Heterogeneous Risk-Aversion among Bidders
45 Pages Posted: 11 Dec 2019 Last revised: 23 Dec 2019
Date Written: December 10, 2019
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
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