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Articles 1 - 30 of 3174
Full-Text Articles in Economics
Technology And The Global Economy, Jonathan Eaton, Samuel Kortum
Technology And The Global Economy, Jonathan Eaton, Samuel Kortum
Cowles Foundation Discussion Papers
Interpreting individual heterogeneity in terms of probability theory has proved powerful in connecting behaviour at the individual and aggregate levels. Returning to Ricardo's focus on comparative efficiency as a basis for international trade, much recent quantitative equilibrium modeling of the global economy builds on particular probabilistic assumptions about technology. We review these assumptions and how they deliver a unified framework underlying a wide range of static and dynamic equilibrium models.
Earnings Dynamics And Firm-Level Shocks, Benjamin Friedrich, Lisa Laun, Costas Meghir, Luigi Pistaferri
Earnings Dynamics And Firm-Level Shocks, Benjamin Friedrich, Lisa Laun, Costas Meghir, Luigi Pistaferri
Cowles Foundation Discussion Papers
We use matched employer-employee data from Sweden to study the role of the firm in affecting the stochastic properties of wages. Our model accounts for endogenous participation and mobility decisions. We find that firm-specific permanent productivity shocks transmit to individual wages, but the effect is mostly concentrated among the high-skilled workers. The pass-through of temporary shocks is smaller in magnitude and similar for high- and low-skilled workers. The updates to worker-firm specific match effects over the life of a firm-worker relationship are small. Substantial growth in earnings variance over the life cycle for high-skilled workers is driven by firms. In …
Early Childhood Intervention For The Poor: Long Term Outcomes, Alison Andrew, Orazio Attanasio, Britta Augsburg, Lina Cardosa, Monimalika Day, Michele Giannola, Sally Grantham-Mcgregor, Pamela Jervis, Costas Meghir, Marta Rubio Codina
Early Childhood Intervention For The Poor: Long Term Outcomes, Alison Andrew, Orazio Attanasio, Britta Augsburg, Lina Cardosa, Monimalika Day, Michele Giannola, Sally Grantham-Mcgregor, Pamela Jervis, Costas Meghir, Marta Rubio Codina
Discussion Papers
Early childhood interventions aim to promote skill acquisition and poverty reduction. While their short-term success is well established, research on longer-term effectiveness is scarce, particularly in LDCs. We present results of a randomized scalable intervention in India, that affected developmental outcomes in the short-term, including cognition (0.36 SD p=0.005), receptive language (0.26 SD p=0.03) and expressive language (0.21 SD p=0.03). After 4.5 years, when the children were on average 7.5 years old, IQ was no longer affected, but impacts persisted relative to the control group in numeracy (0.330 SD, p=0.007) and literacy (0.272 SD, p=0.064) driven by the most disadvantaged.
Trade And Domestic Distortions: The Case Of Informality, Rafael Dix-Carneiro, Pinelopi K. Goldberg, Costas Meghir, Gabriel Ulyssea
Trade And Domestic Distortions: The Case Of Informality, Rafael Dix-Carneiro, Pinelopi K. Goldberg, Costas Meghir, Gabriel Ulyssea
Cowles Foundation Discussion Papers
We examine the effects of international trade in the presence of a set of domestic distortions giving rise to informality, a prevalent phenomenon in developing countries. In our quantitative model, the informal sector arises from burdensome taxes and regulations that are imperfectly enforced by the government. Consequently, smaller, less productive firms face fewer distortions than larger, more productive ones, potentially leading to substantial misallocation. We show that in settings with a large informal sector, the gains from trade are significantly amplified, as reductions in trade barriers imply a reallocation of resources from initially less distorted to more distorted firms. We …
Bidder-Optimal Information Structures In Auctions, Dirk Bergemann, Tibor Heumann, Stephen Morris
Bidder-Optimal Information Structures In Auctions, Dirk Bergemann, Tibor Heumann, Stephen Morris
Cowles Foundation Discussion Papers
We characterize the bidders' surplus maximizing information structure in an optimal auction for a single unit good and related extensions to multi-unit and multi-good problems. The bidders seek to find a balance between participation (and the avoidance of exclusion) and efficiency. The information structure that maximizes the bidders' surplus is given by a generalized Pareto distribution at the center of demand distribution, and displays complete information disclosure at either end of the Pareto distribution.
