Open Access. Powered by Scholars. Published by Universities.®

Social and Behavioral Sciences Commons

Open Access. Powered by Scholars. Published by Universities.®

Articles 1 - 30 of 68

Full-Text Articles in Social and Behavioral Sciences

Recursive Methods In Discounted Stochastic Games: An Algorithm For Delta Approaching 1 And A Folk Theorem, Johannes Hörner, Takuo Sugaya, Satoru Takahashi, Nicolas Vieille Dec 2009

Recursive Methods In Discounted Stochastic Games: An Algorithm For Delta Approaching 1 And A Folk Theorem, Johannes Hörner, Takuo Sugaya, Satoru Takahashi, Nicolas Vieille

Cowles Foundation Discussion Papers

We present an algorithm to compute the set of perfect public equilibrium payoffs as the discount factor tends to one for stochastic games with observable states and public (but not necessarily perfect) monitoring when the limiting set of (long-run players’) equilibrium payoffs is independent of the state. This is the case, for instance, if the Markov chain induced by any Markov strategy profile is irreducible. We then provide conditions under which a folk theorem obtains: if in each state the joint distribution over the public signal and next period’s state satisfies some rank condition, every feasible payoff vector above the …


A Specification Test For Instrumental Variables Regression With Many Instruments, Yoonseok Lee, Ryo Okui Dec 2009

A Specification Test For Instrumental Variables Regression With Many Instruments, Yoonseok Lee, Ryo Okui

Cowles Foundation Discussion Papers

This paper considers specification testing for instrumental variables estimation in the presence of many instruments. The test proposed is a modified version of the Sargan (1958, Econometrica 26(3): 393-415) test of overidentifying restrictions. The test statistic asymptotically follows the standard normal distribution under the null hypothesis of correct specification when the number of instruments increases with the sample size. We find that the new test statistic is numerically equivalent up to a sign to the test statistic proposed by Hahn and Hausman (2002, Econometrica 70(1): 163-189). We also assess the size and power properties of the test.


Selling Information, Johannes Hörner, Andrzej Skrzypacz Dec 2009

Selling Information, Johannes Hörner, Andrzej Skrzypacz

Cowles Foundation Discussion Papers

We characterize optimal selling protocols/equilibria of a game in which an Agent first puts hidden effort to acquire information and then transacts with a Firm that uses this information to take a decision. We determine the equilibrium payoffs that maximize incentives to acquire information. Our analysis is similar to finding ex ante optimal self-enforcing contracts since information sharing, outcomes and transfers cannot be contracted upon. We show when and how selling and transmitting information gradually helps. We also show how mixing/side bets increases the Agent’s incentives.


Selling Information, Johannes Hörner, Andrzej Skrzypacz Dec 2009

Selling Information, Johannes Hörner, Andrzej Skrzypacz

Cowles Foundation Discussion Papers

We study a dynamic buyer-seller problem in which the good is information and there are no property rights. The potential buyer is reluctant to pay for information whose value to him is uncertain, but the seller cannot credibly convey its value to the buyer without disclosing the information itself. Information comes as divisible hard evidence. We show how and why the seller can appropriate a substantial fraction of the value through gradual revelation, and how the entire value can be extracted with the help of a mediator.


Selling Information, Johannes Hörner, Andrzej Skrzypacz Dec 2009

Selling Information, Johannes Hörner, Andrzej Skrzypacz

Cowles Foundation Discussion Papers

An Agent who owns information that is potentially valuable to a Firm bargains for its sale, without commitment and certification possibilities, short of disclosing it. We propose a model of gradual persuasion and show how gradualism helps mitigate the hold-up problem (that the Firm would not pay once it learns the information). An example illustrates how it is optimal to give away part of the information at the beginning of the bargaining, and sell the remainder in dribs and drabs. The Agent can only appropriate part of the value of information. Introducing a third-party allows her to extract the maximum …


Biased Social Learning, Helios Herrera, Johannes Hörner Nov 2009

Biased Social Learning, Helios Herrera, Johannes Hörner

Cowles Foundation Discussion Papers

This paper examines social learning when only one of the two types of decisions is observable. Because agents arrive randomly over time, and only those who invest are observed, later agents face a more complicated inference problem than in the standard model, as the absence of investment might reflect either a choice not to invest, or a lack of arrivals. We show that, as in the standard model, learning is complete if and only if signals are unbounded. If signals are bounded, cascades may occur, and whether they are more or less likely than in the standard model depends on …


