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Articles 1 - 30 of 71
Full-Text Articles in Economics
Continuous Workout Mortgages: Efficient Pricing And Systemic Implications, Robert J. Shiller, Rafal M. Wojakowski, M. Shahid Ebrahim, Mark B. Shackleton
Continuous Workout Mortgages: Efficient Pricing And Systemic Implications, Robert J. Shiller, Rafal M. Wojakowski, M. Shahid Ebrahim, Mark B. Shackleton
Cowles Foundation Discussion Papers
This paper studies the Continuous Workout Mortgage (CWM), a two in one product: a fixed rate home loan coupled with negative equity insurance, to advocate its viability in mitigating financial fragility. In order to tackle the many issues that CWMs embrace, we perform a range of tasks. We optimally price CWMs and take a systemic market-based approach, stipulating that mortgage values and payments should be linked to housing prices and adjusted downward to prevent negative equity. We illustrate that amortizing CWMs can be the efficient home financing choice for many households. We price CWMs as American option style, defaulting debt …
Finite-Sample Optimal Estimation And Inference On Average Treatment Effects Under Unconfoundedness, Timothy B. Armstrong, Michal Kolesár
Finite-Sample Optimal Estimation And Inference On Average Treatment Effects Under Unconfoundedness, Timothy B. Armstrong, Michal Kolesár
Cowles Foundation Discussion Papers
We consider estimation and inference on average treatment effects under unconfoundedness conditional on the realizations of the treatment variable and covariates. Given nonparametric smoothness and/or shape restrictions on the conditional mean of the outcome variable, we derive estimators and confidence intervals (CIs) that are optimal infinite samples when the regression errors are normal with known variance. In contrast to conventional CIs, our CIs use a larger critical value that explicitly takes into account the potential bias of the estimator. When the error distribution is unknown, feasible versions of our CIs are valid asymptotically, even when √n-inference is not possible due …
Random Coefficient Continuous Systems: Testing For Extreme Sample Path Behaviour, Yubo Tao, Peter C.B. Phillips, Jun Yu
Random Coefficient Continuous Systems: Testing For Extreme Sample Path Behaviour, Yubo Tao, Peter C.B. Phillips, Jun Yu
Cowles Foundation Discussion Papers
This paper studies a continuous time dynamic system with a random persistence parameter. The exact discrete time representation is obtained and related to several discrete time random coefficient models currently in the literature. The model distinguishes various forms of unstable and explosive behaviour according to specific regions of the parameter space that open up the potential for testing these forms of extreme behaviour. A two-stage approach that employs realized volatility is proposed for the continuous system estimation, asymptotic theory is developed, and test statistics to identify the different forms of extreme sample path behaviour are proposed. Simulations show that the …
Hybrid Stochastic Local Unit Roots, Offer Lieberman, Peter C.B. Phillips
Hybrid Stochastic Local Unit Roots, Offer Lieberman, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Two approaches have dominated formulations designed to capture small departures from unit root autoregressions. The first involves deterministic departures that include local-to-unity (LUR) and mildly (or moderately) integrated (MI) specifications where departures shrink to zero as the sample size n→∞. The second approach allows for stochastic departures from unity, leading to stochastic unit root (STUR) specifications. This paper introduces a hybrid local stochastic unit root (LSTUR) specification that has both LUR and STUR components and allows for endogeneity in the time varying coefficient that introduces structural elements to the autoregression. This hybrid model generates trajectories that, upon normalization, have non-linear …
Finite-Sample Optimal Estimation And Inference On Average Treatment Effects Under Unconfoundedness, Timothy B. Armstrong, Michal Kolesár
Finite-Sample Optimal Estimation And Inference On Average Treatment Effects Under Unconfoundedness, Timothy B. Armstrong, Michal Kolesár
Cowles Foundation Discussion Papers
We consider estimation and inference on average treatment effects under unconfoundedness conditional on the realizations of the treatment variable and covariates. We derive finite-sample optimal estimators and confidence intervals (CIs) under the assumption of normal errors when the conditional mean of the outcome variable is constrained only by nonparametric smoothness and/or shape restrictions. When the conditional mean is restricted to be Lipschitz with a large enough bound on the Lipschitz constant, we show that the optimal estimator reduces to a matching estimator with the number of matches set to one. In contrast to conventional CIs, our CIs use a larger …
Mentoring And The Dynamics Of Affirmative Action, Michèle Müller-Itten, Aniko Öry
Mentoring And The Dynamics Of Affirmative Action, Michèle Müller-Itten, Aniko Öry
Cowles Foundation Discussion Papers
We study the evolution of labor force composition when mentoring is more effective within members of the same socio-demographic type. Typically, multiple steady states exist. Some completely exclude juniors of one type. Even a mixed steady state tends to over-represent the type that is dominant in the population. In contrast, the efficient labor force balances talent recruitment against mentoring frictions. It may even underrepresent the dominant type and typically calls for persistent government intervention. This contrasts with the public discourse around temporary affirmative action. We consider specific policy instruments and show that hiring quotas can induce equilibrium employment insecurity.
