A menu of paired lottery choices is structured so that the crossover point to the high-risk lottery can be used to infer the degree of risk aversion. With "normal " laboratory payoffs of several dollars, most subjects are risk averse and few are risk loving. Scaling up all payoffs by factors of twenty, fifty, and ninety makes little difference when the high payoffs are hypothetical. In contrast, subjects become sharply more risk averse when the high payoffs are actually paid in cash. A hybrid “power/expo ” utility function with increasing relative and decreasing absolute risk aversion nicely replicates the data patterns over this range of payoffs from several dollars to several hundred dollars.

Procurement contracts are often renegotiated because of changes that are required after their execution. Using highway paving contracts we show that renegotiation imposes significant adaptation costs. Reduced form regressions suggest that bidders respond strategically to contractual incompleteness and that adaptation costs are an important determinant of their bids. A structural empirical model compares adaptation costs to bidder markups and shows that adaptation costs account for 8-14 percent of the winning bid. Markups from private information and market power, the focus of much of the auctions literature, are much smaller by comparison. Implications for government procurement are discussed.

Recently, economists have developed methods for structural estimation of auction models. Many researchers object to these methods because they find the rationality assumptions used in these models to be implausible. In this paper, we explore whether structural auction models can generate reasonable estimates of bidders’ private information. Using bid data from auction experiments, we estimate four alternative structural models of bidding in first-price sealed-bid auctions: 1) risk neutral Bayes-Nash, 2) risk averse Bayes-Nash, 3) a model of learning and 4) a quantal response model of bidding. For each model, we compare the estimated valuations and the valuations assigned to bidders in the experiments. We find that a slight modification of Guerre, Perrigne and Vuong’s (2000) procedure for estimating the risk neutral Bayes-Nash model to allow for bidder asymmetries generates quite reasonable estimates of the structural parameters.

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This paper studies experimentally how information about rivals’ types affects bidding behavior in first- and second-price auctions. The comparative static hypotheses associated with information about rivals enables us to test the relevance of such information as well as of the auction theory in general, by providing an effective means to control for risk aversion and other behavioral motives that were difficult to control for in previous experiments. Our experimental evidence provides strong support for the theory, and sheds light on the roles of risk aversion and the spite motive in first- and second-price auctions, respectively.

We develop a nonparametric approach that allows one to discriminate among alter-native models of entry in …rst-price auctions. Three models of entry are considered: Levin and Smith (1994), Samuelson (1985), and a new model in which the informa-tion received at the entry stage is imperfectly correlated with valuations. We derive testable restrictions that these three models impose on the quantiles of active bidders valuations, and develop nonparametric tests of these restrictions. We implement the tests on a dataset of highway procurement auctions in Oklahoma. Depending on the project size, we …nd no support for the Samuelson model, some support for the Levin and Smith model, and somewhat more support for the new model. 1

Theoretical models predict asymmetric information in health insurance markets may generate inefficient outcomes due to adverse selection and moral hazard. However, previous empirical research has found it difficult to disentangle adverse selection from moral hazard in health care. We empirically study this question by using confidential data from the Health and Retirement Study to estimate a structural model of the demand for health insurance and medical care. We propose a two-step semi-parametric estimation strategy that builds on the work on identification and estimation of auction models. We find significant evidence of moral hazard, but not of adverse selection. We have benefited from the comments of Amy Finkelstein and participants of the Conference on Structural

We analyze bidding behavior in auctions when risk-averse buyers bid for a good whose value is risky. We show that when the risk in the valuations increases, DARA bidders will reduce their bids by more than the appropriate increase in the risk premium. Ceteris paribus, buyers will be better off bidding for a more risky object in first price, second price, and English auctions with affiliated common (interdependent) values. This “precautionary bidding ” effect arises because the expected marginal utility of income increases with risk, so buyers are reluctant to bid so highly. We also show that precautionary bidding behavior can make DARA bidders prefer bidding in a common values setting to bidding in a private values one when risk-neutral or CARA bidders would be indifferent. Thus the potential for a “winner’s curse ” can be a blessing for rational DARA bidders.

The structural parameters of a share-auction model accounting for asymmetry across bidders, as well as supply uncertainty are estimated with a sample of French Treasury auctions. We find evidence of both informational and risk aversion asymmetries between bidders. A counter-factual analysis also suggests that, in the context of the French Treasury auctions, a shift from the discriminatory to the uniform-price format would simultaneously benefit the French Treasury and the auctions ’ participants.

This paper analyses first-price sealed-bid auctions of standing timber organized by the FrenchForest Service, Office National des Forests #ONF#. A particular feature of these auctions is that they are held with a random reserve price. We consider an auction model with a random reserve price within the independent private value paradigm. After establishing the identification of the model, we estimate the underlying bidders' private values distribution by using a simple two-step nonparametric procedure. This procedure allows the computation of the winners' informational rents as well as the optimal reserve price. We then simulate a first-price sealed-bid auction with the optimal announced reserve price. Empirical results show that the optimal reserve price allows the ONF to extract more of bidders' willingnesses-to-pay. Moreover, our results show that both sales and profits for the ONF would signi#cantly increase though less timber would be sold through these auctions. In particula...