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Full-Text Articles in Social and Behavioral Sciences

Absenteeism, Substitutes, Complements, And The Banzhaf Index, Thomas Quint Dec 2003

Absenteeism, Substitutes, Complements, And The Banzhaf Index, Thomas Quint

Cowles Foundation Discussion Papers

We consider the voting-with-absenteeism game of Quint-Shubik (2003). In that paper we defined a power index for such games, called the absentee index. Our analysis was based on the theory of the Shapley-Shubik power index (SSPI) for simple games. In this paper we do an analogous analysis, based on the Banzhaf index instead of the SSPI. The result is a new index, called the absentee Banzhaf index. We provide an axiomatization and multilinear extension formula for this index. Finally, we re-explore Myerson’s (1977, 1980) “balanced contributions” property, and the concept of substitutes and complements for simple games (Quint-Shubik 2003), again …


Absenteeism, Substitutes, And Complements In Simple Games, Thomas Quint, Martin Shubik Dec 2003

Absenteeism, Substitutes, And Complements In Simple Games, Thomas Quint, Martin Shubik

Cowles Foundation Discussion Papers

A voting with absenteeism game is defined as a pair (G;r) where G is an n-player (monotonic) simple game and r is an n-vector for which r i is the probability that player i attends a vote. We define a power index for such games, called the absentee index. We axiomatize the absentee index and provide a multilinear extension formula for it. Using this analysis we re-derive Myerson’s (1977, 1980) “balanced contributions” property for the Shapley-Shubik power index. In fact, we derive a formula which quantitatively gives the amount of the ‘balanced contributions” in terms of the coefficients of the …


Dollar Denominated Debt And Optimal Security Design, John Geanakoplos, Felix Kubler Dec 2003

Dollar Denominated Debt And Optimal Security Design, John Geanakoplos, Felix Kubler

Cowles Foundation Discussion Papers

During a crisis, developing countries regret having issued dollar denominated debt because they have to pay more when they have less. Ex ante, however, they may be worse off issuing local currency debt because the equilibrium interest rate might rise, making it more expensive for them to borrow. Many authors have assumed that lenders and borrowers have contrary goals, and that local currency (peso) debt is better for the borrower (Bolivia), and dollar debt is better for the lender (America). We show that if each country is represented by a single consumer with quadratic utilities, in perfect competition, then both …


A Behavioral Model Of Bargaining With Endogenous Types, Dilip Abreu, David G. Pearce Nov 2003

A Behavioral Model Of Bargaining With Endogenous Types, Dilip Abreu, David G. Pearce

Cowles Foundation Discussion Papers

We enrich a simple two-person bargaining model by introducing “behavioral types” who concede more slowly than does the average person in the economy. The presence of behavioral types profoundly influences the choices of optimizing types. In equilibrium, concessions are calculated to induce “reciprocity”: a substantial concession by player i is followed by a period in which j is much more likely to make a concession than usual. This favors concessions by i that are neither very small nor large enough to end the bargaining immediately. A key difference from the traditional method of perturbing a game is that the actions …


Can One Estimate The Conditional Distribution Of Post-Model-Selection Estimators?, Hannes Leeb, Benedikt M. Pötscher Nov 2003

Can One Estimate The Conditional Distribution Of Post-Model-Selection Estimators?, Hannes Leeb, Benedikt M. Pötscher

Cowles Foundation Discussion Papers

We consider the problem of estimating the conditional distribution of a post-model-selection estimator where the conditioning is on the selected model. The notion of a post-model-selection estimator here refers to the combined procedure resulting from first selecting a model (e.g., by a model selection criterion like AIC or by a hypothesis testing procedure) and second estimating the parameters in the selected model (e.g., by least-squares or maximum likelihood), all based on the same data set. We show that it is impossible to estimate this distribution with reasonable accuracy even asymptotically. In particular, we show that no estimator for this distribution …


Nonparametric Tests For Common Values In First-Price Sealed-Bid Auctions, Philip A. Haile, Han Hong, Matthew Shum Nov 2003