Mentoring And The Dynamics Of Affirmative Action, Michèle Müller-Itten, Aniko Öry
Mentoring And The Dynamics Of Affirmative Action, Michèle Müller-Itten, Aniko Öry
Cowles Foundation Discussion Papers
We analyze the long-term workforce composition when the quality of mentoring available to majority and minority juniors depends on their representation in the workforce. A workforce with ≥ 50% majority workers invariably converges to one where the majority is overrepresented relative to the population. To maximize welfare, persistent interventions, such as group-specific fellowships, are often needed, and the optimal workforce may include minority workers of lower innate talent than the marginal majority worker. We discuss the role of mentorship determinants, talent dispersion, the scope of short-term interventions, various policy instruments and contrast our results to the classic fairness narrative.
Politics, Hospital Behavior, And Health Care Spending, Zack Cooper, Amanda E. Kowalski, Eleanor Neff Powell, Jennifer Wu
Politics, Hospital Behavior, And Health Care Spending, Zack Cooper, Amanda E. Kowalski, Eleanor Neff Powell, Jennifer Wu
Cowles Foundation Discussion Papers
This paper examines the link between legislative politics, hospital behavior, and health care spending. When trying to pass sweeping legislation, congressional leaders can attract votes by adding targeted provisions that steer money toward the districts of reluctant legislators. This targeted spending provides tangible local benefits that legislators can highlight when fundraising or running for reelection. We study a provision - Section 508 – that was added to the 2003 Medicare Modernization Act (MMA). Section 508 created a pathway for hospitals to apply to get their Medicare payment rates increased. We find that hospitals represented by members of the House of …
Identification-Robust Subvector Inference, Donald W.K. Andrews
Identification-Robust Subvector Inference, Donald W.K. Andrews
Cowles Foundation Discussion Papers
This paper introduces identification-robust subvector tests and confidence sets (CS’s) that have asymptotic size equal to their nominal size and are asymptotically efficient under strong identification. Hence, inference is as good asymptotically as standard methods under standard regularity conditions, but also is identification robust. The results do not require special structure on the models under consideration, or strong identification of the nuisance parameters, as many existing methods do. We provide general results under high-level conditions that can be applied to moment condition, likelihood, and minimum distance models, among others. We verify these conditions under primitive conditions for moment condition models. …
Detecting Financial Collapse And Ballooning Sovereign Risk, Peter C.B. Phillips
Detecting Financial Collapse And Ballooning Sovereign Risk, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper proposes a new model for capturing discontinuities in the underlying financial environment that can lead to abrupt falls, but not necessarily sustained monotonic falls, in asset prices. This notion of price dynamics is consistent with existing understanding of market crashes, which allows for a mix of market responses that are not universally negative. The model may be interpreted as a martingale composed with a randomized drift process that is designed to capture various asymmetric drivers of market sentiment. In particular, the model is capable of generating realistic patterns of price meltdowns and bond yield inflations that constitute major …
Latent Variable Nonparametric Cointegrating Regression, Qiying Wang, Peter C.B. Phillips, Ioannis Kasparis
Latent Variable Nonparametric Cointegrating Regression, Qiying Wang, Peter C.B. Phillips, Ioannis Kasparis
Cowles Foundation Discussion Papers
This paper studies the asymptotic properties of empirical nonparametric regressions that partially misspecify the relationships between nonstationary variables. In particular, we analyze nonparametric kernel regressions in which a potential nonlinear cointegrating regression is misspecified through the use of a proxy regressor in place of the true regressor. Such regressions arise naturally in linear and nonlinear regressions where the regressor suffers from measurement error or where the true regressor is a latent variable. The model considered allows for endogenous regressors as the latent variable and proxy variables that cointegrate asymptotically with the true latent variable. Such a framework includes correctly specified …
