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Articles 1 - 30 of 80
Full-Text Articles in Economics
Information And Volatility, Dirk Bergemann, Tibor Heumann, Stephen Morris
Information And Volatility, Dirk Bergemann, Tibor Heumann, Stephen Morris
Cowles Foundation Discussion Papers
In an economy of interacting agents with both idiosyncratic and aggregate shocks, we examine how the structure of private information influences aggregate volatility. The maximal aggregate volatility is attained in a noise free information structure in which the agents confound idiosyncratic and aggregate shocks, and display excess response to the aggregate shocks, as in Lucas [14]. For any given variance of aggregate shocks, the upper bound on aggregate volatility is linearly increasing in the variance of the idiosyncratic shocks. Our results hold in a setting of symmetric agents with linear best responses and normal uncertainty. We establish our results by …
Uniform Consistency Of Nonstationary Kernel-Weighted Sample Covariances For Nonparametric Regression, Degui Li, Peter C.B. Phillips, Jiti Gao
Uniform Consistency Of Nonstationary Kernel-Weighted Sample Covariances For Nonparametric Regression, Degui Li, Peter C.B. Phillips, Jiti Gao
Cowles Foundation Discussion Papers
We obtain uniform consistency results for kernel-weighted sample covariances in a nonstationary multiple regression framework that allows for both fixed design and random design coefficient variation. In the fixed design case these nonparametric sample covariances have different uniform convergence rates depending on direction, a result that differs fundamentally from the random design and stationary cases. The uniform convergence rates derived are faster than the corresponding rates in the stationary case and confirm the existence of uniform super-consistency. The modelling framework and convergence rates allow for endogeneity and thus broaden the practical econometric import of these results. As a specific application, …
Information And Volatility, Dirk Bergemann, Tibor Heumann, Stephen Morris
Information And Volatility, Dirk Bergemann, Tibor Heumann, Stephen Morris
Cowles Foundation Discussion Papers
In an economy of interacting agents with both idiosyncratic and aggregate shocks, we examine how the information structure determines aggregate volatility. We show that the maximal aggregate volatility is attained in a noise free information structure in which the agents confound idiosyncratic and common components of the payoff state, and display excess response to the common component, as in Lucas (1972). The upper bound on aggregate volatility is linearly increasing in the variance of idiosyncratic shocks, for any given variance of aggregate shocks. Our results hold in a setting of symmetric agents with linear best responses and normal uncertainty. We …
Emissions, Humberto Llavador, John E. Roemer, Joaquim Silvestre
Emissions, Humberto Llavador, John E. Roemer, Joaquim Silvestre
Cowles Foundation Discussion Papers
Mankind must cooperate to reduce GHG emissions to prevent a catastrophic rise in global temperature. How can the necessary costs of reducing GHG emissions be allocated across regions of the world, within the next few generations, and simultaneously address growth expectations and economic development? We postulate a two-region world and, based on sustainability and egalitarian criteria, calculate optimal paths in which a South, like China, and a North, like the United States, converge in welfare per capita to a path of sustained growth of 1% per year by 2080, while global CO2 emissions are restricted to the Representative Concentration Pathway …
Promises And Expectations, Florian Ederer, Alexander Stremitzer
Promises And Expectations, Florian Ederer, Alexander Stremitzer
Cowles Foundation Discussion Papers
We investigate why people keep their promises in the absence of external enforcement mechanisms and reputational effects. In a controlled laboratory experiment we show that exogenous variation of second-order expectations (promisors’ expectations about promisees’ expectations that the promise will be kept) leads to a significant change in promisor behavior. We provide clean evidence that a promisor’s aversion to disappointing a promisee’s expectation leads her to keep her promise. We propose a simple theory of lexicographic promise keeping that is supported by our results and nests the findings of previous contributions as special cases.