A Unified Approach To Second And Third Degree Price Discrimination, Dirk Bergemann, Tibor Heumann, Michael C. Wang
A Unified Approach To Second And Third Degree Price Discrimination, Dirk Bergemann, Tibor Heumann, Michael C. Wang
Cowles Foundation Discussion Papers
We analyze the welfare impact of a monopolist able to segment a multiproduct market and offer differentiated price menus within each segment. We characterize a family of extremal distributions such that all achievable welfare outcomes can be reached by selecting segments from within these distributions. This family of distributions arises as the solution to the consumer maximizing distribution of values for multigood markets. With these results, we analyze the effect of segmentation on consumer surplus and prices in both interior and extremal markets, including conditions under which there exists a segmentation benefiting all consumers. Finally, we present an efficient algorithm …
Aiming For The Goal: Contribution Dynamics Of Crowdfunding, Joyee Deb, Aniko Öry (Oery), Kevin R. Williams
Aiming For The Goal: Contribution Dynamics Of Crowdfunding, Joyee Deb, Aniko Öry (Oery), Kevin R. Williams
Cowles Foundation Discussion Papers
We study a dynamic contribution game where investors seek private benefits that are offered in exchange for contributions and a single, publicly-minded donor values project success. We show that donor contributions serve as costly signals that encour-age socially-productive contributions by investors who face a coordination problem. Investors and the donor prefer different equilibria but all benefit in expectation from the donor’s ability to dynamically signal his valuation. We explore various contexts in which our model can be applied and delve empirically into the case of Kickstarter. We calibrate our model and quantify the coordination benefits of dynamic signaling in counterfactuals.
Bidder-Optimal Information Structures In Auctions, Dirk Bergemann, Tibor Heumann, Stephen Morris
Bidder-Optimal Information Structures In Auctions, Dirk Bergemann, Tibor Heumann, Stephen Morris
Cowles Foundation Discussion Papers
We characterize the bidders' surplus maximizing information structure in an optimal auction for a single unit good and related extensions to multi-unit and multi-good problems. The bidders seeks to find a balance between participation (and the avoidance of exclusion) and efficiency. The information structure that maximizes the bidders surplus is given by a generalized Pareto distribution at the center of demand distribution, and displays complete information disclosure at either end of the Pareto distribution.
An Interview Study Of Pricing, Truman F. Bewley
An Interview Study Of Pricing, Truman F. Bewley
Cowles Foundation Discussion Papers
Why do the prices of some products change little during business cycles while the prices of others vary wildly and tend to rise during economic booms and fall during recessions? In particular, why do the prices of some products not fall or fall only a little when the demand for them declines dramatically. It is not surprising that in highly competitive industries prices fluctuate with shifts in demand and supply, but what explains the stability of prices in markets where firms have more direct control of prices? These questions are central to an understanding of business cycles, and good answers …
On The Alignment Of Consumer Surplus And Total Surplus Under Competitive Price Discrimination, Dirk Bergemann, Benjamin Brooks, Stephen Morris
On The Alignment Of Consumer Surplus And Total Surplus Under Competitive Price Discrimination, Dirk Bergemann, Benjamin Brooks, Stephen Morris
Cowles Foundation Discussion Papers
A number of producers of heterogeneous goods with heterogeneous costs compete in prices. When producers know their own production costs and consumers know their values, consumer surplus and total surplus are aligned: the information structure and equilibrium that maximize consumer surplus also maximize total surplus. We report when alignment extends to the case where either consumers are uncertain about their own values or producers are uncertain about their own costs, and we also give examples showing when it does not. Less information for either producers or consumers may intensify competition in a way that benefits consumers but results in inefficient …
Physical Decline Rates: Men Versus Women, Ray C. Fair
Physical Decline Rates: Men Versus Women, Ray C. Fair
Cowles Foundation Discussion Papers
This paper uses world records by age in running, swimming, and rowing to estimate a biological frontier of decline rates for both men and women. Decline rates are assumed to be linear in percent terms up to a certain age and then quadratic after that, where the transition age is estimated. For both men and women decline rates are smallest for rowing, followed by swimming and then running.
