- Identification and Estimation in Procurement Auctions under Unobserved Auction Heterogeneity
Review of Economic Studies, 2011, 78(1), 293-327.
In many procurement auctions, the bidders' unobserved costs depend both on a common shock and on idiosyncratic private information. Assuming a multiplicative structure, I derive sufficient conditions under which the model is identified and propose a nonparametric estimation procedure which results in uniformly consistent estimators of the cost components' distributions. The estimation procedure is applied to data from Michigan highway procurement auctions. Private information is estimated to account for 34% of the variation in bidders' costs. It is shown that accounting for unobserved auction heterogeneity has important implications for the evaluation of the distribution of rents, efficiency, and optimal auction design.
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- Bid Preference Programs and Participation in Procurement Auctions
(with Katja Seim), American Economic Review, 2011, 101(6), 2653-2686.
We use data from highway procurement auctions subject to California's Small Business
Preference program to study the effect of bid preferences on auction outcomes. Our analysis is based on an estimated model of firms' bidding and participation decisions, which allows us to evaluate the effects of current and alternative policy designs. We show that incorporating participation responses significantly alters the assessment of preferential treatment policies.
[Download] [Online Appendix]
- Estimating of Auction Models with Multi-Dimensional Unobserved Heterogeneity
International Economic Review, 2012, 53(3), 1203-1251.
This paper investigates the empirical importance of allowing for multi-dimensional sources of unobserved heterogeneity in auction models with private information. It in turn develops the estimation procedure that recovers the distribution of private information in the presence of two distinct sources of unobserved heterogeneity. It is shown that this estimation procedure identifies components of the model and produces uniformly consistent estimators of these components. The estimation procedure is applied to the data from highway procurement. The results of the estimation indicate that allowing for two-dimensional unobserved heterogeneity may significantly affect the results of estimation as well as policy-relevant instruments derived from the estimated distributions of bidders' costs.
- Dynamic Procurement Auctions with Subcontracting
(with Przemek Jesiorski), Rand Journal of Economics, 2016, 47(4), 749-899.
This article provides evidence on the role of subcontracting in the auction-based procurement setting with private cost variability and capacity constraints. We demonstrate that subcontracting allows bidders to modify their costs realizations in a given auction as well as to control their future costs by reducing backlog accumulation. Restricting access to subcontracting raises procurement costs for an individual project by 12% and reduces the number of projects completed in equilibrium by 20%. The article explains methodological and market design implications of subcontracting availability.
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- The Role of Quality in Internet Service Markets
(with Kyunchul Song and Xun Tang), Forthcoming, Journal of Political Economy, 2018.
We use data from an on-line market for programming services to assess buyers' welfare gains associated with the globalization enabled by the Internet. Our study exploits the design of this market where projects are allocated through multi-attribute auctions, a mechanism that takes into account a seller's non-price characteristics as well as his bid. We focus on the increased variety and competitive effects associated with the presence of low cost foreign sellers as the main welfare-improving consequences of globalization. The paper proposes an empirical methodology to recover primitives of the model in the presence of unobserved seller heterogeneity. The methodology is designed to accommodate two important features of such markets: buyer-specific choice sets and the high turnover of sellers. We find that the Internet enables buyers to substantially improve on their outside (local) option, with large part of the gains arising from access to the international markets.
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- A Claryfying Note on Methodological Issues Arising in the Analysis of Online Markets
(with Kyunchul Song and Xun Tang), Unpublished Manuscript, 2015.
This note supplements material in ``The Role of Quality in Internet Service Markets.'' Specifically, here we clarify the methodological difficulties which arise in the analysis of online service markets and the problems associated with applying traditional methodologies in such settings. Among other things we explain why using seller-specific fixed effects is problemetic in this context.
- Trading across Borders in On-line Auctions
(with Christian Terwiesch and Lucia Tiererova), AEJ: Micro, 2018, Vol. 10(4), pp. 27-66.
We invoke the insights from the auction literature to study trade in services using data from an online market for programming support. We find that the observed clustering of trade between countries can be rationalized through a model featuring endogenous sorting of sellers heterogeneous in quality and costs across projects offered by buyers who differ in outside option and willingness to pay for quality. To accommodate the possibility of such an outcome we extend a single auction entry model to a setting where sellers choose among multiple projects. This feature plays an important role in explaining the data and understanding the effects of various trade policies.
[Comparison to the contemporary trade framework.]
- Uncovering Unobserved Agent Heterogeneity through Pairwise Comparisons
(with Kyunchul Song and Xun Tang), revise and resubmit, 3rd round, Journal of Econometrics, 2017.
This paper proposes a new method to study environments with unobserved agent heterogeneity. We focus on settings where the heterogeneous factor takes values from an unknown finite set, and the economic model yields testable implications in the form of pairwise inequalities. The method produces a consistent classification of economic agents according to their unobserved types. The paper verifies that the method performs well in Monte Carlo simulations. We demonstrate empirical usefulness of this method by estimating a model of a first-price auction characterized by both agent and auction level unobserved heterogeneity using data from the California highway procurement market.
[Download] [Online Appendix]
- Choice of Product under Regulation: The Case of Chile Pension System
(with Petra Todd and Yiyang Li), International Economic Review, 2018, Vol. 59(4), pp. 1747-1783.
Chile's long-running individual retirement pension accounts system has been a model for many countries in the world. To limit the riskiness of pension investments, Chile introduced a minimum return regulation that required pension fund management firms to deliver returns that are not more than two percent below of the industry average. This paper develops and estimates an equilibrium model of the pension market and uses the model to understand how minimum return regulations affect this industry. We find that the regulation creates incentives for pension managers to offer riskier portfolios and leads to higher consumer demand for riskier investment products. Thus, contrary to their original intent, such regulations lead to higher overall riskiness of pension investments. Moreover, the cost of this regulation to the industry leads to higher pension management fees. Nevertheless, we find that this regulation stimulates balance accumulation which, despite higher riskiness of offered portfolios, in the end, reduces reliance upon government pension support.
- Dynamic Insurance Model with Adverse Selection and Moral Hazard
(with Przemek Jeziorski and Olivia Ceccarini), revision invited for Review of Economic Studies, 2017.
We measure risk-related private information and investigate its importance in a setting where individuals are able to modify risk ex-ante through costly effort. Our analysis is based on a model of endogenous risk production and contract choice. It exploits data from multiple years of contract choices and claims by customers of a major Portuguese auto insurance company. We additionally use our framework to investigate the relative effectiveness of dynamic versus static contract features in incentivizing effort and inducing sorting on private risks, as well as to assess the welfare costs of mandatory liability insurance.
- Comparing Standard and Multi-Attribute Auctions
(with Yi Xin), under submission, 2017.
WORK IN PROGRESS
- Dynamic Model of Bidder Learning in Procurement Environment
(with Przemek Jeziorski and Lucia Tiererova).
This paper utilizes fifteen years of data reflecting operation of California highway procurement market to study the impact of experience on new bidders' costs while accounting for unobserved bidder heterogeneity.
- Ex-ante and Ex-post Subcontracting in Highway Procurement Market
(with Jorge Balat and Tatiana Komarova).
In this paper we present novel evidence on bidding and subcontracting activity in a large procurement market (California highway procurement market). We then construct a model consistent with the patterns documented in the data and use this model to study implications of ex-ante subcontracting requirement maintained in most government procurement markets in US.
- Bargaining in Medicare Market for Prescription Drugs
(with Colleen Carey and Ying Fan).
- Procurement Auctions for Projects with Design Uncertainty
(with Tymofiy Mylovanov).
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