Identification and Inference in First-Price Auctions with Risk-Averse Bidders and Selective Entry

57 Pages Posted: 1 Apr 2015 Last revised: 26 Aug 2020

See all articles by Matthew L. Gentry

Matthew L. Gentry

Florida State University

Tong Li

Vanderbilt University

Jingfeng Lu

National University of Singapore (NUS) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: November 24, 2017

Abstract

We study identification and inference in first-price auctions with risk averse bidders and selective entry, building on a flexible entry and bidding framework we call the Affiliated Signal with Risk Aversion (AS-RA) model. Assuming that the econometrician observes either exogenous variation in the number of potential bidders or a continuous instrument shifting opportunity costs of entry, we provide a sharp characterization of the nonparametric restrictions implied by equilibrium bidding. Given variation in either competition or costs, this characterization implies that risk neutrality is generically testable in the sense that if bidders are strictly risk averse, then no risk neutral model can rationalize the data. Furthermore, if the cost instrument induces sufficient variation in entry, then the model is nonparametrically identified. We then consider semiparametric identification and inference when pre-entry signals are linked to post-entry values by a parametric copula. We show that the AS-RA model is conditionally identified up to the parameters of this copula, and building on this propose a novel approach to robust semiparametric inference within the AS-RA model.

Keywords: Auctions, endogenous participation, risk aversion, identification

JEL Classification: D44, C57

Suggested Citation

Gentry, Matthew L. and Li, Tong and Lu, Jingfeng, Identification and Inference in First-Price Auctions with Risk-Averse Bidders and Selective Entry (November 24, 2017). Available at SSRN: https://ssrn.com/abstract=2587812 or http://dx.doi.org/10.2139/ssrn.2587812

Matthew L. Gentry (Contact Author)

Florida State University ( email )

Tallahassee, FL 30306-2180
United States

HOME PAGE: http://www.matthewgentry.net

Tong Li

Vanderbilt University ( email )

2301 Vanderbilt Place
Nashville, TN 37240
United States

Jingfeng Lu

National University of Singapore (NUS) - Department of Economics ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Singapore

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