Nonparametric Tests For Common Values In First-Price Sealed-Bid Auctions, Philip A. Haile, Han Hong, Matthew Shum

Cowles Foundation Discussion Papers

We develop tests for common values at first-price sealed-bid auctions. Our tests are nonparametric, require observations only of the bids submitted at each auction, and are based on the fact that the “winner’s curse” arises only in common values auctions. The tests build on recently developed methods for using observed bids to estimate each bidder’s conditional expectation of the value of winning the auction. Equilibrium behavior implies that in a private values auction these expectations are invariant to the number of opponents each bidder faces, while with common values they are decreasing in the number of opponents. This distinction forms …


Nota Bene; Volume Xvii, Number Ii, Yale University Library Oct 2003

Nota Bene; Volume Xvii, Number Ii, 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 2003 Fall, The Politic, Inc. Oct 2003

The Politic 2003 Fall, The Politic, Inc.

The Politic

No abstract provided.


The Edgeworth, Cournot And Walrasian Cores Of An Economy, Martin Shubik Oct 2003

The Edgeworth, Cournot And Walrasian Cores Of An Economy, Martin Shubik

Cowles Foundation Discussion Papers

Three variations of the core of a market game representing an exchange economy are considered and compared. The possibility for utilizing the Walrasian core to reflect certain monetary phenomena is noted.


The Invention Of Inflation-Indexed Bonds In Early America, Robert J. Shiller Oct 2003

The Invention Of Inflation-Indexed Bonds In Early America, Robert J. Shiller

Cowles Foundation Discussion Papers

The world’s first known inflation-indexed bonds were issued by the Commonwealth of Massachusetts in 1780 during the Revolutionary War. These bonds were invented to deal with severe wartime inflation and with angry discontent among soldiers in the U.S. Army with the decline in purchasing power of their pay. Although the bonds were successful, the concept of indexed bonds was abandoned after the immediate extreme inflationary environment passed, and largely forgotten until the twentieth century. In 1780, the bonds were viewed as at best only an irregular expedient, since there was no formulated economic theory to justify indexation.


An Efficiency Rationale For Bundling Of Public Goods, Hanming Fang, Peter Norman Oct 2003

An Efficiency Rationale For Bundling Of Public Goods, Hanming Fang, Peter Norman

Cowles Foundation Discussion Papers

This paper studies the role of bundling in the efficient provision of excludable public goods. We show that bundling in the provision of unrelated public goods can enhance social welfare. With a large number of goods and agents, first best can be approximated with pure bundling. For a parametric class of problems with binary valuations, we characterize the optimal mechanism, and show that bundling alleviates the free riding problem in large economies and decreases the extent of use exclusions. Both results are related to the idea that bundling makes it possible to reduce the incidence of exclusions because the variance …


Optimal Provision Of Multiple Excludable Public Goods, Hanming Fang, Peter Norman Oct 2003

Optimal Provision Of Multiple Excludable Public Goods, Hanming Fang, Peter Norman

Cowles Foundation Discussion Papers

This paper studies the optimal provision mechanism for multiple excludable public goods when agents’ valuations are private information. For a parametric class of problems with binary valuations, we characterize the optimal mechanism, and show that it involves bundling. Bundling alleviates the free riding problem in large economies in two ways: first, it can increase the asymptotic provision probability of socially efficient public goods from zero to one; second, it decreases the extent of use exclusions.


A Double Auction Market: Teaching, Experiment And Theory, Martin Shubik Oct 2003

A Double Auction Market: Teaching, Experiment And Theory, Martin Shubik

Cowles Foundation Discussion Papers

A simultaneous double auction market with bid and offer cards was utilized in classes on the theory and history of money and financial institutions and occasionally in classes on the theory of games. The prime purpose in using this game was to teach the students how to construct process models of economic phenomena. The second purpose was to consider the properties of the double auction market. The third purpose was to interpret the experimental results an link them to theory.


