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

  • Lu, Jingfeng
  • Perrigne, Isabelle

Estimating bidders’ risk aversion in auctions is a challeging 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 us to recover the latent distribution of private values, while first-price sealed-bid auction data allow us 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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 948.

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Date of creation: Nov 2006
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Handle: RePEc:pra:mprapa:948
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  1. Athey,S. & Haile,P.A., 2000. "Identification of standard auction models," Working papers 13, Wisconsin Madison - Social Systems.
  2. Esö, Péter & White, Lucy, 2003. "Precautionary Bidding in Auctions," CEPR Discussion Papers 3975, C.E.P.R. Discussion Papers.
  3. Maskin, Eric S & Riley, John G, 1984. "Optimal Auctions with Risk Averse Buyers," Econometrica, Econometric Society, vol. 52(6), pages 1473-1518, November.
  4. Hansen, Robert G, 1986. "Sealed-Bid versus Open Auctions: The Evidence," Economic Inquiry, Western Economic Association International, vol. 24(1), pages 125-42, January.
  5. Emmanuel Guerre & Isabelle Perrigne & Quang Vuong, 2000. "Optimal Nonparametric Estimation of First-Price Auctions," Econometrica, Econometric Society, vol. 68(3), pages 525-574, May.
  6. Susan Athey & Jonathan Levin, 1999. "Information and Competition in U.S. Forest Service Timber Auctions," NBER Working Papers 7185, National Bureau of Economic Research, Inc.
  7. Joris Pinkse & Guofu Tan, 2005. "The Affiliation Effect in First-Price Auctions," Econometrica, Econometric Society, vol. 73(1), pages 263-277, 01.
  8. Guerre, E. & Perrigne, I. & Vuong, Q., 1995. "Nonparametric Estimation of First-Price Auctions," Papers 9504, Southern California - Department of Economics.
  9. Susan Athey & Jonathan Levin & Enrique Seira, 2008. "Comparing Open and Sealed Bid Auctions: Evidence from Timber Auctions," Discussion Papers 08-012, Stanford Institute for Economic Policy Research.
  10. Christian Gollier, 2004. "The Economics of Risk and Time," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262572249, June.
  11. Hansen, Robert G, 1985. "Empirical Testing of Auction Theory," American Economic Review, American Economic Association, vol. 75(2), pages 156-59, May.
  12. Chaudhuri, Probal, 1991. "Global nonparametric estimation of conditional quantile functions and their derivatives," Journal of Multivariate Analysis, Elsevier, vol. 39(2), pages 246-269, November.
  13. Jacob K. Goeree & Charles A. Holt & Thomas R. Palfrey, 2000. "Quantal Response Equilibrium and Overbidding in Private-Value Auctions," Virginia Economics Online Papers 345, University of Virginia, Department of Economics.
  14. Cox, James C & Smith, Vernon L & Walker, James M, 1988. " Theory and Individual Behavior of First-Price Auctions," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 61-99, March.
  15. Susan Athey & Jonathan Levin & Enrique Seira, 2004. "Comparing Open and Sealed Bid Auctions: Theory and Evidence from Timber Auctions," Levine's Bibliography 122247000000000524, UCLA Department of Economics.
  16. Athey, Susan & Haile, Philip A., 2007. "Nonparametric Approaches to Auctions," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 60 Elsevier.
  17. Steven A. Matthews, 1985. "Comparing Auctions for Risk Averse Buyers: A Buyer's Pointof View," Discussion Papers 664R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  18. Patrick Bajari & Ali Hortacsu, 2003. "Are Structural Estimates of Auction Models Reasonable? Evidence from Experimental Data," NBER Working Papers 9889, National Bureau of Economic Research, Inc.
  19. Brendstrup, Bjarne & Paarsch, Harry J., 2006. "Identification and estimation in sequential, asymmetric, English auctions," Journal of Econometrics, Elsevier, vol. 134(1), pages 69-94, September.
  20. Sandra Campo & Emmanuel Guerre & Isabelle Perrigne & Quang Vuong, 2003. "Semiparametric Estimation of First-price Auctions with Risk Averse Bidders," Working Papers 2003-09, Centre de Recherche en Economie et Statistique.
  21. repec:att:wimass:9702 is not listed on IDEAS
  22. Baldwin, Laura H & Marshall, Robert C & Richard, Jean-Francois, 1997. "Bidder Collusion at Forest Service Timber Sales," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 657-99, August.
  23. Philip A. Haile & Elie Tamer, 2003. "Inference with an Incomplete Model of English Auctions," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 1-51, February.
  24. Quang Vuong & Sandra Campo & Isabelle Perrigne, 2003. "Asymmetry in first-price auctions with affiliated private values," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(2), pages 179-207.
  25. Powell, James L & Stock, James H & Stoker, Thomas M, 1989. "Semiparametric Estimation of Index Coefficients," Econometrica, Econometric Society, vol. 57(6), pages 1403-30, November.
  26. Thomas Palfrey, 2002. "Quantal Response Equilibrium and Overbidding in Private Value Auctions," Theory workshop papers 357966000000000089, UCLA Department of Economics.
  27. Philip A. Haile, 2001. "Auctions with Resale Markets: An Application to U.S. Forest Service Timber Sales," American Economic Review, American Economic Association, vol. 91(3), pages 399-427, June.
  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.
  29. Quang Vuong & Isabelle Perrigne, 2007. "Identification and Estimation of Bidders' Risk Aversion in First-Price Auctions," American Economic Review, American Economic Association, vol. 97(2), pages 444-448, May.
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