Agents’ characteristics such as their wealth, or backlog capacity may affect their attitude toward risk. More particularly, in the construction industry, firms’ experience is an important factor explaining differences in risk management, and hence differences in bidding strategies for procurement auctions. To acknowledge such differences, I study an auction model with heterogenous risk-averse agents within the independent private value paradigm. I show identification and propose a parametric estimation procedure of the risk aversion parameters. I find evidence of risk aversion asymmetry among firms competing for public construction contracts in Los Angeles, where firms become less risk-averse with experience. Fields: first-price auctions, independent private values, asymmetric risk aversion, semi-parametric identification, and estimation.
Sandra Campo