Decline rates for women are roughly the same as those for men for the short swimming events. They are slightly larger for the longer swimming events and for the rowing events. They …
Efficiency And Distributional Effects Of Federal College Subsidies During The Great Depression, Gerald Jaynes, Alexander B. Kane
Efficiency And Distributional Effects Of Federal College Subsidies During The Great Depression, Gerald Jaynes, Alexander B. Kane
Discussion Papers
We conduct the first quantitative assessment of federal college subsidies during the 1930s. Overlapping generation households invest in children’s education to maximize multigenerational utility, and the government subsidizes college to maximize enrollment subject to a budget constraint and recipients satisfying ability and income qualifications. A modelling innovation assigns children educational ability through a random regression to the population mean correlated with father’s presumed ability ranking via his percentile in fathers’ earnings distribution. Simulating the theoretical model, the equilibrium that replicates actual education distributions estimates federal college subsidies increased graduation rates of the cohort of White Americans reaching college age during …
Managing Persuasion Robustly: The Optimality Of Quota Rules, Dirk Bergemann, Tan Gan, Yingkai Li
Managing Persuasion Robustly: The Optimality Of Quota Rules, Dirk Bergemann, Tan Gan, Yingkai Li
Cowles Foundation Discussion Papers
We study a sender-receiver model where the receiver can commit to a decision rule before the sender determines the information policy. The decision rule can depend on the signal structure and the signal realization that the sender adopts. This framework captures applications where a decision-maker (the receiver) solicit advice from an interested party (sender). In these applications, the receiver faces uncertainty regarding the sender’s preferences and the set of feasible signal structures. Consequently, we adopt a unified robust analysis framework that includes max-min utility, min-max regret, and min-max approximation ratio as special cases. We show that it is optimal for …
Leverage Cycle Theory Of Economic Crises And Booms, John Geanakoplos
Leverage Cycle Theory Of Economic Crises And Booms, John Geanakoplos
Cowles Foundation Discussion Papers
Traditionally, booms and busts have been attributed to investors' excessive or insufficient demand, irrational exuberance and panics, or fraud. The leverage cycle begins with the observation that much of demand is facilitated by borrowing, and that crashes often occur simultaneously with the withdrawal of lending.
Lenders are worried about default, and therefore attach credit terms like collateral or minimum credit ratings to their contracts. The credit surface, depicting interest rates as a function of the credit terms, emerges in leverage cycle equilibrium. Investors and lenders (and regulators) choose where on the credit surface they trade. The leverage cycle …
"Causes And Consequences Of State Violence Against Civilians: The Rohingya Of Myanmar", C. Austin Davis, Paula Lopez, Ahmed Mushfiq Mobarak, Jaya Y. Wen
"Causes And Consequences Of State Violence Against Civilians: The Rohingya Of Myanmar", C. Austin Davis, Paula Lopez, Ahmed Mushfiq Mobarak, Jaya Y. Wen
Discussion Papers
While the United Nations describes Myanmar’s oppression of the Rohingya as “a textbook example of ethnic cleansing” (UN, 2017), the state maintains that the violence was idiosyncratic and not motivated by anti-Rohingya animus. We assemble existing and original large-sample data to evaluate these claims. First, we document systematic economic motives: violence against minority civilians increased in places suitable for rice cultivation when rice prices were high. Correspondingly, in an original representative survey of Rohingya refugees in Bangladesh we find substantial losses of agricultural land, inputs, and inventories. Next, using a vector auto-regression approach, we find that state violence was consistent …
Cost Based Nonlinear Pricing, Dirk Bergemann, Tibor Heumann, Stephen Morris
Cost Based Nonlinear Pricing, Dirk Bergemann, Tibor Heumann, Stephen Morris
Cowles Foundation Discussion Papers
How should a seller offer quantity or quality differentiated products if they have no information about the distribution of demand? We consider a seller who cares about the "profit guarantee" of a pricing rule, that is, the minimum ratio of expected profits to expected social surplus for any distribution of demand.
