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 commonly known distribution of the latent characteristics. Rational behaviour, within an assumed class of distributions for the latent process, imposes testable restrictions upon the data generating process of the equilibrium strategies. Unfortunately, the support of the distribution,of equilibrium strategies often depends upon all of the parameters of the distribution of the latent characteristics, making the standard application of maximum likelihood estimation procedures inappropriate. We present a piecewise pseudo-maximum likelihood estimator as well as the conditions for its consistency and its asymptotic distribution.