Nonparametric identification of risk aversion in first-price auctions under exclusion restrictions

Emmanuel Guerre, Isabelle Perrigne, Quang Vuong

    Research output: Contribution to journalArticle

    Abstract

    This paper studies the nonparametric identification of the first-price auction model with risk averse bidders within the private value paradigm. First, we show that the benchmark model is nonindentified from observed bids. We also derive the restrictions imposed by the model on observables and show that these restrictions are weak. Second, we establish the nonparametric identification of the bidders' utility function under exclusion restrictions. Our primary exclusion restriction takes the form of an exogenous bidders' participation, leading to a latent distribution of private values that is independent of the number of bidders. The key idea is to exploit the property that the bid distribution varies with the number of bidders while the private value distribution does not. We then extend these results to endogenous bidders' participation when the exclusion restriction takes the form of instruments that do not affect the bidders' private value distribution. Though derived for a benchmark model, our results extend to more general cases such as a binding reserve price, affiliated private values, and asymmetric bidders. Last, possible estimation methods are proposed.

    Original languageEnglish (US)
    Pages (from-to)1193-1227
    Number of pages35
    JournalEconometrica
    Volume77
    Issue number4
    DOIs
    StatePublished - Jul 2009

    Fingerprint

    Risk aversion
    Nonparametric identification
    Exclusion
    Private values
    First-price auction
    Participation
    Benchmark
    Bid
    Risk-averse
    Utility function
    Asymmetric bidders
    Reserve price
    Paradigm

    Keywords

    • Exclusion restrictions
    • Nonparametric identification
    • Private value
    • Risk aversion

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    Nonparametric identification of risk aversion in first-price auctions under exclusion restrictions. / Guerre, Emmanuel; Perrigne, Isabelle; Vuong, Quang.

    In: Econometrica, Vol. 77, No. 4, 07.2009, p. 1193-1227.

    Research output: Contribution to journalArticle

    Guerre, Emmanuel ; Perrigne, Isabelle ; Vuong, Quang. / Nonparametric identification of risk aversion in first-price auctions under exclusion restrictions. In: Econometrica. 2009 ; Vol. 77, No. 4. pp. 1193-1227.
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