To Bundle Or Not To Bundle, Hanming Fang, Peter Norman Oct 2003

To Bundle Or Not To Bundle, Hanming Fang, Peter Norman

Cowles Foundation Discussion Papers

Commodity bundling is studied in an environment where the dispersion of valuations unambiguously decreases when two or more goods are sold as a bundle only. Bundling is more likely to dominate separately selling the goods if marginal costs are low relative to the average valuation, or if the distribution of valuations is very peaked around the mean.


Long Run Variance Estimation Using Steep Origin Kernels Without Truncation, Peter C.B. Phillips, Yixiao Sun, Sainan Jin Sep 2003

Long Run Variance Estimation Using Steep Origin Kernels Without Truncation, Peter C.B. Phillips, Yixiao Sun, Sainan Jin

Cowles Foundation Discussion Papers

A new class of kernel estimates is proposed for long run variance (LRV) and heteroskedastic autocorrelation consistent (HAC) estimation. The kernels are called steep origin kernels and are related to a class of sharp origin kernels explored by the authors (2003) in other work. They are constructed by exponentiating a mother kernel (a conventional lag kernel that is smooth at the origin) and they can be used without truncation or bandwidth parameters. When the exponent is passed to infinity with the sample size, these kernels produce consistent LRV/HAC estimates. The new estimates are shown to have limit normal distributions, and …


On The Empirical Content Of Quantal Response Equilibrium, Philip A. Haile, Ali Hortaçsu, Grigory Kosenok Sep 2003

On The Empirical Content Of Quantal Response Equilibrium, Philip A. Haile, Ali Hortaçsu, Grigory Kosenok

Cowles Foundation Discussion Papers

The quantal response equilibrium (QRE) notion of McKelvey and Palfrey (1995) has recently attracted considerable attention, due largely to its widely documented ability to rationalize observed behavior in games played by experimental subjects. We show that this ability to fit the data, as typically measured in this literature, is uninformative. Without a priori distributional assumptions, a QRE can match any distribution of behavior by each player in any normal form game. We discuss approaches that might be taken to provide valid empirical evaluation of the QRE and discuss its potential value as an approximating empirical structure.


Risk And Wealth In A Model Of Self-Fulfilling Currency Attacks, Bernardo Guimarães, Stephen Morris Sep 2003

Risk And Wealth In A Model Of Self-Fulfilling Currency Attacks, Bernardo Guimarães, Stephen Morris

Cowles Foundation Discussion Papers

Market participants’ risk attitudes, wealth and portfolio composition influence their positions in a pegged foreign currency and, therefore, may have important effects on the sustainability of currency pegs. We analyze such effects in a global game model of currency crises with continuous action choices. The model, solved in closed form, generates a rich set of theoretical predictions consistent with many popular and academic (unmodelled) speculations about the onset and timing of currency crises. The results extend linearly to a heterogeneous agent population.


Incidental Trends And The Power Of Panel Unit Root Tests, Hyungsik Roger Moon, Benoit Perron, Peter C.B. Phillips Sep 2003

Incidental Trends And The Power Of Panel Unit Root Tests, Hyungsik Roger Moon, Benoit Perron, Peter C.B. Phillips

Cowles Foundation Discussion Papers

The asymptotic local powers of various panel unit root tests are investigated. The power envelope is obtained under homogeneous and heterogeneous alternatives. It is compared with asymptotic power functions of the pooled t -test, the Ploberger–Phillips (2002) test, and a point optimal test in neighborhoods of unity that are of order n –1/ 4 T –1 and n –1/ 2 T –1 , depending on whether or not incidental trends are extracted from the panel data. In the latter case, when the alternative hypothesis is homogeneous across individuals, it is shown that the point optimal test and Ploberger–Phillips test both …


Risk And Wealth In A Model Of Self-Fulfilling Currency Attacks, Bernardo Guimarães, Stephen Morris Sep 2003

Risk And Wealth In A Model Of Self-Fulfilling Currency Attacks, Bernardo Guimarães, Stephen Morris

Cowles Foundation Discussion Papers

We analyze the effect of risk aversion, wealth and portfolios on the behavior of investors in a global game model of currency crises with continuous action choices. The model generates a rich set of striking theoretical predictions. For example, risk aversion makes currency crises significantly less likely; increased wealth makes crises more likely; and foreign direct investment (illiquid investments in the target currency) make crises more likely. Our results extend linearly to a heterogeneous agent population.


