Risk Aversion in Share Auctions: Estimating Import Rents from TRQs in Switzerland

49 Pages Posted: 14 Jun 2019 Last revised: 21 Apr 2021

See all articles by Samuel Häfner

Samuel Häfner

Web3 Foundation; University of St. Gallen

Date Written: April 21, 2021

Abstract

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

Häfner, Samuel, Risk Aversion in Share Auctions: Estimating Import Rents from TRQs in Switzerland (April 21, 2021). Available at SSRN: https://ssrn.com/abstract=3397027 or http://dx.doi.org/10.2139/ssrn.3397027

Samuel Häfner (Contact Author)

Web3 Foundation

Zug
Switzerland

University of St. Gallen ( email )

Varnbuelstr. 14
Saint Gallen, St. Gallen CH-9000
Switzerland

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