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Articles 1 - 30 of 97
Full-Text Articles in Economics
Third-Degree Price Discrimination Versus Uniform Pricing, Dirk Bergemann, Francisco Castro, Gabriel Weintraub
Third-Degree Price Discrimination Versus Uniform Pricing, Dirk Bergemann, Francisco Castro, Gabriel Weintraub
Cowles Foundation Discussion Papers
We compare the revenue of the optimal third-degree price discrimination policy against a uniform pricing policy. A uniform pricing policy offers the same price to all segments of the market. Our main result establishes that for a broad class of third-degree price discrimination problems with concave revenue functions and common support, a uniform price is guaranteed to achieve one half of the optimal monopoly profits. This revenue bound obtains for any arbitrary number of segments and prices that the seller would use in case he would engage in third-degree price discrimination. We further establish that these conditions are tight, and …
Fully Modified Least Squares For Multicointegrated Systems, Igor Kheifets, Peter C.B. Phillips
Fully Modified Least Squares For Multicointegrated Systems, Igor Kheifets, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Multicointegration is traditionally defined as a particular long run relationship among variables in a parametric vector autoregressive model that introduces links between these variables and partial sums of the equilibrium errors. This paper departs from the parametric model, using a semiparametric formulation that reveals the explicit role that singularity of the long run conditional covariance matrix plays in determining multicointegration. The semiparametric framework has the advantage that short run dynamics do not need to be modeled and estimation by standard techniques such as fully modified least squares (FM-OLS) on the original I(1) system is straightforward. The paper derives FM-OLS limit …
Intuitive Beliefs, Jawwad Noor
Intuitive Beliefs, Jawwad Noor
Cowles Foundation Discussion Papers
Beliefs are intuitive if they rely on associative memory, which can be described as a network of associations between events. A belief-theoretic characterization of the model is provided, its uniqueness properties are established, and the intersection with the Bayesian model is characterized. The formation of intuitive beliefs is modelled after machine learning, whereby the network is shaped by past experience via minimization of the difference from an objective probability distribution. The model is shown to accommodate correlation misperception, the conjunction fallacy, base-rate neglect/conservatism, etc.
Uniform Pricing Versus Third-Degree Price Discrimination, Dirk Bergemann, Francisco Castro, Gabriel Weintraub
Uniform Pricing Versus Third-Degree Price Discrimination, Dirk Bergemann, Francisco Castro, Gabriel Weintraub
Cowles Foundation Discussion Papers
We compare the revenue of the optimal third-degree price discrimination policy against a uniform pricing policy. A uniform pricing policy offers the same price to all segments of the market. Our main result establishes that for a broad class of third-degree price discrimination problems with concave revenue functions and common support, a uniform price is guaranteed to achieve one-half of the optimal monopoly profits. This revenue bound holds for any arbitrary number of segments and prices that the seller would use in case he would engage in third-degree price discrimination. We further establish that these conditions are tight and that …
Trade Models And Macroeconomics, Ray C. Fair
Trade Models And Macroeconomics, Ray C. Fair
Cowles Foundation Discussion Papers
This paper discusses some macro links that are missing from trade models. A multicountry macroeconometric model is used to analyze the effects on the United States of increased import competition from China, an experiment that is common in the recent trade literature. In the macro story a fall in Chinese export prices is stimulative. Domestic prices fall, which increases real wage rates and real wealth, which increases household expenditures. In addition, the Fed may lower the interest rate because of the lower prices, which is stimulative. Trade models do not have these channels, and they likely overestimate the negative effects …
Boosting: Why You Can Use The Hp Filter, Peter C.B. Phillips, Zhentao Shi
Boosting: Why You Can Use The Hp Filter, Peter C.B. Phillips, Zhentao Shi
Cowles Foundation Discussion Papers
The Hodrick-Prescott (HP) filter is one of the most widely used econometric methods in applied macroeconomic research. The technique is nonparametric and seeks to decompose a time series into a trend and a cyclical component unaided by economic theory or prior trend specification. Like all nonparametric methods, the HP filter depends critically on a tuning parameter that controls the degree of smoothing. Yet in contrast to modern nonparametric methods and applied work with these procedures, empirical practice with the HP filter almost universally relies on standard settings for the tuning parameter that have been suggested largely by experimentation with macroeconomic …
Nonlinear Cointegrating Power Function Regression With Endogeneity, Zhishui Hu, Peter C.B. Phillips, Qiying Wang
Nonlinear Cointegrating Power Function Regression With Endogeneity, Zhishui Hu, Peter C.B. Phillips, Qiying Wang
Cowles Foundation Discussion Papers