Point Optimal Testing With Roots That Are Functionally Local To Unity, Anna Bykhovskaya, Peter C.B. Phillips
Point Optimal Testing With Roots That Are Functionally Local To Unity, Anna Bykhovskaya, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Limit theory for regressions involving local to unit roots (LURs) is now used extensively in time series econometric work, establishing power properties for unit root and cointegration tests, assisting the construction of uniform confidence intervals for autoregressive coefficients, and enabling the development of methods robust to departures from unit roots. The present paper shows how to generalize LUR asymptotics to cases where the localized departure from unity is a time varying function rather than a constant. Such a functional local unit root (FLUR) model has much greater generality and encompasses many cases of additional interest, including structural break formulations that …
Kernel-Based Inference In Time-Varying Coefficient Cointegrating Regression, Degui Li, Peter C.B. Phillips, Jiti Gao
Kernel-Based Inference In Time-Varying Coefficient Cointegrating Regression, Degui Li, Peter C.B. Phillips, Jiti Gao
Cowles Foundation Discussion Papers
This paper studies nonlinear cointegrating models with time-varying coefficients and multiple nonstationary regressors using classic kernel smoothing methods to estimate the coefficient functions. Extending earlier work on nonstationary kernel regression to take account of practical features of the data, we allow the regressors to be cointegrated and to embody a mixture of stochastic and deterministic trends, complications which result in asymptotic degeneracy of the kernel-weighted signal matrix. To address these complications new \textsl{local} and \textsl{global rotation} techniques are introduced to transform the covariate space to accommodate multiple scenarios of induced degeneracy. Under certain regularity conditions we derive asymptotic results that …
Boundary Limit Theory For Functional Local To Unity Regression, Anna Bykhovskaya, Peter C.B. Phillips
Boundary Limit Theory For Functional Local To Unity Regression, Anna Bykhovskaya, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper studies functional local unit root models (FLURs) in which the autoregressive coefficient may vary with time in the vicinity of unity. We extend conventional local to unity (LUR) models by allowing the localizing coefficient to be a function which characterizes departures from unity that may occur within the sample in both stationary and explosive directions. Such models enhance the flexibility of the LUR framework by including break point, trending, and multi-directional departures from unit autoregressive coefficients. We study the behavior of this model as the localizing function diverges, thereby determining the impact on the time series and on …
Selling 'Money' On Ebay: A Field Study Of Surplus Division, Alia Gizatulina, Olga Gorelkina
Selling 'Money' On Ebay: A Field Study Of Surplus Division, Alia Gizatulina, Olga Gorelkina
Cowles Foundation Discussion Papers
We study the division of trade surplus in a natural field experiment on German eBay. Acting as a seller, we offer Amazon gift cards with face values of up to 500 Euro. A random selection of buyers, the subjects of our experiment, make price offers according to the rules of eBay. Using a novel decomposition method, we infer the offered shares of trade surplus from the data and find that the average share proposed to the seller amounts to about $30 \%$. Additionally, we document: (i) insignificant effects of stake size; (ii) poor use of strategically relevant public information; and …
Dynamic Airline Pricing And Seat Availability, Kevin R. Williams
Dynamic Airline Pricing And Seat Availability, Kevin R. Williams
Cowles Foundation Discussion Papers
