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Social and Behavioral Sciences Commons™
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- Autoregression (4)
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- Implementation (3)
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- Aggregate shocks (2)
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- Information externality (2)
- Interim Equilibrium (2)
- Iterative Deletion (2)
- Long memory (2)
- Matching (2)
- Mechanism Design (2)
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- Nota Bene (2)
- Optimal control (2)
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Articles 31 - 60 of 60
Full-Text Articles in Social and Behavioral Sciences
Renegotiation Without Holdup: Anticipating Spending And Infrastructure Concessions, Eduardo Engel, Ronald Fischer, Alexander Galetovic
Renegotiation Without Holdup: Anticipating Spending And Infrastructure Concessions, Eduardo Engel, Ronald Fischer, Alexander Galetovic
Cowles Foundation Discussion Papers
Infrastructure concessions are frequently renegotiated after investments are sunk, resulting in better contractual terms for the franchise holders. This paper offers a political economy explanation for renegotiations that occur with no apparent holdup. We argue that they are used by political incumbents to anticipate infrastructure spending and thereby increase the probability of winning the upcoming election. Contract renegotiations allow administrations to replicate the effects of issuing debt. Yet debt issues are incorporated in the budget, must be approved by Congress and are therefore subject to the opposition’s review. By contrast, under current accounting standards the obligations created by renegotiations circumvent …
Lumpy Investment In Dynamic General Equilibrium, Ruediger Bachmann, Ricardo J. Caballero, Eduardo Engel
Lumpy Investment In Dynamic General Equilibrium, Ruediger Bachmann, Ricardo J. Caballero, Eduardo Engel
Cowles Foundation Discussion Papers
Microeconomic lumpiness matters for macroeconomics. According to our DSGE model, it explains roughly 60% of the smoothing in the investment response to aggregate shocks. The remaining 40% is explained by general equilibrium forces. The central role played by micro frictions for aggregate dynamics results in important history dependence in business cycles. In particular, booms feed into themselves. The longer an expansion, the larger the response of investment to an additional positive shock. Conversely, a slowdown after a boom can lead to a long lasting investment slump, which is unresponsive to policy stimuli. Such dynamics are consistent with US investment patterns …
Evaluating Inflation Targeting Using A Macroeconometric Model, Ray C. Fair
Evaluating Inflation Targeting Using A Macroeconometric Model, Ray C. Fair
Cowles Foundation Discussion Papers
This paper uses a structurally estimated macroeconometric model, denoted the MC model, to evaluate inflation targeting in the United States. Various interest rate rules are tried with differing weights on inflation and output, and various optimal control problems are solved using differing weights on inflation and output targets. Price-level targeting is also considered. The results show that 1) there are output costs to inflation targeting, especially for price shocks, 2) price-level targeting is dominated by inflation targeting, 3) the estimated interest rate rule of the Fed (in Table 4) is consistent with the Fed placing equal weights on inflation and …
Efficient Recommender Systems, Dirk Bergemann, Deran Ozmen
Efficient Recommender Systems, Dirk Bergemann, Deran Ozmen
Cowles Foundation Discussion Papers
We study the efficient allocation of buyers in the presence of recommender systems. A recommender system affects the market in two ways: (i) it creates value by reducing product uncertainty for the customers and hence (ii) its recommendations can be offered as add-ons, which generates informational externalities. We investigate the impact of these factors on the efficient allocation of buyers across different products. We find that the efficient allocation requires that the seller with the recommender system has full market share. If the recommender system is sufficiently effective in reducing uncertainty, it is optimal to have some products to be …
Empirical Likelihood Methods In Econometrics: Theory And Practice, Yuichi Kitamura
Empirical Likelihood Methods In Econometrics: Theory And Practice, Yuichi Kitamura
Cowles Foundation Discussion Papers
