Identification and Estimation of First-Price Auctions Under Ambiguity

86 Pages Posted: 2 Jul 2013

See all articles by Serafin Grundl

Serafin Grundl

Board of Governors of the Federal Reserve System

Yu Zhu

Government of Canada - Bank of Canada

Date Written: July 1, 2013

Abstract

This paper studies identification and estimation of first-price auctions if the bidders face ambiguity about the distribution of valuations. Ambiguity is modeled using Gilboa and Schmeidler's (1989) Maxmin Expected Utility preferences. We exploit variation in the number of bidders to identify the essential primitives of the model. The identification result yields a closed form for the inverse bid function, which suggests a two-step estimation procedure. We study asymptotic and finite sample properties of the estimators. We find evidence of ambiguity in USFS timber auctions which leads to aggressive bidding for bidders with high valuations and has important implications for auction design.

Keywords: First-Price Auctions, Ambiguity Aversion, Maxmin Expected Utility, Nonparametric Identification, Timber Auctions

JEL Classification: C14, D44, L70

Suggested Citation

Grundl, Serafin and Zhu, Yu, Identification and Estimation of First-Price Auctions Under Ambiguity (July 1, 2013). Available at SSRN: https://ssrn.com/abstract=2288105 or http://dx.doi.org/10.2139/ssrn.2288105

Serafin Grundl (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Yu Zhu

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

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