Airfares fluctuate over time due to both demand shocks and intertemporal variation in willingness to pay. I develop and estimate a model of dynamic airline pricing accounting for both forces with new flight-level data. With the model estimates, I disentangle key interactions between the arrival pattern of consumer types and scarcity of remaining capacity due to stochastic demand. I show that dynamic airline pricing expands output by lowering fares charged to early-arriving, price-sensitive customers. It also ensures seats for late-arriving travelers with the highest willingness to pay (e.g. business travelers) who are then charged high prices. I find that dynamic …
Estimating Aging Effects In Running Events, Ray C. Fair, Edward H. Kaplan
Estimating Aging Effects In Running Events, Ray C. Fair, Edward H. Kaplan
Cowles Foundation Discussion Papers
This paper uses world running records by age to estimate a biological frontier of decline rates. Two models are compared: a linear/quadratic (LQ) model and a non-parametric model. Two estimation methods are used: 1) minimizing the squared difference between the observed records and the modeled biological frontier and 2) using extreme value theory to estimate the biological frontier that maximizes the probability of observing the existing world records by age. The results support the LQ model and suggest there is linear percentage decline up to the late 70’s and quadratic decline after that. The extreme value estimates suggest that the …
Naiveté About Temptation And Self-Control: Foundations For Naive Quasi-Hyperbolic Discounting, David S. Ahn, Ryota Iijima, Todd Sarver
Naiveté About Temptation And Self-Control: Foundations For Naive Quasi-Hyperbolic Discounting, David S. Ahn, Ryota Iijima, Todd Sarver
Cowles Foundation Discussion Papers
We introduce and characterize a recursive model of dynamic choice that accommodates naivete about present bias. While recursive representations are important for tractable analysis of in nite-horizon problems, the commonly-used Strotz model of time inconsistency presents well-known technical difficulties in extensions to dynamic environments. Our model incorporates costly self-control in the sense of Gul and Pesendorfer (2001) to overcome these hurdles. The important novel condition is an axiom for naivete. We first introduce appropriate definitions of absolute and comparative naivete for a simple two-period model, and explore their implications for the costly self-control model. We then develop suitable extensions of …
Naiveté About Temptation And Self-Control: Foundations For Naive Quasi-Hyperbolic Discounting, David S. Ahn, Ryota Iijima, Todd Sarver
Naiveté About Temptation And Self-Control: Foundations For Naive Quasi-Hyperbolic Discounting, David S. Ahn, Ryota Iijima, Todd Sarver
Cowles Foundation Discussion Papers
We introduce and characterize a recursive model of dynamic choice that accommodates naiveté about present bias. The model incorporates costly self-control in the sense of Gul and Pesendorfer (2001) to overcome the technical hurdles of the Strotz representation. The important novel condition is an axiom for naiveté. We first introduce appropriate definitions of absolute and comparative naiveté for a simple two-period model, and explore their implications for the costly self-control model. We then extend this definition for infinite-horizon environments, and discuss some of the subtleties involved with the extension. Incorporating the definition of absolute naiveté as an axiom, we characterize …
Resistance To Institutions And Cultural Distance: Brigandage In Post-Unification Italy, Giampaolo Lecce, Laura Ogliari, Tommaso Orlando
Resistance To Institutions And Cultural Distance: Brigandage In Post-Unification Italy, Giampaolo Lecce, Laura Ogliari, Tommaso Orlando
Cowles Foundation Discussion Papers
We study how cultural distance affects the rejection of imposed institutions. To this purpose, we exploit the transplantation of Piedmontese institutions on Southern Italy which occurred during the Italian unification. We assemble a novel and unique dataset containing information on episodes of brigandage, a form of violent uprising against the unitary government, at the municipal level. We use geographic distance from local settlements of Piedmontese descent as a proxy for cultural distance between each municipality and the new rulers. We find robust evidence that cultural distance from the origins of the transplanted institutions is significantly associated with more intense resistance …
Dynamic Mechanism Design: An Introduction, Dirk Bergemann, Juuso Välimäki
Dynamic Mechanism Design: An Introduction, Dirk Bergemann, Juuso Välimäki
Cowles Foundation Discussion Papers
