Efficient local IV estimation of an empirical auction model

In this paper we examine semiparametric efficiency bounds and efficient estimators for the case of a linear local instrument variable (LIV) model under the assumptions studied in Abadie et al. (2002). We apply the semiparametrically efficient estimation method to analyze the relation between bid dispersion and early bidding in an online auction dataset, which is collected from a natural experiment conducted in Nekipelov (2007). The results confirm the theoretical findings developed in Nekipelov (2007). The semiparametric efficient estimation procedure substantially improves the statistical significance of the effect of jump bidding on bid dispersion.