Randomization, endogeneity and laboratory experiments: The role of cash balances in private value auctions

John C. Ham, John H. Kagel, Steven F. Lehrer

Research output: Contribution to journalArticle

Abstract

From a theoretical perspective, cash balances are thought to play a role in common value auctions because of limited liability. However, they have also been found to be important in common value auctions where limited liability is not an issue. This paper investigates whether this effect carries over to private value auctions, since limited liability issues do not arise in private value auctions. We address the issue that cash balances are likely to be endogenous. We show that additional randomization can be used to reduce endogeneity problems and to improve the performance of our estimators. Further, we find that standard panel data econometric techniques are very useful in the analysis of data from laboratory experiments. Finally, we find that the cash balance effect does indeed carry over from common value auctions to private value auctions.

Original languageEnglish (US)
Pages (from-to)175-205
Number of pages31
JournalJournal of Econometrics
Volume125
Issue number1-2 SPEC. ISS.
DOIs
StatePublished - Mar 2005

ASJC Scopus subject areas

  • Economics and Econometrics

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