Information, Interdependence, And Interaction: Where Does The Volatility Come From?, Dirk Bergemann, Tibor Heumann, Stephen Morris
Information, Interdependence, And Interaction: Where Does The Volatility Come From?, Dirk Bergemann, Tibor Heumann, Stephen Morris
Cowles Foundation Discussion Papers
We analyze a class of games with interdependent values and linear best responses. The payoff uncertainty is described by a multivariate normal distribution that includes the pure common and pure private value environment as special cases. We characterize the set of joint distributions over actions and states that can arise as Bayes Nash equilibrium distributions under any multivariate normally distributed signals about the payoff states. We characterize maximum aggregate volatility for a given distribution of the payoff states. We show that the maximal aggregate volatility is attained in a noise-free equilibrium in which the agents confound idiosyncratic and common components …
Uncertain Growth And The Value Of The Future, Jaume Masoliver, Miquel Montero, John Geanakoplos, J. Doyne Farmer
Uncertain Growth And The Value Of The Future, Jaume Masoliver, Miquel Montero, John Geanakoplos, J. Doyne Farmer
Cowles Foundation Discussion Papers
For environmental problems such as global warming future costs must be balanced against present costs. This is traditionally done using an exponential function with a constant discount rate, which reduces the present value of future costs. The result is highly sensitive to the choice of discount rate and has generated a major controversy as to the urgency for immediate action. We study analytically several standard interest rate models from finance and compare their properties to empirical data. From historical time series for nominal interest rates and inflation covering 14 countries over hundreds of years, we find that extended periods of …
Promises And Expectations, Florian Ederer, Alexander Stremitzer
Promises And Expectations, Florian Ederer, Alexander Stremitzer
Cowles Foundation Discussion Papers
We investigate why people keep their promises in the absence of external enforcement mechanisms and reputational effects. In a controlled laboratory experiment we show that exogenous variation of second-order expectations (promisors’ expectations about promisees’ expectations) leads to a significant change in promisor behavior. We provide evidence that a promisor’s aversion to disappointing a promisee’s expectation leads her to behave more generously. We propose and estimate a simple model of conditional guilt aversion that is supported by our results and nests the findings of previous contributions as special cases.
Truthful Equilibria In Dynamic Bayesian Games, Johannes Hörner, Satoru Takahashi, Nicolas Vieille
Truthful Equilibria In Dynamic Bayesian Games, Johannes Hörner, Satoru Takahashi, Nicolas Vieille
Cowles Foundation Discussion Papers
This paper characterizes an equilibrium payoff subset for Markovian games with private information as discounting vanishes. Monitoring is imperfect, transitions may depend on actions, types be correlated and values interdependent. The focus is on equilibria in which players report truthfully. The characterization generalizes that for repeated games, reducing the analysis to static Bayesian games with transfers. With correlated types, results from mechanism design apply, yielding a folk theorem. With independent private values, the restriction to truthful equilibria is without loss, except for the punishment level; if players withhold their information during punishment-like phases, a “folk” theorem obtains also.
Truthful Equilibria In Dynamic Bayesian Games, Johannes Hörner, Satoru Takahashi, Nicolas Vieille
Truthful Equilibria In Dynamic Bayesian Games, Johannes Hörner, Satoru Takahashi, Nicolas Vieille
Cowles Foundation Discussion Papers
This paper characterizes an equilibrium payoff subset for dynamic Bayesian games as discounting vanishes. Monitoring is imperfect, transitions may depend on actions, types may be correlated and values may be interdependent. The focus is on equilibria in which players report truthfully. The characterization generalizes that for repeated games, reducing the analysis to static Bayesian games with transfers. With independent private values, the restriction to truthful equilibria is without loss, except for the punishment level; if players withhold their information during punishment-like phases, a folk theorem obtains.
New Goodness-Of-Fit Diagnostics For Conditional Discrete Response Models, Igor Kheifets, Carlos Velasco
New Goodness-Of-Fit Diagnostics For Conditional Discrete Response Models, Igor Kheifets, Carlos Velasco
Cowles Foundation Discussion Papers
This paper proposes new specification tests for conditional models with discrete responses. In particular, we can test the static and dynamic ordered choice model specifications, which is key to apply efficient maximum likelihood methods, to obtain consistent estimates of partial effects and to get appropriate predictions of the probability of future events. The traditional approach is based on probability integral transforms of a jittered discrete data which leads to continuous uniform iid series under the true conditional distribution. We investigate in this paper an alternative transformation based only on original discrete data. We show analytically and in simulations that our …