We show that the profit guarantee is maximized by setting the price markup over cost equal to the elasticity of the cost function. We provide profit guarantees (and associated mechanisms) that the seller can achieve across all possible demand distributions. With a constant elasticity cost function, constant markup pricing …
Policy With Stochastic Hysteresis, Job Boerma, Georgii Riabov, Aleh Tsyvinski
Policy With Stochastic Hysteresis, Job Boerma, Georgii Riabov, Aleh Tsyvinski
Cowles Foundation Discussion Papers
This paper studies stochastic hysteresis − general dependence on the path of past decisions and shocks. We develop a new methodology for deriving the explicit dynamics of optimal policy with path-dependence and show that stochastic hysteresis changes optimal policy both qualitatively and quantitatively. We showcase our methodology by deriving new results for optimal policy with stochastic habits, tipping points, robustness concerns, limited commitment, and dynamic private information.
How Do Digital Advertising Auctions Impact Product Prices?, Alessandro Bonatti, Dirk Bergemann, Nicholas Wu
How Do Digital Advertising Auctions Impact Product Prices?, Alessandro Bonatti, Dirk Bergemann, Nicholas Wu
Cowles Foundation Discussion Papers
We ask how the advertising mechanisms of digital platforms impact product prices. We present a model that integrates three fundamental features of digital advertising markets: (i) advertisers can reach customers on and off-platform, (ii) additional data enhances the value of matching advertisers and consumers, and (iii) bidding follows auction-like mechanisms. We compare data-augmented auctions, which leverage the platform’s data advantage to improve match quality, with managed campaign mechanisms, where advertisers’ budgets are transformed into personalized matches and prices through auto-bidding algorithms. In data-augmented second-price auctions, advertisers increase off-platform product prices to boost their competitiveness on-platform. This leads to socially efficient …
How Do Digital Advertising Auctions Impact Product Prices?, Dirk Bergemann, Alessandro Bonatti, Nick Wu
How Do Digital Advertising Auctions Impact Product Prices?, Dirk Bergemann, Alessandro Bonatti, Nick Wu
Cowles Foundation Discussion Papers
We ask how the advertising mechanisms of digital platforms impact product prices. We present a model that integrates three fundamental features of digital advertising markets: (i) advertisers can reach customers on and off-platform, (ii) additional data enhances the value of matching advertisers and consumers, and (iii) bidding follows auction-like mechanisms. We compare data-augmented auctions, which leverage the platform’s data advantage to improve match quality, with managed campaign mechanisms, where advertisers’ budgets are transformed into personalized matches and prices through auto-bidding algorithms. In data-augmented second-price auctions, advertisers increase off-platform product prices to boost their competitiveness on-platform. This leads to socially efficient …
Housing Fever In Australia 2020-2023: Insights From An Econometric Thermometer, Shuping Shi, Peter C. B. Phillips
Housing Fever In Australia 2020-2023: Insights From An Econometric Thermometer, Shuping Shi, Peter C. B. Phillips
Cowles Foundation Discussion Papers
Australian housing markets experienced widespread and, in some cases, extraordi-nary growth in prices between 2020 and 2023. Using recently developed methodology that accounts for fundamental economic drivers, we assess the existence and degree of speculative behaviour as well as the timing of exuberance and downturns in these markets. Our findings indicate that speculative behaviour was indeed present in six of the eight capital cities at some time over the period studied. The sequence of events in this nation-wide housing bubble began in the Brisbane market and concluded in Melbourne, Canberra, and Hobart following the interest rate hike implemented by the …
Policy Evaluation With Nonlinear Trended Outcomes: Covid-19 Vaccination Rates In The Us, Lynn Bergeland Morgan, Peter C. B. Phillips, Donggyu Sul
Policy Evaluation With Nonlinear Trended Outcomes: Covid-19 Vaccination Rates In The Us, Lynn Bergeland Morgan, Peter C. B. Phillips, Donggyu Sul
