Asymmetry and risk aversion in first -price sealed bid auctions: Identification, estimation, and applications

This dissertation studies bidders' asymmetry and risk aversion in first-price sealed bid auctions. It extends the structural empirical literature by considering asymmetry within the affiliated private value paradigm, bidders' risk aversion within the independent private value paradigm, and asymmetry in risk aversion. The key issues are the identification and rationalization of these models. Differences in bidders' characteristics may affect their private value distributions. In chapter two, I study the asymmetric affiliated auction model. Although the equilibrium does not have any closed form solution, the asymmetric distributions are identified. I propose a two-step nonparametric estimation procedure. The application on O. C. S. auction data reveals that asymmetry between firms, either solo firms or joint consortia, is significant, and that the government extracts only 35% of the informational rent. The agents' bidding behavior also depends on their attitude towards risk. They may fear to lose the object because there are not many alternatives for buying similar objects, as in timber auctions. My third chapter studies symmetric risk averse bidders with independent private values. The model is not identified in general. Once I parametrize the agents' risk aversion, I am able to derive semiparametric identification exploiting heterogeneity across auctions. I develop a multi-step semiparametric estimation procedure to recover the agents' risk aversion parameter and their private value distribution. In the U. S. Forest Service timber auctions, results show that bidders are fairly risk averse with a constant relative risk aversion coefficient equal to 0. 61. Bidders' wealth and experience can also affect differently their behavior towards risk, as for example in the construction industry. In Chapter four, I define a model of asymmetric risk averse bidders. As bidders share the same private value distribution, I achieve semiparametric identification without, imposing any ad hoc condition. The identifying condition inspires the multi-step estimation procedure. Among the bidders competing for the Los Angeles City Hall construction contracts, I find that contractors with more experience are less risk averse.