Journal of Economic Literature (JEL) Code(s)
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.
Chen, Xiaohong; Gentry, Matthew; Li, Tong; and Lu, Jingfeng, "Identification and Inference in First-Price Auctions with Risk Averse Bidders and Selective Entry" (2020). Cowles Foundation Discussion Papers. 2569.