“Semiparametric Estimation in Models of First-Price, Sealed-Bid Auctions with Affiliation” by Harry Paarsch
University of Melbourne
Timothy P. Hubbard
Texas Tech University
Within the affiliated private-values paradigm, we develop a tractable empirical model of equilibrium behaviour at first-price, sealed-bid auctions. The model is non-parametrically identified, but estimating the primitives is plagued by the curse of dimensionality when the number of bidders is even moderately large, so we develop a semiparametric estimation strategy, focusing on the Archimedean family of copulae and implementing this framework using particular members- the Clayton, Frank, and Gumbel copulae. We apply our framework to data from low-price, sealed-bid auctions used by the Michigan Department of Transportation to procure road-resurfacing services, rejecting the hypothesis of independence and finding significant (and high) affiliation in cost signals.