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Distinguishing Incentive from Selection Effects in Auction-Determined Contracts

Author

Listed:
  • Laurent LAMY

    (CIRED, Ecole des Ponts, ParisTech.)

  • Manasa PATNAM

    (IMF.)

  • Michael VISSER

    (CREST; ENSAE; CRED, University of Paris 2.)

Abstract

This paper develops a novel approach to estimate how contract and principal-agent characteristics influence an ex-post performance outcome when the matching between agents and principals derives from an auction process. We propose a control-function approach to account for the endogeneity of contracts and matching. This consists of, first, estimating the primitives of an interdependent values auction model - which is shown to be non-parametrically identified from the bidding data - second, constructing control functions based on the distribution of the unobserved private signals conditional on the auction outcome. A Monte Carlo study shows that our augmented outcome equation corrects well of the endogeneity biases, even in small samples. We apply our methodology to a labor market application: we estimate the effect of sports players’ auction-determined wages on their individual performance.

Suggested Citation

  • Laurent LAMY & Manasa PATNAM & Michael VISSER, 2019. "Distinguishing Incentive from Selection Effects in Auction-Determined Contracts," Working Papers 2019-15, Center for Research in Economics and Statistics.
  • Handle: RePEc:crs:wpaper:2019-15
    as

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    References listed on IDEAS

    as
    1. Philippe Jehiel & Laurent Lamy, 2020. "On the Benefits of Set-Asides," Journal of the European Economic Association, European Economic Association, vol. 18(4), pages 1655-1696.
    2. Dubin, Jeffrey A & McFadden, Daniel L, 1984. "An Econometric Analysis of Residential Electric Appliance Holdings and Consumption," Econometrica, Econometric Society, vol. 52(2), pages 345-362, March.
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    6. Lamy, Laurent & Patnam, Manasa & Visser, Michael, 2016. "Correcting for Sample Selection From Competitive Bidding, with an Application to Estimating the Effect of Wages on Performance," CEPR Discussion Papers 11376, C.E.P.R. Discussion Papers.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Econometrics of Contracts; Econometrics of Auctions; Structural Econometrics; Endogenous Matching; Polychotomous Sample Selection; Wage-Performance Elasticity.;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C29 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Other
    • C57 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Econometrics of Games and Auctions
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • Z22 - Other Special Topics - - Sports Economics - - - Labor Issues

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