Liquidity Black Holes, Stephen Morris, Hyun Song Shin Sep 2003

Liquidity Black Holes, Stephen Morris, Hyun Song Shin

Cowles Foundation Discussion Papers

Traders with short horizons and privately known trading limits interact in a market for a risky asset. Risk-averse, long horizon traders supply a downward sloping residual demand curve that face the short-horizon traders. When the price falls close to the trading limits of the short horizon traders, selling of the risky asset by any trader increases the incentives for others to sell. Sales become mutually reinforcing among the short term traders, and payoffs analogous to a bank run are generated. A “liquidity black hole” is the analogue of the run outcome in a bank run model. Short horizon traders sell …


Prewhitening Bias In Hac Estimation, Donggyu Sul, Peter C.B. Phillips, Chi-Young Choi Sep 2003

Prewhitening Bias In Hac Estimation, Donggyu Sul, Peter C.B. Phillips, Chi-Young Choi

Cowles Foundation Discussion Papers

HAC estimation commonly involves the use of prewhitening filters based on simple autoregressive models. In such applications, small sample bias in the estimation of autoregressive coefficients is transmitted to the recoloring filter, leading to HAC variance estimates that can be badly biased. The present paper provides an analysis of these issues using asymptotic expansions and simulations. The approach we recommend involves the use of recursive demeaning procedures that mitigate the effects of small sample autoregressive bias. Moreover, a commonly-used restriction rule on the prewhitening estimates (that first order autoregressive coefficient estimates, or largest eigenvalues, greater than 0.97 be replaced by …


Bias In Dynamic Panel Estimation With Fixed Effects, Incidental Trends And Cross Section Dependence, Peter C.B. Phillips, Donggyu Sul Sep 2003

Bias In Dynamic Panel Estimation With Fixed Effects, Incidental Trends And Cross Section Dependence, Peter C.B. Phillips, Donggyu Sul

Cowles Foundation Discussion Papers

Explicit asymptotic bias formulae are given for dynamic panel regression estimators as the cross section sample size N → ∞. The results extend earlier work by Nickell (1981) and later authors in several directions that are relevant for practical work, including models with unit roots, deterministic trends, predetermined and exogenous regressors, and errors that may be cross sectionally dependent. The asymptotic bias is found to be so large when incidental linear trends are fitted and the time series sample size is small that it changes the sign of the autoregressive coefficient. Another finding of interest is that, when there is …


On The Empirical Content Of Quantal Response Equilibrium, Philip A. Haile, Ali Hortaçsu, Grigory Kosenok Aug 2003

On The Empirical Content Of Quantal Response Equilibrium, Philip A. Haile, Ali Hortaçsu, Grigory Kosenok

Cowles Foundation Discussion Papers

The quantal response equilibrium (QRE) notion of McKelvey and Palfrey (1995) has recently attracted considerable attention, due in part to its widely documented ability to rationalize observed behavior in games played by experimental subjects. However, even with strong a priori restrictions on unobservables, QRE imposes no falsifiable restrictions: it can rationalize any distribution of behavior in any normal form game. After demonstrating this, we discuss several approaches to testing QRE under additional maintained assumptions.