Recent developments in empirical likelihood (EL) methods are reviewed. First, to put the method in perspective, two interpretations of empirical likelihood are presented, one as a nonparametric maximum likelihood estimation method (NPMLE) and the other as a generalized minimum contrast estimator (GMC). The latter interpretation provides a clear connection between EL, GMM, GEL and other related estimators. Second, EL is shown to have various advantages over other methods. The theory of large deviations demonstrates that EL emerges naturally in achieving asymptotic optimality both for estimation and testing. Interestingly, higher order asymptotic analysis also suggests that EL is generally a preferred …
Robust Implementation In Direct Mechanisms, Dirk Bergemann, Stephen Morris
Robust Implementation In Direct Mechanisms, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
A social choice function is robustly implementable if there is a mechanism under which the process of iteratively eliminating strictly dominated messages leads to outcomes that agree with the social choice function for all beliefs at every type profile. In an interdependent value environment with single crossing preferences, we identify a contraction property on the preferences which together with strict ex post incentive compatibility is sufficient to guarantee robust implementation in the direct mechanism. Strict ex post incentive compatibility and the contraction property are also necessary for robust implementation in any mechanism, including indirect ones. The contraction property requires that …
Robust Implementation: The Case Of Direct Mechanisms, Dirk Bergemann, Stephen Morris
Robust Implementation: The Case Of Direct Mechanisms, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
A social choice function is robustly implementable if there is a mechanism under which the process of iteratively eliminating strictly dominated messages leads to outcomes that agree with the social choice at every type profile. In an interdependent value environment with single crossing preferences, we identify a strict contraction property on the preferences which together with strict ex post incentive compatibility is sufficient to guarantee robust implementation in the direct mechanism. Strict EPIC and the contraction property are also necessary for robust implementation in any mechanism. The contraction property essentially requires that the interdependence is not too large. In a …
Optimal Electoral Timing: Exercise Wisely And You May Live Longer, Jussi Keppo, Lones Smith, Dmitry Davydov
Optimal Electoral Timing: Exercise Wisely And You May Live Longer, Jussi Keppo, Lones Smith, Dmitry Davydov
Cowles Foundation Discussion Papers
In many democratic countries, the timing of elections is flexible. We explore this potentially valuable option using insights from option pricing in finance. The paper offers three main contributions on this problem. First, we derive a rationally-based mean-reverting political support process for the parties, assuming that politically heterogeneous voters continuously learn over time about evolving party fortunes. We solve for the long-run density for this process and derive the polling process from it by adding polling noise. Second, we explore optimal timing using the political support process. The incumbent sees its poll support, and must call an election within five …
Nota Bene; Volume Xx, Number I, Yale University Library
Nota Bene; Volume Xx, Number I, Yale University Library
Nota Bene
Nota Bene is published during the academic year to acquaint the Yale community and others with the resources of the Yale Library.
The Politic 2006 Spring, The Politic, Inc.
Robust Implementation: The Case Of Direct Mechanisms, Dirk Bergemann, Stephen Morris
Robust Implementation: The Case Of Direct Mechanisms, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
A social choice function is robustly implementable if there is a mechanism under which the process of iteratively eliminating strictly dominated messages leads to outcomes that agree with the social choice at every type profile. In an interdependent value environment, we identify a strict contraction property on the preferences which together with strict ex post incentive compatibility and the strict single crossing property is sufficient to guarantee robust implementation in the direct mechanism. The contraction property essentially requires that the interdependence is not too large. In a linear signal model, the contraction property is equivalent to an interdependence matrix having …
Empirical Models Of Auctions, Susan Athey, Philip A. Haile
Empirical Models Of Auctions, Susan Athey, Philip A. Haile
Cowles Foundation Discussion Papers