Cowles Foundation Discussion Papers
This paper points out some pitfalls in the use of two-way fixed effects (TWFE) regressions when outcome variables contain nonlinear or stochastic trend components. When a policy change shifts trend paths of outcome variables conventional TWFE estimation can distort results and invalidate inference. A robust solution is proposed by identifying determinants of dynamic club membership based on the idea of relative convergence, which can be assessed empirically by the so-called ‘logt’ test (Phillips & Sul, 2007a). Club membership in each time period is estimated by recursive regression, transforming outcome variables to statistically stable, stationary status. Time varying club membership can …
Privacy Preserving Signals, Philipp Strack, Kai Hao Yang
Privacy Preserving Signals, Philipp Strack, Kai Hao Yang
Cowles Foundation Discussion Papers
A signal is privacy-preserving with respect to a collection of privacy sets, if the posterior probability assigned to every privacy set remains unchanged conditional on any signal realization. We characterize the privacy-preserving signals for arbitrary state space and arbitrary privacy sets. A signal is privacy-preserving if and only if it is a garbling of a reordered quantile signal. These signals are equivalent to couplings, which in turn lead to a characterization of optimal privacy-preserving signals for a decisionmaker. We demonstrate the applications of this characterization in the contexts of algorithmic fairness, price discrimination, and information design.
Panel Data Models With Time-Varying Latent Group Structures, Peter C. B. Phillips, Liangjun Su, Yiren Wang
Panel Data Models With Time-Varying Latent Group Structures, Peter C. B. Phillips, Liangjun Su, Yiren Wang
Cowles Foundation Discussion Papers
This paper considers a linear panel model with interactive fixed effects and unobserved individual and time heterogeneities that are captured by some latent group structures and an unknown structural break, respectively. To enhance realism the model may have different numbers of groups and/or different group memberships before and after the break. With the preliminary nuclear-norm-regularized estimation followed by row- and column-wise linear regressions, we estimate the break point based on the idea of binary segmentation and the latent group structures together with the number of groups before and after the break by sequential testing K-means algorithm simultaneously. It is shown …
Formalizing Dispute Resolution: Effects Of Village Courts In Bangladesh, Martin Mattsson, Ahmed Mushfiq Mobarak
Formalizing Dispute Resolution: Effects Of Village Courts In Bangladesh, Martin Mattsson, Ahmed Mushfiq Mobarak
Discussion Papers
Disagreements over business deals, land boundaries, or loan non-repayment are very common sources of disputes, and courts are congested in developing countries. We evaluate the effects of the government introducing formal “village courts” (VCs) in rural Bangladesh using a randomized controlled trial with a pre-analysis plan. VCs were designed to improve dispute resolution and relieve the pressure on congested district courts. We find that VCs are more of a substitute for the ubiquitous informal dispute resolution mechanism (DRM) called shalish. VCs become functional and active in treated areas, but shalish remains the primary preferred DRM in both treatment and …
New Asymptotics Applied To Functional Coefficient Regression And Climate Sensitivity Analysis, Qiying Wang, Peter C. B. Phillips, Ying Wang
New Asymptotics Applied To Functional Coefficient Regression And Climate Sensitivity Analysis, Qiying Wang, Peter C. B. Phillips, Ying Wang
Cowles Foundation Discussion Papers
A general asymptotic theory is established for sample cross moments of nonstationary time series, allowing for long range dependence and local unit roots. The theory provides a substantial extension of earlier results on nonparametric regression that include near-cointegrated nonparametric regression as well as spurious nonparametric regression. Many new models are covered by the limit theory, among which are functional coefficient regressions in which both regressors and the functional covariate are nonstationary. Simulations show finite sample performance matching well with the asymptotic theory and having broad relevance to applications, while revealing how dual nonstationarity in regressors and covariates raises sensitivity to …
