Bayesian estimation approaches to first-price auctions

Subal C. Kumbhakar, Christopher F. Parmeter, Efthymios G. Tsionas

Research output: Contribution to journalArticle

4 Scopus citations

Abstract

This paper considers Bayesian estimation strategies for first-price auctions within the independent private value paradigm. We develop an 'optimization' error approach that allows for estimation of values assuming that observed bids differ from optimal bids. We further augment this approach by allowing systematic over or underbidding by bidders using ideas from the stochastic frontier literature. We perform a simulation study to showcase the appeal of the method and apply the techniques to timber auction data collected in British Columbia. Our results suggest that significant underbidding is present in the timber auctions.

Original languageEnglish (US)
Pages (from-to)47-59
Number of pages13
JournalJournal of Econometrics
Volume168
Issue number1
DOIs
StatePublished - May 1 2012

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Keywords

  • Bidding strategy
  • Gibbs sampling
  • Markov Chain Monte Carlo
  • Posterior distribution
  • Stochastic frontier

ASJC Scopus subject areas

  • Economics and Econometrics

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