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- Location shift (2)
- Maskin monotonicity (2)
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Articles 31 - 60 of 68
Full-Text Articles in Social and Behavioral Sciences
Soft Budgets And Renegotiations In Public-Private Partnerships, Eduardo Engel, Ronald Fischer, Alexander Galetovic
Soft Budgets And Renegotiations In Public-Private Partnerships, Eduardo Engel, Ronald Fischer, Alexander Galetovic
Cowles Foundation Discussion Papers
Public-private partnerships (PPPs) are increasingly used to provide infrastructure services. Even though PPPs have the potential to increase efficiency and improve resource allocation, contract renegotiations have been pervasive. We show that existing accounting standards allow governments to renegotiate PPP contracts and elude spending limits. Our model of renegotiations leads to observable predictions: (i) in a competitive market, firms lowball their offers, expecting to break even through renegotiation, (ii) renegotiations compensate lowballing and pay for additional expenditure, (iii) governments use renegotiation to increase spending and shift the burden of payments to future administrations, and (iv) there are significant renegotiations in the …
Subjectivity In Inductive Inference, Itzhak Gilboa, Larry Samuelson
Subjectivity In Inductive Inference, Itzhak Gilboa, Larry Samuelson
Cowles Foundation Discussion Papers
This paper examines circumstances under which subjectivity enhances the effectiveness of inductive reasoning. We consider a game in which Fate chooses a data generating process and agents are characterized by inference rules that may be purely objective (or data-based) or may incorporate subjective considerations. The basic intuition is that agents who invoke no subjective considerations are doomed to “overfit” the data and therefore engage in ineffective learning. The analysis places no computational or memory limitations on the agents — the role for subjectivity emerges in the presence of unlimited reasoning powers.
Optimal Comparison Of Misspecified Moment Restriction Models Under A Chosen Measure Of Fit, Vadim Marmer, Taisuke Otsu
Optimal Comparison Of Misspecified Moment Restriction Models Under A Chosen Measure Of Fit, Vadim Marmer, Taisuke Otsu
Cowles Foundation Discussion Papers
Suppose that the econometrician is interested in comparing two misspecified moment restriction models, where the comparison is performed in terms of some chosen measure of fit. This paper is concerned with describing an optimal test of the Vuong (1989) and Rivers and Vuong (2002) type null hypothesis that the two models are equivalent under the given measure of fit (the ranking may vary for different measures). We adopt the generalized Neyman-Pearson optimality criterion, which focuses on the decay rates of the type I and II error probabilities under fixed non-local alternatives, and derive an optimal but practically infeasible test. Then, …
On The Asymptotic Optimality Of Empirical Likelihood For Testing Moment Restrictions, Yuichi Kitamura, Andres Santos, Azeem M. Shaikh
On The Asymptotic Optimality Of Empirical Likelihood For Testing Moment Restrictions, Yuichi Kitamura, Andres Santos, Azeem M. Shaikh
Cowles Foundation Discussion Papers
In this paper we make two contributions. First, we show by example that empirical likelihood and other commonly used tests for parametric moment restrictions, including the GMM-based J -test of Hansen (1982), are unable to control the rate at which the probability of a Type I error tends to zero. From this it follows that, for the optimality claim for empirical likelihood in Kitamura (2001) to hold, additional assumptions and qualifications need to be introduced. The example also reveals that empirical and parametric likelihood may have non-negligible differences for the types of properties we consider, even in models in which …
Alternative Policies And Sea-Level Rise In The Rice-2009 Model, William D. Nordhaus
Alternative Policies And Sea-Level Rise In The Rice-2009 Model, William D. Nordhaus
Cowles Foundation Discussion Papers
The present study extends earlier research by presenting the results of a new and updated version of the RICE model (Regional Integrated model of Climate and the Economy), labeled the RICE-2009 model. The model is a regionalized, dynamic model that incorporates an end-to-end treatment of economic growth, emissions, climate change, damages, and emissions controls. The model allows projections of what will occur with no policies, with efficient policies be, how nations can undertake policies to limit climate change (in the current runs to 2°C), and the impacts of limited participation. These new estimates indicate that coordinated international policies have a …
The Leverage Cycle, John Geanakoplos
The Leverage Cycle, John Geanakoplos
Cowles Foundation Discussion Papers
Equilibrium determines leverage, not just interest rates. Variations in leverage cause fluctuations in asset prices. This leverage cycle can be damaging to the economy, and should be regulated.