Inference On Optimal Treatment Assignments, Timothy B. Armstrong, Shu Shen
Inference On Optimal Treatment Assignments, Timothy B. Armstrong, Shu Shen
Cowles Foundation Discussion Papers
We consider inference on optimal treatment assignments. Our methods allow for inference on the treatment assignment rule that would be optimal given knowledge of the population treatment effect in a general setting. The procedure uses multiple hypothesis testing methods to determine a subset of the population for which assignment to treatment can be determined to be optimal after conditioning on all available information, with a prespecified level of confidence. A Monte Carlo study confirms that the inference procedure has good small sample behavior. We apply the method to study Project STAR and the optimal assignment of small class based on …
Optimal Sup-Norm Rates, Adaptivity And Inference In Nonparametric Instrumental Variables Estimation, Xiaohong Chen, Timothy M. Christensen
Optimal Sup-Norm Rates, Adaptivity And Inference In Nonparametric Instrumental Variables Estimation, Xiaohong Chen, Timothy M. Christensen
Cowles Foundation Discussion Papers
This paper makes several contributions to the literature on the important yet difficult problem of estimating functions nonparametrically using instrumental variables. First, we derive the minimax optimal sup-norm convergence rates for nonparametric instrumental variables (NPIV) estimation of the structural function h 0 and its derivatives. Second, we show that a computationally simple sieve NPIV estimator can attain the optimal sup-norm rates for h 0 and its derivatives when h 0 is approximated via a spline or wavelet sieve. Our optimal sup-norm rates surprisingly coincide with the optimal L 2 -norm rates for severely ill-posed problems, and are only up to …
Extremal Information Structures In The First Price Auction, Dirk Bergemann, Benjamin Brooks, Stephen Morris
Extremal Information Structures In The First Price Auction, Dirk Bergemann, Benjamin Brooks, Stephen Morris
Cowles Foundation Discussion Papers
We study how the outcomes of a private-value first price auction can vary with bidders’ information, for a fixed distribution of private values. In a two bidder, two value, setting, we characterize all combinations of bidder surplus and revenue that can arise, and identify the information structure that minimizes revenue. The extremal information structure that minimizes revenue entails each bidder observing a noisy and correlated signal about the other bidder’s value. In the general environment with many bidders and many values, we characterize the minimum bidder surplus of each bidder and maximum revenue across all information structures. The extremal information …
New Goodness-Of-Fit Diagnostics For Conditional Discrete Response Models, Igor Kheifets, Carlos Velasco
New Goodness-Of-Fit Diagnostics For Conditional Discrete Response Models, Igor Kheifets, Carlos Velasco
Cowles Foundation Discussion Papers
This paper proposes new specification tests for conditional models with discrete responses, which are key to apply efficient maximum likelihood methods, to obtain consistent estimates of partial effects and to get appropriate predictions of the probability of future events. In particular, we test the static and dynamic ordered choice model specifications and can cover infinite support distributions for e.g. count data. The traditional approach for specification testing of discrete response models is based on probability integral transforms of a jittered discrete data which leads to continuous uniform iid series under the true conditional distribution. Then, standard specification testing techniques for …
Inference On Optimal Treatment Assignments, Timothy B. Armstrong, Shu Shen
Inference On Optimal Treatment Assignments, Timothy B. Armstrong, Shu Shen
Cowles Foundation Discussion Papers
We consider inference on optimal treatment assignments. Our methods are the first to allow for inference on the treatment assignment rule that would be optimal given knowledge of the population treatment effect in a general setting. The procedure uses multiple hypothesis testing methods to determine a subset of the population for which assignment to treatment can be determined to be optimal after conditioning on all available information, with a prespecified level of confidence. A monte carlo study confirms that the procedure has good small sample behavior. We apply the method to the Mexican conditional cash transfer program Progresa. We demonstrate …
Inference On Optimal Treatment Assignments, Timothy B. Armstrong, Shu Shen
Inference On Optimal Treatment Assignments, Timothy B. Armstrong, Shu Shen
Cowles Foundation Discussion Papers
We consider inference on optimal treatment assignments. Our methods allow for inference on the treatment assignment rule that would be optimal given knowledge of the population treatment effect in a general setting. The procedure uses multiple hypothesis testing methods to determine a subset of the population for which assignment to treatment can be determined to be optimal after conditioning on all available information, with a prespecified level of confidence. A monte carlo study confirms that the inference procedure has good small sample behavior. We apply the method to study the Mexican conditional cash transfer program Progresa.
