Information and competition in U.S. Forest Service timber auctions

66 Pages·1999·1.9 MB·English

by  Athey, Susan

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WORKING PAPER
DEPARTMENT
OF ECONOMICS
Information and Competition in
U.S. Forest Service Timber Auctions
Susan Atliey
Jonathan Levin
No. 99-12 June 1999
MASSACHUSEHS
OF
INSTITUTE
TECHNOLOGY
50 MEMORIAL DRIVE
CAMBRIDGE, MASS. 02142
MASSACHU-;,QLOeY_
NOV 2 5 1999
LIBRARSES
Information and Competition in
U.S. Forest Service Timber Auctions*
Susan Athey Jonathan Levin
MIT and NBER MIT
First Draft: November 1997
This Draft: June, 1999
Abstract
This paper studies the bidding behavior of firms in U.S. Forest Service timber auctions
in 1976-1990. When conducting timber auctions, the Forest Service pubhcly announces its
estimates of the tract characteristics before the auction, and each bidder additionally has an
opportimity to inspect the tract and form its own private estimates. We build a model that
incorporates both differential information and the fact that bids placed in timber auctions are
multidimensional. The theory predicts that bidders will strategically distort their bids based
on their private information, a practice known as "skewed bidding." Using a dataset that
includes both the pubUc ex ante Forest Service estimates and the ex post reahzations of the
tract characteristics, we test om- model and provide evidence that bidders do possess private
information. Our results suggest that private information affects Forest Service revenue and
creates aUocational inefficiency. Finally, we estabhsh that risk aversion plays an important role
in bidding behavior.
JEL Classification Numbers: DU, D81, D82, L73.
*We are grateful to Glenn EUisonj' Sara Ellison, Phil Haile, Jerry Hausman, Paul Joskow, Bob Marshall, Wally
MuUin, WhitneyNewey, MikeNiccolouci, TomStokerandseminarparticipantsatAlabama, Berkeley, IDEI Toulouse,
MIT, Toronto, Tufts, the NSF Conference on Auctions and Infrastructure, and the NBER for helpful comments.
Patrick Wang and Leigh Linden provided exceptional research assistance. We would also like to thank the numerous
employeesofthe U.S. Forest Service and the timber industry who took time to answerour questions. Athey acknowl-
edges financial support from NSF Grant SBR-9631760 and the Provost's Fund for Humanities and Social Sciences at
MIT, as well as the hospitality and support ofthe Cowles Foundation for Economic Research at Yale University.