Missing Aggregate Dynamics: On The Slow Convergence Of Lumpy Adjustment Models, Ricardo J. Caballero, Eduardo Engel Jul 2003

Missing Aggregate Dynamics: On The Slow Convergence Of Lumpy Adjustment Models, Ricardo J. Caballero, Eduardo Engel

Cowles Foundation Discussion Papers

The dynamic response of aggregate variables to shocks is one of the central concerns of applied macroeconomics. The main measurement procedure for these dynamics consists of estimating an ARMA or VAR (VARs, for short). In non- or semi-structural approaches, the characterization of dynamics stops there. In other, more structural approaches, researcher try to uncover underlying adjustment cost parameters from the estimated VARs. Yet, in others, such as in RBC models, these estimates are used as the benchmark over which the success of the calibration exercise, and the need for further theorizing, is assessed. The main point of this paper is …


Uniqueness Of Equilibrium In The Multi-Country Ricardo Model, Herbert E. Scarf, Charles A. Wilson Jul 2003

Uniqueness Of Equilibrium In The Multi-Country Ricardo Model, Herbert E. Scarf, Charles A. Wilson

Cowles Foundation Discussion Papers

We present two arguments, one based on index theory, demonstrating that the multi-country Ricardo model has a unique competitive equilibrium if the aggregate demand functions exhibit gross substitutability. The result is somewhat surprising because the assumption of gross substitutability is sufficient for uniqueness in a model of exchange but not, in general, when production is included in the model.


The Ideal Inflation Indexed Bond And Irving Fisher's Impatience Theory Of Interest In An Overlapping Generations World, John Geanakoplos Jul 2003

The Ideal Inflation Indexed Bond And Irving Fisher's Impatience Theory Of Interest In An Overlapping Generations World, John Geanakoplos

Cowles Foundation Discussion Papers

Irving Fisher long advocated inflation indexed bonds. I prove in the context of a multicommodity CAPM world that the best welfare improving bond pays the minimum money needed to achieve the same utility, and not the minimum needed to buy an ideal commodity bundle. Irving Fisher also developed and advocated the impatience theory of interest. But in OLG economies, the rate of interest is determined by population growth, not impatience. I reconcile this contradiction by proving that in stationary OLG economies with land, the interest rate at the unique steady state does depend on impatience. Indeed, the proposition that greater …


Optimal Control And Stochastic Simulation Of Large Nonlinear Models With Rational Expectations, Ray C. Fair Jun 2003

Optimal Control And Stochastic Simulation Of Large Nonlinear Models With Rational Expectations, Ray C. Fair

Ray C Fair

This paper presents a computationally feasible procedure for the optimal control and stochastic simulation of large nonlinear models with rational expectations under the assumption of certainty equivalence.


Determinacy With Nominal Assets And Outside Money, Pradeep Dubey, John Geanakoplos Jun 2003

Determinacy With Nominal Assets And Outside Money, Pradeep Dubey, John Geanakoplos

Cowles Foundation Discussion Papers

We build a finite horizon model with inside and outside money, in which interest rates, price levels and commodity allocations are determinate, even though asset markets are incomplete and asset deliveries are purely nominal.


The Inflationary Bias Of Real Uncertainty And The Harmonic Fisher Equation, Ioannis Karatzas, Martin Shubik, William D. Sudderth, John Geanakoplos Jun 2003

The Inflationary Bias Of Real Uncertainty And The Harmonic Fisher Equation, Ioannis Karatzas, Martin Shubik, William D. Sudderth, John Geanakoplos

Cowles Foundation Discussion Papers

Arrow’s original proof of his impossibility theorem proceeded in two steps: showing the existence of a decisive voter, and then showing that a decisive voter is a dictator. Barbera replaced the decisive voter with the weaker notion of a pivotal voter, thereby shortening the first step, but complicating the second step. I give three brief proofs, all of which turn on replacing the decisive/pivotal voter with an extremely pivotal voter (a voter who by unilaterally changing his vote can move some alternative from the bottom of the social ranking to the top), thereby simplifying both steps in Arrow’s proof. My …


Indeterminacy, Nonparametric Calibration And Counterfactual Equilibria, Donald J. Brown, Ravi Kannan Jun 2003

Indeterminacy, Nonparametric Calibration And Counterfactual Equilibria, Donald J. Brown, Ravi Kannan

Cowles Foundation Discussion Papers

We propose a nonparametric approach to multiple calibration of numerical general equilibrium models, where counterfactual equilibria are solutions to the Walrasian inequalities. We present efficient approximation schemes for deciding the solvability of Walrasian inequalities.