Credit Cards And Inflation, John Geanakoplos, Pradeep Dubey
Credit Cards And Inflation, John Geanakoplos, Pradeep Dubey
Cowles Foundation Discussion Papers
The introduction and widespread use of credit cards increases trading efficiency but, by also increasing the velocity of money, it causes inflation, in the absence of monetary intervention. If the monetary authority attempts to restore pre-credit card price levels by reducing the money supply, it might have to sacrifice the efficiency gains. When there is default on credit cards, there is even more inflation, and less efficiency gains. The monetary authority might then have to accept less than pre-credit card efficiency in order to restore pre-credit card price levels, or else it will have to accept inflation if it is …
Market Valuation Of Accrued Social Security Benefits, John Geanakoplos, Stephen P. Zeldes
Market Valuation Of Accrued Social Security Benefits, John Geanakoplos, Stephen P. Zeldes
Cowles Foundation Discussion Papers
One measure of the health of the Social Security system is the difference between the market value of the trust fund and the present value of benefits accrued to date. How should present values be computed for this calculation in light of future uncertainties? We think it is important to use market value. Since claims on accrued benefits are not currently traded in financial markets, we cannot directly observe a market value. In this paper, we use a model to estimate what the market price for these claims would be if they were traded. In valuing such claims, the key …
An Improved Bootstrap Test Of Stochastic Dominance, Oliver B. Linton, Kyungchul Song, Yoon-Jae Whang
An Improved Bootstrap Test Of Stochastic Dominance, Oliver B. Linton, Kyungchul Song, Yoon-Jae Whang
Cowles Foundation Discussion Papers
We propose a new method of testing stochastic dominance that improves on existing tests based on the standard bootstrap or subsampling. The method admits prospects involving infinite as well as finite dimensional unknown parameters, so that the variables are allowed to be residuals from nonparametric and semiparametric models. The proposed bootstrap tests have asymptotic sizes that are less than or equal to the nominal level uniformly over probabilities in the null hypothesis under regularity conditions. This paper also characterizes the set of probabilities that the asymptotic size is exactly equal to the nominal level uniformly. As our simulation results show, …
The Leverage Cycle, John Geanakoplos
The Leverage Cycle, John Geanakoplos
Cowles Foundation Discussion Papers
Equilibrium determines leverage, not just interest rates. Variations in leverage cause fluctuations in asset prices. This leverage cycle can be damaging to the economy, and should be regulated.
Grading Exams: 100, 99, 98,...Or A, B, C?, Pradeep Dubey, John Geanakoplos
Grading Exams: 100, 99, 98,...Or A, B, C?, Pradeep Dubey, John Geanakoplos
Cowles Foundation Discussion Papers
No abstract provided.
Selecting A Unique Competitive Equilibrium With Default Penalties, Cheng-Zhong Qin, Martin Shubik
Selecting A Unique Competitive Equilibrium With Default Penalties, Cheng-Zhong Qin, Martin Shubik
Cowles Foundation Discussion Papers
The enlargement of the general-equilibrium structure to allow default subject to penalties results in a construction of a simple mechanism for selecting a unique competitive equilibrium. We consider economies for which a common credit money can be applied to uniquely select any competitive equilibrium with suitable default penalties. We identify two classes of such economies. One consists of economies with utility functions being homogeneous of degree 1; the other consists of economies with the number of consumers equal to the number of commodities and traders having quasi-linear utility functions with respect to different commodities.
