Risk Aversion in Share Auctions: Estimating Import Rents from TRQs in Switzerland
49 Pages Posted: 14 Jun 2019 Last revised: 21 Apr 2021
Date Written: April 21, 2021
This paper analyzes risk aversion in discriminatory share auctions. I generalize the k-step share auction model of Kastl (2011, 2012) and establish that marginal profits are set identified for any given coefficient of constant absolute risk aversion. I also derive necessary conditions for best-response behavior, which allows to fit risk preferences to the data. More, I show how the bidders' optimality conditions allow to compute bounds on the marginal profits that are tighter than those currently available. I use my results to estimate import rents from Swiss tariff-rate quotas on high-quality beef. Rents are overestimated and rent extraction is underestimated when ignoring risk aversion. Small bidders (small, privately owned butcheries) are more risk averse than large bidders (general retailers). For the fitted risk preferences, best response violations are few and uniform across bidder size.
Keywords: Discriminatory share auctions, estimation, risk aversion, best-response violations, tariff-rate quota, import rents
JEL Classification: D44, C57, F14
Suggested Citation: Suggested Citation