Belief-Free Equilibria In Games With Incomplete Information: Characterization And Existence, Johannes Hörner, Stefano Lovo, Tristan Tomala Nov 2009

Belief-Free Equilibria In Games With Incomplete Information: Characterization And Existence, Johannes Hörner, Stefano Lovo, Tristan Tomala

Cowles Foundation Discussion Papers

We characterize belief-free equilibria in infinitely repeated games with incomplete information with N > 2 players and arbitrary information structures. This characterization involves a new type of individual rational constraint linking the lowest equilibrium payoffs across players. The characterization is tight: we define a set of payoffs that contains all the belief-free equilibrium payoffs; conversely, any point in the interior of this set is a belief-free equilibrium payoff vector when players are sufficiently patient. Further, we provide necessary conditions and sufficient conditions on the information structure for this set to be non-empty, both for the case of known-own payoffs, and for …


On A Markov Game With One-Sided Incomplete Information, Johannes Hörner, Dinah Rosenberg, Eilon Solan, Nicolas Vieille Nov 2009

On A Markov Game With One-Sided Incomplete Information, Johannes Hörner, Dinah Rosenberg, Eilon Solan, Nicolas Vieille

Cowles Foundation Discussion Papers

We apply the average cost optimality equation to zero-sum Markov games, by considering a simple game with one-sided incomplete information that generalizes an example of Aumann and Maschler (1995). We determine the value and identify the optimal strategies for a range of parameters.


Nonparametric Tests Of Conditional Treatment Effects, Sokbae Lee, Yoon-Jae Whang Nov 2009

Nonparametric Tests Of Conditional Treatment Effects, Sokbae Lee, Yoon-Jae Whang

Cowles Foundation Discussion Papers

We develop a general class of nonparametric tests for treatment effects conditional on covariates. We consider a wide spectrum of null and alternative hypotheses regarding conditional treatment effects, including (i) the null hypothesis of the conditional stochastic dominance between treatment and control groups; (ii) the null hypothesis that the conditional average treatment effect is positive for each value of covariates; and (iii) the null hypothesis of no distributional (or average) treatment effect conditional on covariates against a one-sided (or two-sided) alternative hypothesis. The test statistics are based on L 1 -type functionals of uniformly consistent nonparametric kernel estimators of conditional …


Strategic Supply Function Competition With Private Information, Xavier Vives Oct 2009

Strategic Supply Function Competition With Private Information, Xavier Vives

Cowles Foundation Discussion Papers

A finite number of sellers ( n ) compete in schedules to supply an elastic demand. The costs of the sellers have uncertain common and private value components and there is no exogenous noise in the system. A Bayesian supply function equilibrium is characterized; the equilibrium is privately revealing and the incentives to acquire information are preserved. Price-cost margins and bid shading are affected by the parameters of the information structure: supply functions are steeper with more noise in the private signals or more correlation among the costs parameters. In fact, for large values of noise or correlation supply functions …


Default Penalty As A Disciplinary And Selection Mechanism In Presence Of Multiple Equilibria, Juergen Huber, Martin Shubik, Shyam Sunder Oct 2009

Default Penalty As A Disciplinary And Selection Mechanism In Presence Of Multiple Equilibria, Juergen Huber, Martin Shubik, Shyam Sunder

Cowles Foundation Discussion Papers

Closed exchange and production-and-exchange economies may have multiple equilibria, a fact that is usually ignored in macroeconomic models. Our basic argument is that default and bankruptcy laws are required to prevent strategic default, and these laws can also serve to provide the conditions for uniqueness. In this paper we report experimental evidence on the effectiveness of this approach to resolving multiplicity: society can assign default penalties on fiat money so the economy selects one of the equilibria. Our data show that the choice of default penalty takes the economy to the neighborhood of the chosen equilibrium. The theory and evidence …


Identification Of A Heterogeneous Generalized Regression Model With Group Effects, Steven T. Berry, Philip A. Haile Oct 2009

Identification Of A Heterogeneous Generalized Regression Model With Group Effects, Steven T. Berry, Philip A. Haile

Cowles Foundation Discussion Papers

We consider identification in a “generalized regression model” (Han, 1987) for panel settings in which each observation can be associated with a “group” whose members are subject to a common unobserved shock. Common examples of groups include markets, schools or cities. The model is fully nonparametric and allows for the endogeneity of group-specific observables, which might include prices, policies, and/or treatments. The model features heterogeneous responses to observables and unobservables, and arbitrary heteroskedasticity. We provide sufficient conditions for full identification of the model, as well as weaker conditions sufficient for identification of the latent group effects and the distribution of …