Nonparametric Estimation Of A Polarization Measure, Gordon J. Anderson, Oliver B. Linton, Yoon-Jae Whang
Nonparametric Estimation Of A Polarization Measure, Gordon J. Anderson, Oliver B. Linton, Yoon-Jae Whang
Cowles Foundation Discussion Papers
This paper develops methodology for nonparametric estimation of a polarization measure due to Anderson (2004) and Anderson, Ge, and Leo (2006) based on kernel estimation techniques. We give the asymptotic distribution theory of our estimator, which in some cases is nonstandard due to a boundary value problem. We also propose a method for conducting inference based on estimation of unknown quantities in the limiting distribution and show that our method yields consistent inference in all cases we consider. We investigate the finite sample properties of our methods by simulation methods. We give an application to the study of polarization within …
Dynamic Misspecification In Nonparametric Cointegrating Regression, Ioannis Kasparis, Peter C.B. Phillips
Dynamic Misspecification In Nonparametric Cointegrating Regression, Ioannis Kasparis, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Linear cointegration is known to have the important property of invariance under temporal translation. The same property is shown not to apply for nonlinear cointegration. The requisite limit theory involves sample covariances of integrable transformations of non-stationary sequences and time translated sequences, allowing for the presence of a bandwidth parameter so as to accommodate kernel regression. The theory is an extension of Wang and Phillips (2008) and is useful for the analysis of nonparametric regression models with a misspecified lag structure and in situations where temporal aggregation issues arise. The limit properties of the Nadaraya-Watson (NW) estimator for cointegrating regression …
Explosive Behavior In The 1990s Nasdaq: When Did Exuberance Escalate Asset Values?, Peter C.B. Phillips, Yangru Wu, Jun Yu
Explosive Behavior In The 1990s Nasdaq: When Did Exuberance Escalate Asset Values?, Peter C.B. Phillips, Yangru Wu, Jun Yu
Cowles Foundation Discussion Papers
A recursive test procedure is suggested that provides a mechanism for testing explosive behavior, date-stamping the origination and collapse of economic exuberance, and providing valid confidence intervals for explosive growth rates. The method involves the recursive implementation of a right-side unit root test and a sup test, both of which are easy to use in practical applications, and some new limit theory for mildly explosive processes. The test procedure is shown to have discriminatory power in detecting periodically collapsing bubbles, thereby overcoming a weakness in earlier applications of unit root tests for economic bubbles. An empirical application to Nasdaq stock …
Infinite Density At The Median And The Typical Shape Of Stock Return Distributions, Chirok Han, Jin Seo Cho, Peter C.B. Phillips
Infinite Density At The Median And The Typical Shape Of Stock Return Distributions, Chirok Han, Jin Seo Cho, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Statistics are developed to test for the presence of an asymptotic discontinuity (or infinite density or peakedness) in a probability density at the median. The approach makes use of work by Knight (1998) on L 1 estimation asymptotics in conjunction with non-parametric kernel density estimation methods. The size and power of the tests are assessed, and conditions under which the tests have good performance are explored in simulations. The new methods are applied to stock returns of leading companies across major U.S. industry groups. The results confirm the presence of infinite density at the median as a new significant empirical …
Lad Asymptotics Under Conditional Heteroskedasticity With Possibly Infinite Error Densities, Jin Seo Cho, Chirok Han, Peter C.B. Phillips
Lad Asymptotics Under Conditional Heteroskedasticity With Possibly Infinite Error Densities, Jin Seo Cho, Chirok Han, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Least absolute deviations (LAD) estimation of linear time-series models is considered under conditional heteroskedasticity and serial correlation. The limit theory of the LAD estimator is obtained without assuming the finite density condition for the errors that is required in standard LAD asymptotics. The results are particularly useful in application of LAD estimation to financial time series data.
Analyzing Macroeconomic Forecastability, Ray C. Fair
Analyzing Macroeconomic Forecastability, Ray C. Fair
Cowles Foundation Discussion Papers
This paper estimates, using stochastic simulation and a multicountry macroeconometric model, the fraction of the forecast-error variance of output changes and the fraction of the forecast-error variance of inflation that are due to unpredictable asset-price changes. The results suggest that between about 25 and 37 percent of the forecast-error variance of output growth over 8 quarters is due to asset-price changes and between about 33 and 60 percent of the forecast-error variance of inflation over 8 quarters is due to asset-price changes. These estimates provide limits to the accuracy that can be expected from macroeconomic forecasting.