We provide an introduction to the recent developments in dynamic mechanism design, with a primary focus on the quasilinear case. First, we describe socially optimal (or efficient) dynamic mechanisms. These mechanisms extend the well-known Vickrey-Clark-Groves and D’Aspremont-Gérard-Varet mechanisms to a dynamic environment. Second, we discuss revenue optimal mechanisms. We cover models of sequential screening and revenue maximizing auctions with dynamically changing bidder types. We also discuss models of information management where the mechanism designer can control (at least partially) the stochastic process governing the agents’ types. Third, we consider models with changing populations of agents over time. After discussing related …
Embedding Cooperation In General-Equilibrium Models, John E. Roemer
Embedding Cooperation In General-Equilibrium Models, John E. Roemer
Cowles Foundation Discussion Papers
Humans cooperate a great deal in economic activity, but our two major models of equilibrium – Walrasian competitive in markets and Nash in games – portray us as only non-cooperative. In earlier work, I have proposed a model of cooperative decision making (Kantian optimization); here, I embed Kantian optimization in general equilibrium models and show that ‘Walras-Kant’ equilibria exist and often resolve inefficiencies associated with income taxation, public goods and bads, and non-traditional firm ownership, which typically plague models where agents are Nash optimizers. In four examples, introducing Kantian optimization in one market – often the labor market – suffices …
Dynamic Airline Pricing And Seat Availability: Evidence From Airline Markets, Kevin R. Williams
Dynamic Airline Pricing And Seat Availability: Evidence From Airline Markets, Kevin R. Williams
Cowles Foundation Discussion Papers
Airfares fluctuate due to demand shocks and intertemporal variation in willingness to pay. I estimate a model of dynamic airline pricing accounting for both sources of price adjustments using flight-level data. I use the model estimates to evaluate the welfare effects of dynamic airline pricing. Relative to uniform pricing, dynamic pricing benefits early-arriving, leisure consumers at the expense of late-arriving, business travelers. Although dynamic pricing ensures seat availability for business travelers, these consumers are then charged higher prices. When aggregated over markets, welfare is higher under dynamic pricing than under uniform pricing. The direction of the welfare effect at the …
Estimated Costs Of Contact In Men's Collegiate Sports, Ray C. Fair, Christopher Champa
Estimated Costs Of Contact In Men's Collegiate Sports, Ray C. Fair, Christopher Champa
Cowles Foundation Discussion Papers
Injury rates in twelve U.S. men’s collegiate sports are examined in this paper. The twelve sports ranked by overall injury rate are wrestling, football, ice hockey, soccer, basketball, lacrosse, tennis, baseball, indoor track, cross country, outdoor track, and swimming. The first six sports will be called “contact” sports, and the next five will be called “non-contact.” Swimming is treated separately because it has many fewer injuries. Injury rates in the contact sports are considerably higher than they are in the non-contact sports and they are on average more severe. Estimates are presented of the injury savings that would result if …
Estimated Costs Of Contact In College And High School Male Sports, Ray C. Fair, Christopher Champa
Estimated Costs Of Contact In College And High School Male Sports, Ray C. Fair, Christopher Champa
Cowles Foundation Discussion Papers
Injury rates in twelve U.S. men’s college sports and five U.S. boys’ high school sports are examined in this paper. The sports are categorized as “contact” or “non-contact,” and differences in injury rates between the two are examined. Injury rates in the contact sports are considerably higher than those in the non-contact sports and they are on average more severe. Estimates are presented of the injury savings that would result if the contact sports were changed to have injury rates similar to those in the non-contact sports. The estimated college savings are 49,600 fewer injuries per year and 6,000 fewer …
Resistance To Institutions And Cultural Distance: Brigandage In Post-Unification Italy, Giampaolo Lecce, Laura Ogliari, Tommaso Orlando