This paper develops an asymptotic theory for nonlinear cointegrating power function regression. The framework extends earlier work on the deterministic trend case and allows for both endogeneity and heteroskedasticity, which makes the models and inferential methods relevant to many empirical economic and financial applications, including predictive regression. Accompanying the asymptotic theory of nonlinear regression, the paper establishes some new results on weak convergence to stochastic integrals that go beyond the usual semi-martingale structure and considerably extend existing limit theory, complementing other recent findings on stochastic integral asymptotics. The paper also provides a general framework for extremum estimation limit theory that …
Inference And Specification Testing In Threshold Regression With Endogeneity, Ping Yu, Qin Liao, Peter C.B. Phillips
Inference And Specification Testing In Threshold Regression With Endogeneity, Ping Yu, Qin Liao, Peter C.B. Phillips
Cowles Foundation Discussion Papers
We propose three new methods of inference for the threshold point in endogenous threshold regression and two specification tests designed to assess the presence of endogeneity and threshold effects without necessarily relying on instrumentation of the covariates. The first inferential method is a parametric two-stage least squares method and is suitable when instruments are available. The second and third methods are based on smoothing the objective function of the integrated difference kernel estimator in different ways and these methods do not require instrumentation. All three methods are applicable irrespective of endogeneity of the threshold variable. The two specification tests are …
Continuously Updated Indirect Inference In Heteroskedastic Spatial Models, Maria Kyriacou, Peter C.B. Phillips, Francesca Rossi
Continuously Updated Indirect Inference In Heteroskedastic Spatial Models, Maria Kyriacou, Peter C.B. Phillips, Francesca Rossi
Cowles Foundation Discussion Papers
Spatial units typically vary over many of their characteristics, introducing potential unobserved heterogeneity which invalidates commonly used homoskedasticity conditions. In the presence of unobserved heteroskedasticity, standard methods based on the (quasi-)likelihood function generally produce inconsistent estimates of both the spatial parameter and the coefficients of the exogenous regressors. A robust generalized method of moments estimator as well as a modified likelihood method have been proposed in the literature to address this issue. The present paper constructs an alternative indirect inference approach which relies on a simple ordinary least squares procedure as its starting point. Heteroskedasticity is accommodated by utilizing a …
The Cowles Commission And Foundation For Research In Economics, Robert W. Dimand
The Cowles Commission And Foundation For Research In Economics, Robert W. Dimand
Cowles Foundation Discussion Papers
Founded in 1932 by a newspaper heir disillusioned by the failure of forecasters to predict the Great Crash, the Cowles Commission promoted the use of formal mathematical and statistical methods in economics, initially through summer research conferences in Colorado and through support of the Econometric Society (of which Alfred Cowles was secretary-treasurer for decades). After moving to the University of Chicago in 1939, the Cowles Commission sponsored works, many later honored with Nobel Prizes but at the time out of the mainstream of economics, by Haavelmo, Hurwicz and Koopmans on econometrics, Arrow and Debreu on general equilibrium, Yntema and Mosak …
Léon Walras, Irving Fisher And The Cowles Approach To General Equilibrium Analysis, Robert W. Dimand
Léon Walras, Irving Fisher And The Cowles Approach To General Equilibrium Analysis, Robert W. Dimand
Cowles Foundation Discussion Papers
This paper explores the relationship of Walras’s work to a particularly influential tradition of general equilibrium, that associated with the Cowles Commission for Research in Economics in Colorado in the 1930s and at the University of Chicago from 1939 to 1955, and its successor, the Cowles Foundation, at Yale University from 1955. Irving Fisher introduced general equilibrium analysis into North America with his 1891 Yale dissertation Mathematical Investigations in the Theory of Value and Prices (published 1892) and was responsible in 1892 for the first English translation of a monograph by Walras. Fisher was only able to obtain copies of …
Irving Fisher, Ragnar Frisch And The Elusive Quest For Measurable Utility, Robert W. Dimand
Irving Fisher, Ragnar Frisch And The Elusive Quest For Measurable Utility, Robert W. Dimand
Cowles Foundation Discussion Papers
Commitment to the behaviorist approach to utility theory, to the usefulness of mathematics in economic analysis and to equalization of the marginal utility of income as a principle of just taxation brought Irving Fisher and Ragnar Frisch to attempt to measure the marginal utility of income, and led them to collaborate in forming the Econometric Society and sponsoring the establishment of the Cowles Commission, institutions advancing economic theory in connection to mathematics and statistics. To be presented at a symposium at the University of Oslo, December 3, 2019, honoring the 50th anniversary of the award to Ragnar Frisch of the …
'Follow The Data' — What Data Says About Real-World Behavior In Commons Problems, Caleb M. Koch, Heinrich H. Nax
'Follow The Data' — What Data Says About Real-World Behavior In Commons Problems, Caleb M. Koch, Heinrich H. Nax
Cowles Foundation Discussion Papers