Nonparametric Structural Estimation Via Continuous Location Shifts In An Endogenous Regressor, Peter C.B. Phillips, Liangjun Su
Nonparametric Structural Estimation Via Continuous Location Shifts In An Endogenous Regressor, Peter C.B. Phillips, Liangjun Su
Cowles Foundation Discussion Papers
Recent work by Wang and Phillips (2009b, c) has shown that ill posed inverse problems do not arise in nonstationary nonparametric regression and there is no need for nonparametric instrumental variable estimation. Instead, simple Nadaraya Watson nonparametric estimation of a (possibly nonlinear) cointegrating regression equation is consistent with a limiting (mixed) normal distribution irrespective of the endogeneity in the regressor, near integration as well as integration in the regressor, and serial dependence in the regression equation. The present paper shows that some closely related results apply in the case of structural nonparametric regression with independent data when there are continuous …
Monitoring With Collective Memory: Forgiveness For Optimally Empty Promises, David A. Miller, Kareen Rozen
Monitoring With Collective Memory: Forgiveness For Optimally Empty Promises, David A. Miller, Kareen Rozen
Cowles Foundation Discussion Papers
We study optimal contracting in a team setting with moral hazard, where teammates promise to complete socially efficient but costly tasks. Teammates must monitor each other to provide incentives, but each team member has limited capacity to allocate between monitoring and productive tasks. Players incur contractual punishments for unfulfilled promises that are discovered. We show that optimal contracts are generally “forgiving” and players optimally make “empty promises” that they don’t necessarily intend to fulfill. As uncertainty in task completion increases, players optimally make more empty promises but fewer total promises. A principal who hires a team of agents optimally implements …
A Paradox Of Inconsistent Parametric And Consistent Nonparametric Regression, Peter C.B. Phillips, Liangjun Su
A Paradox Of Inconsistent Parametric And Consistent Nonparametric Regression, Peter C.B. Phillips, Liangjun Su
Cowles Foundation Discussion Papers
This paper explores a paradox discovered in recent work by Phillips and Su (2009). That paper gave an example in which nonparametric regression is consistent whereas parametric regression is inconsistent even when the true regression functional form is known and used in regression. This appears to be a paradox, as knowing the true functional form should not in general be detrimental in regression. In the present case, local regression methods turn out to have a distinct advantage because of endogeneity in the regressor. The paradox arises because additional correct information is not necessarily advantageous when information is incomplete. In the …
Measurement Of Income With Time Use With Applications To Hedonic Indicators Of Happiness And Misery, William D. Nordhaus
Measurement Of Income With Time Use With Applications To Hedonic Indicators Of Happiness And Misery, William D. Nordhaus
Cowles Foundation Discussion Papers
The present paper examines several issues involved in expanding national economic accounts and quantitative social indicators to include the “consumption” of time. The first part examines this question in the context of the standard national economic accounts. It derives equilibrium conditions for consumer behavior with market and non-market consumption along with intrinsic values of time in different activities. Using a standard index-number approach, it shows that the growth of real income can be approximated by a weighted average of productivity growth rates in market and non-market productivity and that the valuation of hours drops out of the formula. The second …
The Effects Of The Security Environment On Military Expenditures: Pooled Analyses Of 165 Countries, 1950-2000, William D. Nordhaus, John R. Oneal, Bruce Russett
The Effects Of The Security Environment On Military Expenditures: Pooled Analyses Of 165 Countries, 1950-2000, William D. Nordhaus, John R. Oneal, Bruce Russett
Cowles Foundation Discussion Papers
Countries’ military expenditures differ greatly across both space and time. This study examines the determinants of military spending, with particular reference to the importance of the external security environment. Using the liberal-realist model of international relations, we first estimate the probability that two countries will be involved in a fatal militarized interstate dispute. We then aggregate these ex ante estimates of the likelihood of dyadic conflict, calculating the annual joint probability that a country will be involved in a fatal dispute. This is our measure of the external threat. We then estimate the level of military spending by country and …
Inflationary Equilibrium In A Stochastic Economy With Independent Agents, John Geanakoplos, Ioannis Karatzas, Martin Shubik, William D. Sudderth
Inflationary Equilibrium In A Stochastic Economy With Independent Agents, John Geanakoplos, Ioannis Karatzas, Martin Shubik, William D. Sudderth
Cowles Foundation Discussion Papers
We argue that even when macroeconomic variables are constant, underlying microeconomic uncertainty and borrowing constraints generate inflation. We study stochastic economies with fiat money, a central bank, one nondurable commodity, countably many time periods, and a continuum of agents. The aggregate amount of the commodity remains constant, but the endowments of individual agents fluctuate “independently” in a random fashion from period to period. Agents hold money and, prior to bidding in the commodity market each period, can either borrow from or deposit in a central bank at a fixed rate of interest. If the interest rate is strictly positive, then …
Rationalizable Implementation, Dirk Bergemann, Stephen Morris
Rationalizable Implementation, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
This note studies (full) implementation of social choice functions under complete information in (correlated) rationalizable strategies. The monotonicity condition shown by Maskin (1999) to be necessary for Nash implementation is also necessary under the more stringent solution concept. We show that it is also sufficient under a mild “no worst alternative” condition. In particular, no economic condition is required.