Many important economic questions arising in auctions can be answered only with knowledge of the underlying primitive distributions governing bidder demand and information. An active literature has developed aiming to estimate these primitives by exploiting restrictions from economic theory as part of the econometric model used to interpret auction data. We review some highlights of this recent literature, focusing on identification and empirical applications. We describe three insights that underlie much of the recent methodological progress in this area and discuss some of the ways these insights have been extended to richer models allowing more convincing empirical applications. We discuss …
Optimal Pricing With Recommender Systems, Dirk Bergemann, Deran Ozmen
Optimal Pricing With Recommender Systems, Dirk Bergemann, Deran Ozmen
Cowles Foundation Discussion Papers
We study optimal pricing in the presence of recommender systems. A recommender system affects the market in two ways: (i) it creates value by reducing product uncertainty for the customers and hence (ii) its recommendations can be offered as add-ons which generate informational externalities. The quality of the recommendation add-on is endogenously determined by sales. We investigate the impact of these factors on the optimal pricing by a seller with a recommender system against a competitive fringe without such a system. If the recommender system is sufficiently effective in reducing uncertainty, then the seller prices otherwise symmetric products differently to …
Rank Tests For Instrumental Variables Regression With Weak Instruments, Donald W.K. Andrews, Gustavo Soares
Rank Tests For Instrumental Variables Regression With Weak Instruments, Donald W.K. Andrews, Gustavo Soares
Cowles Foundation Discussion Papers
This paper considers tests in an instrumental variables (IVs) regression model with IVs that may be weak. Tests that have near-optimal asymptotic power properties with Gaussian errors for weak and strong IVs have been determined in Andrews, Moreira, and Stock (2006a). In this paper, we seek tests that have near-optimal asymptotic power with Gaussian errors and improved power with non-Gaussian errors relative to existing tests. Tests with such properties are obtained by introducing rank tests that are analogous to the conditional likelihood ratio test of Moreira (2003). We also introduce a rank test that is analogous to the Lagrange multiplier …
Lexicographic Composition Of Simple Games, Bezalel Peleg
Lexicographic Composition Of Simple Games, Bezalel Peleg
Cowles Foundation Discussion Papers
A two-house legislature can often be modelled as a proper simple game whose outcome depends on whether a coalition wins, blocks or loses in two smaller proper simple games. It is shown that there are exactly five ways to combine the smaller games into a larger one. This paper focuses on one of the rules, lexicographic composition , where a coalition wins in G 1 => G 2 when it either wins in G 1 , or blocks in G 1 and wins in G 2 . It is the most decisive of the five. A lexicographically decomposable game is …
Nuclear Weapons And National Prestige, Robert J. Shiller
Nuclear Weapons And National Prestige, Robert J. Shiller
Cowles Foundation Discussion Papers
Leaders and historians see prestige as important, but international relations theorists have neglected the concept, in part for lack of a clear definition. It is proposed that a party “holds prestige” when group members generally believe that the party has a certain desirable quality, and this situation gives the party perceived power in the group. The definition gains support from a survey of international affairs writings on the sources of prestige. Prestige is strategically important when a party wants support from others who would rather join the side that more of the others are joining. Some general ways of acquiring …
Sinusoidal Modeling Applied To Spatially Variant Tropospheric Ozone Air Pollution, Nicholas Z. Muller, Peter C.B. Phillips
Sinusoidal Modeling Applied To Spatially Variant Tropospheric Ozone Air Pollution, Nicholas Z. Muller, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper demonstrates how parsimonious models of sinusoidal functions can be used to fit spatially variant time series in which there is considerable variation of a periodic type. A typical shortcoming of such tools relates to the difficulty in capturing idiosyncratic variation in periodic models. The strategy developed here addresses this deficiency. While previous work has sought to overcome the shortcoming by augmenting sinusoids with other techniques, the present approach employs station-specific sinusoids to supplement a common regional component, which succeeds in capturing local idiosyncratic behavior in a parsimonious manner. The experiments conducted herein reveal that a semi-parametric approach enables …
Indirect Inference For Dynamic Panel Models, Christian Gouriéroux, Peter C.B. Phillips, Jun Yu
Indirect Inference For Dynamic Panel Models, Christian Gouriéroux, Peter C.B. Phillips, Jun Yu
Cowles Foundation Discussion Papers