Uniform Topologies On Types, Yi-Chun Chen, Alfredo Di Tillio, Eduardo Faingold, Siyang Xiong Oct 2009

Uniform Topologies On Types, Yi-Chun Chen, Alfredo Di Tillio, Eduardo Faingold, Siyang Xiong

Cowles Foundation Discussion Papers

We study the robustness of interim correlated rationalizability to perturbations of higher-order beliefs. We introduce a new metric topology on the universal type space, called uniform weak topology, under which two types are close if they have similar first-order beliefs, attach similar probabilities to other players having similar first-order beliefs, and so on, where the degree of similarity is uniform over the levels of the belief hierarchy. This topology generalizes the now classic notion of proximity to common knowledge based on common p-beliefs (Monderer and Samet (1989)). We show that convergence in the uniform weak topology implies convergence in the …


Default Penalty As A Selection Mechanism Among Multiple Equilibria, Juergen Huber, Martin Shubik, Shyam Sunder Oct 2009

Default Penalty As A Selection Mechanism Among Multiple Equilibria, Juergen Huber, Martin Shubik, Shyam Sunder

Cowles Foundation Discussion Papers

The possibility of the presence of multiple equilibria in closed exchange and production-and-exchange economies is usually ignored in macroeconomic models even though they are important in real economies. We argue that default and bankruptcy laws serve to provide the conditions for uniqueness of an equilibrium. In this paper, we report experimental evidence on the effectiveness of this approach to resolving multiplicity: a society can assign default penalties on fiat money so that the economy selects one of the equilibria. The laboratory data show that the choice of default penalty takes the economy near the chosen equilibrium. The theory and evidence …


Default Penalty As A Selection Mechanism Among Multiple Equilibria, Juergen Huber, Martin Shubik, Shyam Sunder Oct 2009

Default Penalty As A Selection Mechanism Among Multiple Equilibria, Juergen Huber, Martin Shubik, Shyam Sunder

Cowles Foundation Discussion Papers

Closed exchange and production-and-exchange economies may have multiple equilibria, a fact that is usually ignored in macroeconomic models. Our basic argument is that default and bankruptcy laws are required to prevent strategic default, and these laws can also serve to provide the conditions for uniqueness. In this paper, we report experimental evidence on the effectiveness of this approach to resolving multiplicity: a society can assign default penalties on fiat money so that the economy selects one of the equilibria. Our data show that the choice of default penalty takes the economy close to the chosen equilibrium. The theory and evidence …


El Farol Revisited: A Note On Emergence, Game Theory And Society, Martin Shubik Oct 2009

El Farol Revisited: A Note On Emergence, Game Theory And Society, Martin Shubik

Cowles Foundation Discussion Papers

The El Farol Bar problem with coordination is reconsidered in terms and extended with consideration of further context.


Breach, Remedies And Dispute Settlement In Trade Agreements, Giovanni Maggi, Robert W. Staiger Oct 2009

Breach, Remedies And Dispute Settlement In Trade Agreements, Giovanni Maggi, Robert W. Staiger

Cowles Foundation Discussion Papers

We provide a simple but novel model of trade agreements that highlights the role of transaction costs, renegotiation and dispute settlement. The model allows us to characterize the appropriate remedy for breach and whether the agreement should be structured as a system of “property rights” or “liability rules.” We then study how the optimal rules depend on the underlying economic and contracting environment. Our model also delivers predictions about the outcome of trade disputes, and in particular about the propensity of countries to settle early versus “fighting it out.”


Semiparametric Efficiency Bound For Models Of Sequential Moment Restrictions Containing Unknown Functions, Chunrong Ai, Xiaohong Chen Oct 2009

Semiparametric Efficiency Bound For Models Of Sequential Moment Restrictions Containing Unknown Functions, Chunrong Ai, Xiaohong Chen

Cowles Foundation Discussion Papers

This paper computes the semiparametric efficiency bound for finite dimensional parameters identified by models of sequential moment restrictions containing unknown functions. Our results extend those of Chamberlain (1992b) and Ai and Chen (2003) for semiparametric conditional moment restriction models with identical information sets to the case of nested information sets, and those of Chamberlain (1992a) and Brown and Newey (1998) for models of sequential moment restrictions without unknown functions to cases with unknown functions of possibly endogenous variables. Our bound results are applicable to semiparametric panel data models and semiparametric two stage plug-in problems. As an example, we compute the …


