Phil Haile (Yale)

Phil Haile (Yale)

Kalai Family Workshop in Applied Microeconomics
Feb 27 2018
Common Values, Unobserved Heterogeneity, andEndogenous Entry in U.S. Offshore Oil Lease Auctions
 
Abstract: We develop and apply an empirical approach for first-price sealed bid auctions withaffiliated values, unobserved auction-level heterogeneity, spatial correlation, and en-dogenous bidder entry. Following Haile, Hong and Shum (2003), we specify a reducedform for bidder entry outcomes and rely on an instrument for entry. However, weavoid their control function requirements and demonstrate that our specification isgenerated by a model in which a standard entry stage `a la Berry (1992) is followedby a standard symmetric affiliated values auction `a la Milgrom and Weber (1982).We show that important features of the model are nonparametrically identified andpropose a semiparametric estimation approach designed to scale well to the moderatesample sizes typically encountered in practice. Key elements of the model and ap-proach are motivated by our application to U.S. offshore oil and gas lease auctions,where our primary goal is to test for common values. Although an oil lease auction isthe classic example cited to motivate a common values model, formal testing has beenhindered by the confounding effects of unobserved heterogeneity. Our results showthat common values, affiliated private information, and unobserved heterogeneity—three distinct notions with different implications for policy and empirical work—are allpresent and important in these auctions. Ignoring unobserved heterogeneity obscuresthe presence of common values. Although common values and affiliation imply theo-retical ambiguity regarding the effects of additional competition on bids and revenues,we find that an exogenous increase in competition leads to more aggressive biddingand higher revenue.
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