Procurements with Bidder Asymmetry in Cost and Risk-Aversion

Bibliographic Data

ID19418426
AuthorsGaurab Aryal (0000-0002-1134-5827, Department of Economics, Washington University in St. Louis, St. Louis, MO), Hanna Charankevich (Biocomplexity Institute, University of Virginia, Charlottesville, VA), Seungwon Jeong (0000-0003-2919-7508, Korea Advanced Institute of Science and Technology), Dong-Hyuk Kim (0000-0001-8634-4514, The University of Queensland, corresponding author), Dong‐Hyuk Kim (0000-0002-8168-8534, The University of Queensland)
Year2023
Volume41
Issue4
Pages1143-1156
Publication date2023-10-02
Peer ReviewedYes
Open AccessNo
TypeARTICLE
VenueJournal of Business and Economic Statistics (JOURNAL)
Journal identifiersISSN: 0735-0015 • E-ISSN: 1537-2707
PublisherInforma UK Limited (PUBLISHER • GB)
DOI10.1080/07350015.2022.2115497
OpenAlexW4226360387
LanguageEN
Citations received2
References cited31

We propose an empirical method to analyze data from first-price procurements where bidders are asymmetric in their risk-aversion (CRRA) coefficients and distributions of private costs. Our Bayesian approach evaluates the likelihood by solving type-symmetric equilibria using the boundary-value method and integrates out unobserved heterogeneity through data augmentation. We study a new dataset from Russian government procurements focusing on the category of printing papers. We find that there is no unobserved heterogeneity (presumably because the job is routine), but bidders are highly asymmetric in their cost and risk-aversion. Our counterfactual study shows that choosing a type-specific cost-minimizing reserve price marginally reduces the procurement cost; however, inviting one more bidder substantially reduces the cost, by at least 5.5%. Furthermore, incorrectly imposing risk-neutrality would severely mislead inference and policy recommendations, but the bias from imposing homogeneity in risk-aversion is small

Bayesian probability · Counterfactual thinking · Econometrics · Economics · Expected utility hypothesis · Financial economics · Microeconomics · Neutrality · Procurement · Statistics · Auction Theory and Applications · Experimental Behavioral Economics Studies · Law, Economics, and Judicial Systems · Mathematics

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