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Bayesian estimation approaches to first-price auctions

Research output: Contribution to Journal/MagazineJournal articlepeer-review

<mark>Journal publication date</mark>05/2012
<mark>Journal</mark>Journal of Econometrics
Issue number1
Number of pages13
Pages (from-to)47-59
Publication StatusPublished
<mark>Original language</mark>English


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.