It is well-known that maximum likelihood (ML) estimation of the autoregressive parameter of a dynamic panel data model with fixed effects is inconsistent under fixed time series sample size ( T ) and large cross section sample size ( N ) asymptotics. The estimation bias is particularly relevant in practical applications when T is small and the autoregressive parameter is close to unity. The present paper proposes a general, computationally inexpensive method of bias reduction that is based on indirect inference (Gouriéroux et al., 1993), shows unbiasedness and analyzes efficiency. The method is implemented in a simple linear dynamic panel …
Repeated Games With Present-Biased Preferences, Hector Chade, Pavlo Prokopovych, Lones Smith
Repeated Games With Present-Biased Preferences, Hector Chade, Pavlo Prokopovych, Lones Smith
Cowles Foundation Discussion Papers
We study infinitely repeated games with observable actions, where players have present-biased (so-called beta-delta) preferences. We give a two-step procedure to characterize Strotz–Pollak equilibrium payoffs: compute the continuation payoff set using recursive techniques, and then use this set to characterize the equilibrium payoff set U(beta,delta). While Strotz–Pollak equilibrium and subgame perfection differ here, the generated paths and payoffs nonetheless coincide. We then explore the cost of the present-time bias. Fixing the total present value of 1 util flow, lower beta or higher delta shrinks the payoff set. Surprisingly, unless the minimax outcome is a Nash equilibrium of the stage game, …
Optimal Estimation Of Cointegrated Systems With Irrelevant Instruments, Peter C.B. Phillips
Optimal Estimation Of Cointegrated Systems With Irrelevant Instruments, Peter C.B. Phillips
Cowles Foundation Discussion Papers
It has been know since Phillips and Hansen (1990) that cointegrated systems can be consistently estimated using stochastic trend instruments that are independent of the system variables. A similar phenomenon occurs with deterministically trending instruments. The present work shows that such “irrelevant” deterministic trend instruments may be systematically used to produce asymptotically efficient estimates of a cointegrated system. The approach is convenient in practice, involves only linear instrumental variables estimation, and is a straightforward one step procedure with no loss of degrees of freedom in estimation. Simulations reveal that the procedure works well in practice, having little finite sample bias …
Refined Inference On Long Memory In Realized Volatility, Offer Lieberman, Peter C.B. Phillips
Refined Inference On Long Memory In Realized Volatility, Offer Lieberman, Peter C.B. Phillips
Cowles Foundation Discussion Papers
There is an emerging consensus in empirical finance that realized volatility series typically display long range dependence with a memory parameter (d) around 0.4 (Andersen et. al. (2001), Martens et. al. (2004)). The present paper provides some analytical explanations for this evidence and shows how recent results in Lieberman and Phillips (2004a, 2004b) can be used to refine statistical inference about d with little computational effort. In contrast to standard asymptotic normal theory now used in the literature which has an O ( n -1/2 ) error rate on error rejection probabilities, the asymptotic approximation used here has an error …
Bandit Problems, Dirk Bergemann, Juuso Välimäki
Bandit Problems, Dirk Bergemann, Juuso Välimäki
Cowles Foundation Discussion Papers
We survey the literature on multi-armed bandit models and their applications in economics. The multi-armed bandit problem is a statistical decision model of an agent trying to optimize his decisions while improving his information at the same time. This classic problem has received much attention in economics as it concisely models the trade-off between exploration (trying out each arm to find the best one) and exploitation (playing the arm believed to give the best payoff).
Gaussian Inference In Ar(1) Time Series With Or Without A Unit Root, Peter C.B. Phillips, Chirok Han
Gaussian Inference In Ar(1) Time Series With Or Without A Unit Root, Peter C.B. Phillips, Chirok Han
Cowles Foundation Discussion Papers
This note introduces a simple first-difference-based approach to estimation and inference for the AR(1) model. The estimates have virtually no finite sample bias, are not sensitive to initial conditions, and the approach has the unusual advantage that a Gaussian central limit theory applies and is continuous as the autoregressive coefficient passes through unity with a uniform / n rate of convergence. En route, a useful CLT for sample covariances of linear processes is given, following Phillips and Solo (1992). The approach also has useful extensions to dynamic panels.
