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

60 Pages Posted: 15 Oct 2020

See all articles by Xiaohong Chen

Xiaohong Chen

Yale University - Cowles Foundation

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: August 26, 2020

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 (N) or a continuous instrument (z) 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 nonparametrically testable in the sense that if bidders are strictly risk averse, then no risk neutral model can rationalize the data. In addition, if both instruments (discrete N and continuous z) are available, then the model primitives are nonparametrically point identified. We then explore inference based on these identification results, focusing on set inference and testing when primitives are set identified.

Keywords: Auctions, entry, risk aversion, identification, set inference.

JEL Classification: D44, C57

Suggested Citation

Chen, Xiaohong and Gentry, Matthew L. and Li, Tong and Lu, Jingfeng, Identification and Inference in First-Price Auctions with Risk Averse Bidders and Selective Entry (August 26, 2020). Available at SSRN: https://ssrn.com/abstract=3681530 or http://dx.doi.org/10.2139/ssrn.3681530

Xiaohong Chen

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
26
Abstract Views
220
PlumX Metrics