Fairness Through The Lens Of Cooperative Game Theory: An Experimental Approach, Geoffroy De Clippel, Kareen Rozen
Fairness Through The Lens Of Cooperative Game Theory: An Experimental Approach, Geoffroy De Clippel, Kareen Rozen
Cowles Foundation Discussion Papers
This paper experimentally investigates cooperative game theory from a normative perspective. Subjects designated as Decision Makers express their view on what is fair for others, by recommending a payoff allocation for three subjects (Recipients) whose substitutabilities and complementarities are captured by a characteristic function. We show that axioms and solution concepts from cooperative game theory provide valuable insights into the data. Axiomatic and regression analysis suggest that Decision Makers’ choices can be (noisily) described as a convex combination of the Shapley value and equal split solution. A mixture model analysis, examining the distribution of Just Deserts indices describing how far …
Optimal Uniform Convergence Rates For Sieve Nonparametric Instrumental Variables Regression, Xiaohong Chen, Timothy M. Christensen
Optimal Uniform Convergence Rates For Sieve Nonparametric Instrumental Variables Regression, Xiaohong Chen, Timothy M. Christensen
Cowles Foundation Discussion Papers
We study the problem of nonparametric regression when the regressor is endogenous, which is an important nonparametric instrumental variables (NPIV) regression in econometrics and a difficult ill-posed inverse problem with unknown operator in statistics. We first establish a general upper bound on the sup-norm (uniform) convergence rate of a sieve estimator, allowing for endogenous regressors and weakly dependent data. This result leads to the optimal sup-norm convergence rates for spline and wavelet least squares regression estimators under weakly dependent data and heavy-tailed error terms. This upper bound also yields the sup-norm convergence rates for sieve NPIV estimators under i.i.d. data: …
Model Selection In The Presence Of Incidental Parameters, Yoonseok Lee, Peter C.B. Phillips
Model Selection In The Presence Of Incidental Parameters, Yoonseok Lee, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper considers model selection in nonlinear panel data models where incidental parameters or large-dimensional nuisance parameters are present. Primary interest typically centres on selecting a model that best approximates the underlying structure involving parameters that are common within the panel after concentrating out the incidental parameters. It is well known that conventional model selection procedures are often inconsistent in panel models and this can be so even without nuisance parameters (Han et al., 2012). Modifications are then needed to achieve consistency. New model selection information criteria are developed here that use either the Kullback-Leibler information criterion based on the …
Selling Cookies, Dirk Bergemann, Alessandro Bonatti
Selling Cookies, Dirk Bergemann, Alessandro Bonatti
Cowles Foundation Discussion Papers
We analyze data pricing and targeted advertising. Advertisers seek to tailor their spending to the value of each consumer. A monopolistic data provider sells cookies. informative signals about individual consumers.preferences. We characterize the set of consumers targeted by the advertisers and the optimal monopoly price of cookies. The ability to influence the composition of the targeted set provides incentives to lower prices. Thus, the price of data decreases with the reach of the database and increases with the fragmentation of data sales. We characterize the optimal policy for selling information and its implementation through nonlinear pricing of cookies.
Equality Of Opportunity, John E. Roemer, Alain Trannoy
Equality Of Opportunity, John E. Roemer, Alain Trannoy
Cowles Foundation Discussion Papers
This forthcoming chapter in the Handbook of Income Distribution (eds., A. Atkinson and F. Bourguignon) summarizes the literature on equality of opportunity. We begin by reviewing the philosophical debate concerning equality since Rawls (sections 1 and 2), present economic algorithms for computing policies which equalize opportunities, or, more generally, ways of ordering social policies with respect to their efficacy in opportunity equalization (sections 3, 4 and 5), apply the approach to the conceptualization of economic development (section 6), discuss dynamic issues (section 7), give a preamble to a discussion of empirical work (section 8), provide evidence of population views from …
Selling Cookies, Dirk Bergemann, Alessandro Bonatti
Selling Cookies, Dirk Bergemann, Alessandro Bonatti
Cowles Foundation Discussion Papers
We develop a model of data pricing and targeted advertising. A monopolistic data provider determines the price to access “cookies,” i.e., informative signals about individual consumers’ preferences. The demand for information is generated by advertisers who seek to tailor their spending to the value of each consumer. We characterize the set of consumers targeted by the advertisers and the optimal monopoly price of cookies. The ability to influence the composition of the set of targeted consumers provides incentives to lower prices. Thus, the monopoly price of data is decreasing in the reach of the database and increasing in the number …
Selling Cookies, Dirk Bergemann, Alessandro Bonatti
Selling Cookies, Dirk Bergemann, Alessandro Bonatti
Cowles Foundation Discussion Papers
We propose a model of data provision and data pricing. A single data provider controls a large database that contains information about the match value between individual consumers and individual firms (advertisers). Advertisers seek to tailor their spending to the individual match value. The data provider prices queries about individual consumers’ characteristics (cookies). We determine the equilibrium data acquisition and pricing policies. Advertisers choose positive and/or negative targeting policies. The optimal query price influences the composition of the targeted set. The price of data decreases with the reach of the database and increases with the fragmentation of data sales.