Resistance To Institutions And Cultural Distance: Brigandage In Post-Unification Italy, Giampaolo Lecce, Laura Ogliari, Tommaso Orlando
Cowles Foundation Discussion Papers
We study how cultural distance affects the rejection of imposed institutions. To do so, we exploit the transplantation of Piedmontese institutions on Southern Italy that occurred during the Italian unification. We assemble a novel and unique dataset containing municipal-level information on episodes of brigandage, a form of violent uprising against the unitary government. We use the geographic distance from local settlements of Piedmontese descent as a proxy for the cultural distance between each municipality and the new rulers. We find robust evidence that cultural distance from the origins of the transplanted institutions is significantly associated with more intense resistance to …
Dynamic Mechanism Design: An Introduction, Dirk Bergemann, Juuso Välimäki
Dynamic Mechanism Design: An Introduction, Dirk Bergemann, Juuso Välimäki
Cowles Foundation Discussion Papers
We provide an introduction into the recent developments of dynamic mechanism design with a primary focus on the quasilinear case. First, we describe socially optimal (or efficient) dynamic mechanisms. These mechanisms extend the well known Vickrey-Clark-Groves and D’Aspremont-Gérard-Varet mechanisms to a dynamic environment. Second, we discuss results on revenue optimal mechanism. We cover models of sequential screening and revenue maximizing auctions with dynamically changing bidder types. We also discuss models of information management where the mechanism designer can control (at least partially) the stochastic process governing the agent’s types. Third, we consider models with changing populations of agents over time. …
A Survey Of Global Impacts Of Climate Change: Replication, Survey Methods, And A Statistical Analysis, William D. Nordhaus, Andrew Moffat
A Survey Of Global Impacts Of Climate Change: Replication, Survey Methods, And A Statistical Analysis, William D. Nordhaus, Andrew Moffat
Cowles Foundation Discussion Papers
The present study has two objectives. The first is a review of studies that estimate the global economic impacts of climate change using a systematic research synthesis (SRS). In this review, we attempt to replicate the impact estimates provided by Tol (2009, 2014) and find a large number of errors and estimates that could not be replicated. The study provides revised estimates for a total of 36 usable estimates from 27 studies. A second part of the study performs a statistical analysis. While the different specifications provide alternative estimates of the damage function, there were no large discrepancies among specifications. …
Unit Roots In Life And Research, Peter C.B. Phillips
Unit Roots In Life And Research, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Prominent among the many contributions that economics has made to humanity are the ones we witness daily in the normal operations of our national economies and our …nancial systems. Less prominent is the work in econometrics that is largely done in universities developing theories and techniques, conducting empirical research, and analyzing the effects of economic policies and social programs. Econometrics is the tool that forces our ideas about the economy and society to face the reality of observation. Its methods empower empirical modeling and evidence-based studies throughout the social and business sciences. This graduation speech recounts some experiences and lessons …
Default, Efficiency And Uniqueness, Cheng-Zhong Qin, Thomas Quint, Martin Shubik
Default, Efficiency And Uniqueness, Cheng-Zhong Qin, Thomas Quint, Martin Shubik
Cowles Foundation Discussion Papers
An adequate description of economic dynamics requires the introduction of a monetary system including default penalties and expectations in a society whose economy utilizes money and credit. This essay notes and discusses several of the factors involved in the use of money and credit in a process oriented economy. It links these observations with the general equilibrium treatment of the same underlying economy and formulates a government guidance game where the government sets several key parameters in a monetary economy sufficient to select a unique equilibrium. Low information and error correction are noted. The links to the first and second …