Procurements with Bidder Asymmetry in Cost and Risk-Aversion

S Jeong, Gaurab Aryal, Hanna Charankevich, Dong-Hyuk Kim*

*Corresponding author for this work

Research output: Contribution to journalArticle (Academic Journal)peer-review

1 Citation (Scopus)

Abstract

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.
Original languageEnglish
JournalJournal of business & economic statistics
Early online date22 Aug 2022
DOIs
Publication statusE-pub ahead of print - 22 Aug 2022

Bibliographical note

Publisher Copyright:
© 2022 American Statistical Association.

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