Distinguishing Incentive from Selection Effects in Auction-Determined Contracts

Laurent Lamy, Manasa Patnam () and Michael Visser
Additional contact information
Manasa Patnam: IMF.

No 2019-15, Working Papers from Center for Research in Economics and Statistics

Abstract: This paper develops a novel approach to estimate how contract and principal-agent characteristics influence an ex-post performance outcome when the matching between agents and principals derives from an auction process. We propose a control-function approach to account for the endogeneity of contracts and matching. This consists of, first, estimating the primitives of an interdependent values auction model - which is shown to be non-parametrically identified from the bidding data - second, constructing control functions based on the distribution of the unobserved private signals conditional on the auction outcome. A Monte Carlo study shows that our augmented outcome equation corrects well of the endogeneity biases, even in small samples. We apply our methodology to a labor market application: we estimate the effect of sports players’ auction-determined wages on their individual performance.

Keywords: Econometrics of Contracts, Econometrics of Auctions; Structural Econometrics; Endogenous Matching; Polychotomous Sample Selection; Wage-Performance Elasticity. (search for similar items in EconPapers)
JEL-codes: C01 C29 C57 D44 M52 Z22 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2019-09-20
New Economics Papers: this item is included in nep-cta, nep-des and nep-ecm
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Related works:
Journal Article: Distinguishing incentive from selection effects in auction-determined contracts (2023)
Working Paper: Distinguishing Incentive from Selection Effects in Auction-Determined Contracts (2023)
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