLA Economics Working Papers 152, UCLA Department of Economics.
  2. Donald, S.G. & Paarsch, H.J., 1993. "Identification, Estimation, and Testing in Empirical Models of Auction Within the Independent Private Values Paradigm," UWO Department of Economics Working Papers 9319, University of Western Ontario, Department of Economics.
  3. Charles F. Manski & Elie Tamer, 2002. "Inference on Regressions with Interval Data on a Regressor or Outcome," Econometrica, Econometric Society, vol. 70(2), pages 519-546, March.
  4. Neeman, Z., 1998. "The Effectiveness of Simple Auctions," Papers 95, Boston University - Department of Economics.
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  6. Levin, Jonathan & Athey, Susan, 2001. "Information and Competition in U.S. Forest Service Timber Auctions," Scholarly Articles 3612768, Harvard University Department of Economics.
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