Piecewise Pseudo-Maximum Likelihood Estimation in Empirical Models of Auctions

In applications of game theory to auctions, researchers assume that players choose strategies based upon a commo nly known distribution of the latent characteristics. Rational behavior, within an assumed class of distributions for the latent process, imposes testable restrictions upon the data generating process of th e equilibrium strategies. Unfortunately, the support of the distributi on of equilibrium strategies often depends upon all of the parameters o f the distribution of the latent characteristics, making the standard application of maximum likelihood estimation procedures inappropriat e. The authors present a piecewise pseudo-maximum likelihood estimator as well as the conditions for its consistency and its asymptotic distribution. Copyright 1993 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.