Barefoot And Footloose Doctors: Optimal Resource Allocation In Developing Countries With Medical Migration, John E. Roemer, Pedro Rosa Dias
Barefoot And Footloose Doctors: Optimal Resource Allocation In Developing Countries With Medical Migration, John E. Roemer, Pedro Rosa Dias
Cowles Foundation Discussion Papers
In light of the shortage of healthcare professionals, many developing countries operate a defacto two-tiered system of healthcare provision, in which Community Health Workers (CHWs) supplement service provision by fully qualified physicians. CHWs are relatively inexpensive to train but can treat only a limited range of medical conditions. This paper explicitly models a two-tiered structure of healthcare provision and characterizes the optimal allocation of resources between training doctors and CHWs, and implications for population health outcomes. We analyze how medical migration alters resource allocation and population health outcomes, shifting resources towards training CHWs. In the model, migration stimulates health care …
The Comparison Of Information Structures In Games: Bayes Correlated Equilibrium And Individual Sufficiency, Dirk Bergemann, Stephen Morris
The Comparison Of Information Structures In Games: Bayes Correlated Equilibrium And Individual Sufficiency, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
We define and characterize a notion of correlated equilibrium for games with incomplete information, which we call Bayes correlated equilibrium: The set of outcomes that can arise in Bayes Nash equilibria of an incomplete information game where players may have access to additional signals beyond the information structure is characterized and shown to be equivalent to the set of Bayes correlated equilibria. A game of incomplete information can be decomposed into a basic game, given by actions sets and payoff functions, and an information structure. We introduce a partial order on many player information structures — which we call individual …
The Evolution Of ‘Theory Of Mind:’ Theory And Experiments, Erik O. Kimbrough, Nikolaus Robalino, Arthur Robson
The Evolution Of ‘Theory Of Mind:’ Theory And Experiments, Erik O. Kimbrough, Nikolaus Robalino, Arthur Robson
Cowles Foundation Discussion Papers
This paper provides an evolutionary foundation for our capacity to attribute preferences to others. This ability is intrinsic to game theory, and is a key component of “Theory of Mind,” perhaps the capstone of social cognition. We argue here that this component of theory of mind allows organisms to efficiently modify their behavior in strategic environments with a persistent element of novelty. Such environments are represented here by multistage games of perfect information with randomly chosen outcomes. “Theory of Mind” then yields a sharp, unambiguous advantage over less sophisticated, behavioral approaches to strategic interaction. In related experiments, we show the …
Testing The Martingale Hypothesis, Peter C.B. Phillips, Sainan Jin
Testing The Martingale Hypothesis, Peter C.B. Phillips, Sainan Jin
Cowles Foundation Discussion Papers
We propose new tests of the martingale hypothesis based on generalized versions of the Kolmogorov-Smirnov and Cramér-von Mises tests. The tests are distribution free and allow for a weak drift in the null model. The methods do not require either smoothing parameters or bootstrap resampling for their implementation and so are well suited to practical work. The paper develops limit theory for the tests under the null and shows that the tests are consistent against a wide class of nonlinear, non-martingale processes. Simulations show that the tests have good finite sample properties in comparison with other tests particularly under conditional …
Testing For Multiple Bubbles: Historical Episodes Of Exuberance And Collapse In The S&P 500, Peter C.B. Phillips, Shu-Ping Shi, Jun Yu
Testing For Multiple Bubbles: Historical Episodes Of Exuberance And Collapse In The S&P 500, Peter C.B. Phillips, Shu-Ping Shi, Jun Yu
Cowles Foundation Discussion Papers
Recent work on econometric detection mechanisms has shown the effectiveness of recursive procedures in identifying and dating financial bubbles. These procedures are useful as warning alerts in surveillance strategies conducted by central banks and fiscal regulators with real time data. Use of these methods over long historical periods presents a more serious econometric challenge due to the complexity of the nonlinear structure and break mechanisms that are inherent in multiple bubble phenomena within the same sample period. To meet this challenge the present paper develops a new recursive flexible window method that is better suited for practical implementation with long …
Functional Coefficient Nonstationary Regression, Jiti Gao, Peter C.B. Phillips
Functional Coefficient Nonstationary Regression, Jiti Gao, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper studies a general class of nonlinear varying coefficient time series models with possible nonstationarity in both the regressors and the varying coffiecient components. The model accommodates a cointegrating structure and allows for endogeneity with contemporaneous correlation among the regressors, the varying coefficient drivers, and the residuals. This framework allows for a mixture of stationary and non-stationary data and is well suited to a variety of models that are commonly used in applied econometric work. Nonparametric and semiparametric estimation methods are proposed to estimate the varying coefficient functions. The analytical findings reveal some important differences, including convergence rates, that …