Incentives For Experimenting Agents, Johannes Hörner, Larry Samuelson Sep 2009

Incentives For Experimenting Agents, Johannes Hörner, Larry Samuelson

Cowles Foundation Discussion Papers

We examine a repeated interaction between an agent, who undertakes experiments, and a principal who provides the requisite funding for these experiments. The agent’s actions are hidden, and the principal, who makes the offers, cannot commit to future actions. We identify the unique Markovian equilibrium (whose structure depends on the parameters) and characterize the set of all equilibrium payoffs, uncovering a collection of non-Markovian equilibria that can Pareto dominate and reverse the qualitative properties of the Markovian equilibrium. The prospect of lucrative continuation payoffs makes it more expensive for the principal to incentivize the agent, giving rise to a dynamic …


Incentives For Experimenting Agents, Johannes Hörner, Larry Samuelson Sep 2009

Incentives For Experimenting Agents, Johannes Hörner, Larry Samuelson

Cowles Foundation Discussion Papers

We examine a repeated interaction between an agent, who undertakes experiments, and a principal who provides the requisite funding for these experiments. The agent’s actions are hidden, and the principal, who makes the offers, cannot commit to future actions. We identify the unique Markovian equilibrium (whose structure depends on the parameters) and characterize the set of all equilibrium payoffs, uncovering a collection of non-Markovian equilibria that can Pareto dominate and reverse the qualitative properties of the Markovian equilibrium. The prospect of lucrative continuation payoffs makes it more expensive for the principal to incentivize the agent, giving rise to a dynamic …


Incentives For Experimenting Agents, Johannes Hörner, Larry Samuelson Sep 2009

Incentives For Experimenting Agents, Johannes Hörner, Larry Samuelson

Cowles Foundation Discussion Papers

We examine a repeated interaction between an agent, who undertakes experiments, and a principal who provides the requisite funding for these experiments. The repeated interaction gives rise to a dynamic agency cost — the more lucrative is the agent’s stream of future rents following a failure, the more costly are current incentives for the agent, giving the principal an incentive to reduce the continuation value of the project. We characterize the set of recursive Markov equilibria. We also find that there are non-Markov equilibria that make the principal better off than the recursive Markov equilibrium, and that may make both …


Incentives For Experimenting Agents, Johannes Hörner, Larry Samuelson Sep 2009

Incentives For Experimenting Agents, Johannes Hörner, Larry Samuelson

Cowles Foundation Discussion Papers

We examine a repeated interaction between an agent, who undertakes experiments, and a principal who provides the requisite funding for these experiments. The repeated interaction gives rise to a dynamic agency cost — the more lucrative is the agent’s stream of future rents following a failure, the more costly are current incentives for the agent, giving the principal an incentive to reduce the continuation value of the project. We characterize the set of recursive Markov equilibria. We show that there are non-Markov equilibria that make the principal better off than the recursive Markov equilibrium, and that may make both players …


Possible Macroeconomic Consequences Of Large Future Federal Government Deficits, Ray C. Fair Sep 2009

Possible Macroeconomic Consequences Of Large Future Federal Government Deficits, Ray C. Fair

Cowles Foundation Discussion Papers

This paper uses a multicountry macroeconometric model to analyze possible macroeconomic consequences of large future U.S. federal government deficits. The analysis has the advantage of accounting for the endogeneity of the deficit. In the baseline run, which assumes no large tax increases or spending cuts and no bad dollar and stock market shocks, the debt/GDP ratio rises substantially through 2020. The estimates from this run are in line with other estimates. Various experiments off the baseline run are then done. If the dollar depreciates, inflation increases but the effect on the debt/GDP ratio is modest. It does not appear that …


Has Macro Progressed?, Ray C. Fair Sep 2009

Has Macro Progressed?, Ray C. Fair

Cowles Foundation Discussion Papers

There have been a number of recent papers arguing that there has been considerable convergence in macro research and to the good. This paper considers the question whether what has been converged to is good. Has progress been made in understanding how the macro economy works?