Informational Herding And Optimal Experimentation, Lones Smith, Peter Norman Sorensen
Informational Herding And Optimal Experimentation, Lones Smith, Peter Norman Sorensen
Cowles Foundation Discussion Papers
We show that far from capturing a formally new phenomenon, informational herding is really a special case of single-person experimentation — and ‘bad herds’ the typical failure of complete learning. We then analyze the analogous team equilibrium, where individuals maximize the present discounted welfare of posterity. To do so, we generalize Gittins indices to our non-bandit learning problem, and thereby characterize when contrarian behaviour arises: (i) While herds are still constrained efficient, they arise for a strictly smaller belief set. (ii) A log-concave log-likelihood ratio density robustly ensures that individuals should lean more against their myopic preference for an action …
Caller Number Five: Timing Games That Morph From One Form To Another, Andreas Park, Lones Smith
Caller Number Five: Timing Games That Morph From One Form To Another, Andreas Park, Lones Smith
Cowles Foundation Discussion Papers
There are two varieties of timing games in economics: In a war of attrition, more predecessors helps; in a pre-emption game, more predecessors hurts. In this paper, we introduce and explore a spanning class with rank-order payoffs that subsumes both as special cases. In this environment with unobserved actions and complete information, there are endogenously-timed phase transition moments. We identify equilibria with a rich enough structure to capture a wide array of economic and social timing phenomena — shifting between phases of smooth and explosive entry. We introduce a tractable general theory of this class of timing games based on …
Simultaneous Search, Hector Chade, Lones Smith
Simultaneous Search, Hector Chade, Lones Smith
Cowles Foundation Discussion Papers
We introduce and solve a new class of “downward-recursive” static portfolio choice problems. An individual simultaneously chooses among ranked stochastic options, and each choice is costly. In the motivational application, just one may be exercised from those that succeed. This often emerges in practice, such as when a student applies to many colleges. We show that a greedy algorithm finds the optimal set. The optimal choices are “less aggressive” than the sequentially optimal ones, but “more aggressive” than the best singletons. The optimal set in general contains gaps. We provide a comparative static on the chosen set.
Optimal Bandwidth Selection In Heteroskedasticity-Autocorrelation Robust Testing, Yixiao Sun, Peter C.B. Phillips, Sainan Jin
Optimal Bandwidth Selection In Heteroskedasticity-Autocorrelation Robust Testing, Yixiao Sun, Peter C.B. Phillips, Sainan Jin
Cowles Foundation Discussion Papers
In time series regressions with nonparametrically autocorrelated errors, it is now standard empirical practice to use kernel-based robust standard errors that involve some smoothing function over the sample autocorrelations. The underlying smoothing parameter b, which can be defined as the ratio of the bandwidth (or truncation lag) to the sample size, is a tuning parameter that plays a key role in determining the asymptotic properties of the standard errors and associated semiparametric tests. Small- b asymptotics involve standard limit theory such as standard normal or chi-squared limits, whereas fixed-b asymptotics typically lead to nonstandard limit distributions involving Brownian bridge functionals. …
Assortative Matching And Repubation, Axel Anderson, Lones Smith
Assortative Matching And Repubation, Axel Anderson, Lones Smith
Cowles Foundation Discussion Papers
Consider Becker’s classic 1963 matching model, with unobserved fixed types and stochastic publicly observed output. If types are complementary, then matching is assortative in the known Bayesian posteriors (the ‘reputations’). We discover a robust failure of Becker’s result in the simplest dynamic two type version of this world. Assortative matching is generally neither efficient nor an equilibrium for high discount factors. In a labor theoretic rationale, we show that assortative matching fails around the highest (lowest) reputation agents for ‘low-skill (high-skill) concealing’ technologies. We then find that as the number of production outcomes grows, almost all technologies are of either …
Limit Theorems For Functionals Of Sums That Converge To Fractional Stable Motions, P. Jeganathan
Limit Theorems For Functionals Of Sums That Converge To Fractional Stable Motions, P. Jeganathan
Cowles Foundation Discussion Papers
No abstract provided.
Understanding Overbidding In Second Price Auctions: An Experimental Study, David J. Cooper, Hanming Fang
Understanding Overbidding In Second Price Auctions: An Experimental Study, David J. Cooper, Hanming Fang
Cowles Foundation Discussion Papers
This paper presents results from a series of second price private value auction (SPA) experiments in which bidders are either given for free, or are allowed to purchase, noisy signals about their opponents’ value. Even though theoretically such information about opponents’ value has no strategic use in the SPA, it provides us with a convenient instrument to change bidders’ perception about the “strength” (i.e., the value) of their opponent. We argue that the empirical relationship between the incidence and magnitude of overbidding and bidders’ perception of the strength of their opponent provides the key to understand whether overbidding in second …