Demand Estimation With Infrequent Purchases And Small Market Sizes, Ali Hortaçsu, Olivia R. Natan, Hayden Parsley, Timothy Schwieg, Kevin R. Williams
Demand Estimation With Infrequent Purchases And Small Market Sizes, Ali Hortaçsu, Olivia R. Natan, Hayden Parsley, Timothy Schwieg, Kevin R. Williams
Cowles Foundation Discussion Papers
We propose a demand estimation method that allows for a large number of zero sale observations, rich unobserved heterogeneity, and endogenous prices. We do so by modeling small market sizes through Poisson arrivals. Each of these arriving consumers solves a standard discrete choice problem. We present a Bayesian IV estimation approach that addresses sampling error in product shares and scales well to rich data environments. The data requirements are traditional market-level data as well as a measure of market sizes or consumer arrivals. After presenting simulation studies, we demonstrate the method in an empirical application of air travel demand.
Organizational Structure And Pricing: Evidence From A Large U.S. Airline, Ali Hortaçsu, Olivia R. Natan, Hayden Parsley, Timothy Schwieg, Kevin R. Williams
Organizational Structure And Pricing: Evidence From A Large U.S. Airline, Ali Hortaçsu, Olivia R. Natan, Hayden Parsley, Timothy Schwieg, Kevin R. Williams
Cowles Foundation Discussion Papers
Firms facing complex objectives often decompose the problems they face, delegating different parts of the decision to distinct sub-units. Using comprehen-sive data and internal models from a large U.S. airline, we establish that airline pricing is not well approximated by a model of the firm as a unitary decision-maker. We show that observed prices, however, can be rationalized by account-ing for organizational structure and the decisions by departments that are tasked with supplying inputs to the observed pricing heuristic. Simulating the prices the firm would charge if it were a rational unitary decision-maker results in lower welfare than we estimate …
Rational Dialogues, John Geanakoplos, Heracles M. Polemarchakis
Rational Dialogues, John Geanakoplos, Heracles M. Polemarchakis
Cowles Foundation Discussion Papers
Any finite conversation can be rationalized.
The People And The Experts: Alternative Views On Economic Affairs, William D. Nordhaus, Douglas Rivers
The People And The Experts: Alternative Views On Economic Affairs, William D. Nordhaus, Douglas Rivers
Cowles Foundation Discussion Papers
Are speculators driving up oil prices? Should we raise energy prices to slow global warming? The present study takes a small number of such questions and compares the views of economic experts with those of the public. This comparison uses a panel of 2000+ respondents from YouGov with the views of the panel of experts from the IGM at the Chicago Booth School. We found that most of the US population is at best modestly informed about major economic questions and policies. The low level of knowledge is generally associated with the intrusion of ideological, political, and religious views that …
Affective Interdependence And Welfare, Aviad Heifetz, Enrico Minelli, Heracles M. Polemarchakis
Affective Interdependence And Welfare, Aviad Heifetz, Enrico Minelli, Heracles M. Polemarchakis
Cowles Foundation Discussion Papers
Purely affective interaction allows the welfare of an individual to depend on her own actions and on the profile of welfare levels of others. Under an assumption on the structure of mutual affection that we interpret as “non-explosive mutual affection,” we show that equilibria of simultaneous-move affective interaction are Pareto optimal independently of whether or not an induced standard game exists. Moreover, if purely affective interaction in-duces a standard game, then an equilibrium profile of actions is a Nash equilibrium of the game, and this Nash equilibrium and Pareto optimal profile of strategies is locally dominant.