Marshallian Money, Welfare, And Side-Payments, Cheng-Zhong Qin, Lloyd S. Shapley, Martin Shubik Sep 2009

Marshallian Money, Welfare, And Side-Payments, Cheng-Zhong Qin, Lloyd S. Shapley, Martin Shubik

Cowles Foundation Discussion Papers

A link between a no-side-payment (NSP) market game and a side-payment (SP) market game can be established by introducing a sufficient amount of an ideal utility-money of constant marginal utility to all agents. At some point when there is “enough money” in the system, if it is “well distributed” the new game will be a SP game. This game can also be related to a pure NSP game where a set of default parameters have been introduced. These parameters play a role similar to the parameters specifying the interpersonal comparisons in the side-payment game. We study this game for the …


The Case For Trills: Giving The People And Their Pension Funds A Stake In The Wealth Of The Nation, Mark Kamstra, Robert J. Shiller Aug 2009

The Case For Trills: Giving The People And Their Pension Funds A Stake In The Wealth Of The Nation, Mark Kamstra, Robert J. Shiller

Cowles Foundation Discussion Papers

We make the case for the U.S. government to issue a new security with a coupon tied to the United States’ current dollar GDP. This security might pay, for example, a coupon of one-trillionth of the GDP, and we propose the name “Trill” be used to refer to this new security. This new debt instrument should be of great interest to the Government for its stabilizing influence on the budget (as coupon payments fall in a recession with declining tax revenues) and for its yield, based on our valuation. Standard asset pricing analysis also suggests that Trills would enable important …


Hyperbolic Discounting Is Rational: Valuing The Far Future With Uncertain Discount Rates, J. Doyne Farmer, John Geanakoplos Aug 2009

Hyperbolic Discounting Is Rational: Valuing The Far Future With Uncertain Discount Rates, J. Doyne Farmer, John Geanakoplos

Cowles Foundation Discussion Papers

Conventional economics supposes that agents value the present vs. the future using an exponential discounting function. In contrast, experiments with animals and humans suggest that agents are better described as hyperbolic discounters, whose discount function decays much more slowly at large times, as a power law. This is generally regarded as being time inconsistent or irrational. We show that when agents cannot be sure of their own future one-period discount rates, then hyperbolic discounting can become rational and exponential discounting irrational. This has important implications for environmental economics, as it implies a much larger weight for the far future.


Nonparametric Estimation In Random Coefficients Binary Choice Models, Eric Gautier, Yuichi Kitamura Aug 2009

Nonparametric Estimation In Random Coefficients Binary Choice Models, Eric Gautier, Yuichi Kitamura

Cowles Foundation Discussion Papers

This paper considers random coefficients binary choice models. The main goal is to estimate the density of the random coefficients nonparametrically. This is an ill-posed inverse problem characterized by an integral transform. A new density estimator for the random coefficients is developed, utilizing Fourier-Laplace series on spheres. This approach offers a clear insight on the identification problem. More importantly, it leads to a closed form estimator formula that yields a simple plug-in procedure requiring no numerical optimization. The new estimator, therefore, is easy to implement in empirical applications, while being flexible about the treatment of unobserved heterogeneity. Extensions including treatments …


Nonparametric Identification Of Multinomial Choice Demand Models With Heterogeneous Consumers, Steven T. Berry, Philip A. Haile Aug 2009

Nonparametric Identification Of Multinomial Choice Demand Models With Heterogeneous Consumers, Steven T. Berry, Philip A. Haile

Cowles Foundation Discussion Papers

We consider identification of nonparametric random utility models of multinomial choice using “micro data,” i.e., observation of the characteristics and choices of individual consumers. Our model of preferences nests random coefficients discrete choice models widely used in practice with parametric functional form and distributional assumptions. However, the model is nonparametric and distribution free. It allows choice-specific unobservables, endogenous choice characteristics, unknown heteroskedasticity, and high-dimensional correlated taste shocks. Under standard “large support” and instrumental variables assumptions, we show identifiability of the random utility model. We demonstrate robustness of these results to relaxation of the large support condition and show that when …


Robustness, Infinitesimal Neighborhoods, And Moment Restrictions, Yuichi Kitamura, Taisuke Otsu, Kirill Evdokomov Aug 2009

Robustness, Infinitesimal Neighborhoods, And Moment Restrictions, Yuichi Kitamura, Taisuke Otsu, Kirill Evdokomov

Cowles Foundation Discussion Papers

This paper is concerned with robust estimation under moment restrictions. A moment restriction model is semiparametric and distribution-free, therefore it imposes mild assumptions. Yet it is reasonable to expect that the probability law of observations may have some deviations from the ideal distribution being modeled, due to various factors such as measurement errors. It is then sensible to seek an estimation procedure that are robust against slight perturbation in the probability measure that generates observations. This paper considers local deviations within shrinking topological neighborhoods to develop its large sample theory, so that both bias and variance matter asymptotically. The main …