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Semiparametric Estimation of First-Price Auctions with Risk Averse Bidders (2000)
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BibTeX
@MISC{Campo00semiparametricestimation,
author = {Sandra Campo and Isabelle Perrigne and Quang Vuong},
title = {Semiparametric Estimation of First-Price Auctions with Risk Averse Bidders},
year = {2000}
}
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Abstract
This paper proposes a semiparametric estimation procedure of the first-price auction model with risk averse bidders within the independent private values paradigm. We show that the model is nonidentified in general from observed bids. Moreover, any distribution of bids can be rationalized by an auction model with either constant relative risk aversion or constant absolute risk aversion. Thus identification of the model must be achieved through additional restrictions. We then establish semiparametric identification under a common but unknown support condition and parameterization of the bidders' utility function. Next we propose a semiparametric method for estimating the corresponding auction model using local polynomial estimators. This method involves several steps and allows to recover the parameters of the utility function as well as the bidders' private values and their distribution. An attractive computational advantage of our method is that it does not require solving the differential equation characterizing the equilibrium strategy. An illustration of the method on U.S. Forest Service timber sales is proposed. In particular, a test of bidders' risk neutrality is performed.
Keyphrases
risk averse bidder first-price auction semiparametric estimation utility function attractive computational advantage local polynomial estimator equilibrium strategy corresponding auction model observed bid constant relative risk aversion differential equation semiparametric estimation procedure private value semiparametric identification unknown support condition additional restriction auction model u.s. forest service timber sale independent private value semiparametric method thus identification constant absolute risk aversion several step risk neutrality first-price auction model