Rationalizable Implementation, Dirk Bergemann, Stephen Morris, Olivier Tercieux
Rationalizable Implementation, Dirk Bergemann, Stephen Morris, Olivier Tercieux
Cowles Foundation Discussion Papers
We consider the implementation of social choice functions under complete information in rationalizable strategies. A strict (and thus stronger) version of the monotonicity condition introduced by Maskin (1999) is necessary under the solution concept of rationalizability. Assuming the social choice function is responsive (i.e., it never selects the same outcome in two distinct states), we show that it is also sufficient under a mild “no worst alternative” condition. In particular, no economic condition is required. We also discuss how our results extend when the social choice function is not responsive.
Principal Components And Long Run Implications Of Multivariate Diffusions, Xiaohong Chen, Lars P. Hansen, José Scheinkman
Principal Components And Long Run Implications Of Multivariate Diffusions, Xiaohong Chen, Lars P. Hansen, José Scheinkman
Cowles Foundation Discussion Papers
We investigate a method for extracting nonlinear principal components. These principal components maximize variation subject to smoothness and orthogonality constraints; but we allow for a general class of constraints and multivariate densities, including densities without compact support and even densities with algebraic tails. We provide primitive sufficient conditions for the existence of these principal components. We characterize the limiting behavior of the associated eigenvalues, the objects used to quantify the incremental importance of the principal components. By exploiting the theory of continuous-time, reversible Markov processes, we give a different interpretation of the principal components and the smoothness constraints. When the …
Intergenerational Justice When Future Worlds Are Uncertain, Humberto Llavador, John E. Roemer, Joaquim Silvestre
Intergenerational Justice When Future Worlds Are Uncertain, Humberto Llavador, John E. Roemer, Joaquim Silvestre
Cowles Foundation Discussion Papers
Suppose that there exists a positive (exogenous) probability that at each date of a possibly infinite future, the human species will disappear. We postulate an Ethical Observer (EO) who must solve an intertemporal welfare maximization problem under this kind of uncertainty, with preferences that satisfy the expected utility hypothesis. Various social welfare criteria are expressed as alternative von Neumann-Morgenstern utility functions for the EO: utilitarianism, Rawlsianism, and an extension of the latter that corrects for the size of population. Our analysis covers, first, a simple cake-eating economy, where the utilitarian and Rawlsian recommend the same intergenerational allocation. Second, we consider …
The Ethics Of Distribution In A Warming Planet, John E. Roemer
The Ethics Of Distribution In A Warming Planet, John E. Roemer
Cowles Foundation Discussion Papers
The discounted-utilitarian social welfare function (DU) is used by the great majority of researchers studying intergenerational resource allocation in the presence of climate change (e.g., W. Nordhaus, M. Weitzman, N. Stern, and P. Dasgupta). I present three justifications for using DU: (1) the view that the first generation’s preferences should be hegemonic, (2) the viewpoint of a utilitarian Ethical Observer who maximizes expected utility when the existence of future generations is uncertain, and (3) axiomatic justifications (as in classical social-choice theory). I argue that only justification (2) provides an ethically convincing justification, and that, only if one endorses utilitarianism as …
Collaborating, Alessandro Bonatti, Johannes Hörner
Collaborating, Alessandro Bonatti, Johannes Hörner
Cowles Foundation Discussion Papers
This paper examines moral hazard in teams over time. Agents are collectively engaged in an uncertain project, and their individual efforts are unobserved. Free-riding leads not only to a reduction in effort, but also to procrastination. The collaboration dwindles over time, but never ceases as long as the project has not succeeded. In fact, the delay until the project succeeds, if it ever does, increases with the number of agents. We show why deadlines, but not necessarily better monitoring, help to mitigate moral hazard.