Munich Personal RePEc Archive

Estimating risk aversion from ascending and sealed-bid auctions: the case of timber auction data

Lu, Jingfeng and Perrigne, Isabelle (2006): Estimating risk aversion from ascending and sealed-bid auctions: the case of timber auction data.

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Abstract

Estimating bidders’ risk aversion in auctions is a challeging problem because of identification issues. This paper takes advantage of bidding data from two auction designs to identify nonparametrically the bidders’ utility function within a private value framework. In particular, ascending auction data allow us to recover the latent distribution of private values, while first-price sealed-bid auction data allow us to recover the bidders’ utility function. This leads to a nonparametric estimator. An application to the US Forest Service timber auctions is proposed. Estimated utility functions display concavity, which can be partly captured by constant relative risk aversion.

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