Heterogeneous Risk-Aversion among Bidders

45 Pages Posted: 11 Dec 2019 Last revised: 23 Dec 2019

See all articles by Gaurab Aryal

Gaurab Aryal

University of Virginia - Department of Economics

Hanna Charankevich

UVA Department of Economics

Seungwon (Eugene) Jeong

University of Bristol

Dong-Hyuk Kim

School of Economics, University of Queensland

Date Written: December 10, 2019

Abstract

We study the identification and estimation of first-price procurements with asymmetric risk-aversion and cost, and unobserved heterogeneity. Using variation in bidder-configuration we identify the model parameters and develop a flexible Bayesian estimation method that allows bidder-asymmetry and integrates out unobserved heterogeneity. Using public procurements in Russia for several job categories, we find no unobserved heterogeneity, but the bidder-asymmetry in cost and risk-aversion varies across job categories. High risk-aversion makes the non-binding reserve prices minimize the cost in most cases, while assuming risk neutrality generates large biases. Similarly, assuming identical risk-aversion gives misleading predictions when asymmetry in risk-aversion is substantial.

Keywords: First-Price Procurements, Asymmetric Risk-Aversion, Asymmetric Cost Densities, Identification And Estimation, Unobserved Heterogeneity

JEL Classification: C11, C14, D22, D44, L00

Suggested Citation

Aryal, Gaurab and Charankevich, Hanna and Jeong, Seungwon (Eugene) and Kim, Dong-Hyuk, Heterogeneous Risk-Aversion among Bidders (December 10, 2019). Available at SSRN: https://ssrn.com/abstract=3500268 or http://dx.doi.org/10.2139/ssrn.3500268

Gaurab Aryal (Contact Author)

University of Virginia - Department of Economics ( email )

P.O. Box 400182
Charlottesville, VA 22904-4182
United States

Hanna Charankevich

UVA Department of Economics ( email )

237 Monroe Hall
P.O. Box 400182
Charlottesville, VA 22904-418
United States

Seungwon (Eugene) Jeong

University of Bristol ( email )

The Priory Road Complex
Bristol, BS8 1TU
United Kingdom

HOME PAGE: http://eugenejeong.com

Dong-Hyuk Kim

School of Economics, University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

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