Premium
Nonparametric Identification of Risk Aversion in First‐Price Auctions Under Exclusion Restrictions
Author(s) -
Guerre Emmanuel,
Perrigne Isabelle,
Vuong Quang
Publication year - 2009
Publication title -
econometrica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 16.7
H-Index - 199
eISSN - 1468-0262
pISSN - 0012-9682
DOI - 10.3982/ecta7028
Subject(s) - common value auction , nonparametric statistics , identification (biology) , econometrics , benchmark (surveying) , economics , structural estimation , risk aversion (psychology) , function (biology) , value (mathematics) , microeconomics , mathematical economics , statistics , mathematics , expected utility hypothesis , botany , biology , geodesy , evolutionary biology , geography
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.