We test the game-theoretic foundations of common-pool resources using an individual-level dataset of groundwater usage that accounts for 3% of US irrigated agriculture. Using necessary and sufficient revealed preference tests for dynamic games, we find: (i) a rejection of the standard game-theoretic arguments based on strategic substitutes, and instead (ii) support for models building on reciprocity-like behavior and strategic complements. By estimating strategic interactions directly, we find that reciprocity-like interactions drive behavior more than market and climate trends. Taken together, we take a step toward developing more realistic models to understand groundwater usage, and related issues pertaining to tragedy of …
Bitcoin: An Impossibility Theorem For Proof-Of-Work Based Protocols, Jacob Leshno, Philipp Strack
Bitcoin: An Impossibility Theorem For Proof-Of-Work Based Protocols, Jacob Leshno, Philipp Strack
Cowles Foundation Discussion Papers
Bitcoin’s main innovation lies in allowing a decentralized system that relies on anonymous, profit driven miners who can freely join the system. We formalize these properties in three axioms: anonymity of miners, no incentives for miners to consolidate, and no incentive to assuming multiple fake identities. This novel axiomatic formalization allows us to characterize which other protocols are feasible: Every protocol with these properties must have the same reward scheme as Bitcoin. This implies an impossibility result for risk-averse miners: no protocol satisfies the aforementioned constraints simultaneously without giving miners a strict incentive to merge. Furthermore, any protocol either gives …
Bitcoin: An Impossibility Theorem For Proof-Of-Work Based Protocols, Jacob Leshno, Philipp Strack
Bitcoin: An Impossibility Theorem For Proof-Of-Work Based Protocols, Jacob Leshno, Philipp Strack
Cowles Foundation Discussion Papers
A key part of decentralized consensus protocols is a procedure for random selection, which is the source of the majority of miners cost and wasteful energy consumption in Bitcoin. We provide a simple economic model for random selection mechanism and show that any PoW protocol with natural desirable properties is outcome equivalent to the random selection mechanism used in Bitcoin.
Durables And Lemons: Private Information And The Market For Cars, Richard Blundell, Ran Gu, Søren Leth-Petersen, Hamish Low, Costas Meghir
Durables And Lemons: Private Information And The Market For Cars, Richard Blundell, Ran Gu, Søren Leth-Petersen, Hamish Low, Costas Meghir
Cowles Foundation Discussion Papers
We specify an equilibrium model of car ownership with private information where individuals sell and purchase new and second-hand cars over their life-cycle. This private information introduces a transaction cost, distorts the market and reduces the value of a car as a savings instrument. We estimate the model using Danish linked registry data on car ownership, income and wealth. The transaction cost, which we term the lemons penalty, is estimated to be 18% of the price in the first year of ownership, declining with the length of ownership. It leads to large reductions in the turnover of cars and in …
The Economics Of Social Data, Dirk Bergemann, Alessandro Bonatti, Tan Gan
The Economics Of Social Data, Dirk Bergemann, Alessandro Bonatti, Tan Gan
Cowles Foundation Discussion Papers
A data intermediary pays consumers for information about their preferences and sells the information so acquired to firms that use it to tailor their products and prices. The social dimension of the individual data - whereby an individual’s data are predictive of the behavior of others - generates a data externality that reduces the intermediary’s cost of acquiring information. We derive the intermediary’s optimal data policy and show that it preserves the privacy of the consumers’ identities while providing precise information about market demand to the firms. This enables the intermediary to capture the entire value of information as the …
Social Exclusion, Ambiguity And (Ir)Rationality, Annette Krauss, Donald J. Brown
Social Exclusion, Ambiguity And (Ir)Rationality, Annette Krauss, Donald J. Brown
Cowles Foundation Discussion Papers
This working paper extends the methodology of non-smooth affective portfolio theory (APT) for eliciting (IR)rational preferences of investors endowed with continuous quasilinear utility functions, where assets are portfolios of risky and ambiguous state-contingent claims. The elicitation is a solution of the affective Afriat inequalities;see technical appendix 1. Solving the smooth affective Afriat inequalities is Np-hard; see technical appendices 2, 3, and 4. The proposed extension is a methodology for the elicitation of (IR)rational preferences of individuals endowed with random continuous quasilinear utility functions defined over finite subsets of discrete social goods as a refutable model of social exclusion in the …
Durables And Lemons: Private Information And The Market For Cars, Richard Blundell, Ran Gu, Soren Leth-Petersen, Hamish Low, Costas Meghir
Durables And Lemons: Private Information And The Market For Cars, Richard Blundell, Ran Gu, Soren Leth-Petersen, Hamish Low, Costas Meghir
Cowles Foundation Discussion Papers
We specify an equilibrium model of car ownership with private information where individuals sell and purchase new and second-hand cars over their life-cycle. Private information induces a transaction cost and distorts the market reducing the value of a car as a savings instrument. We estimate the model using data on car ownership in Denmark, linked to register data. The lemons penalty is estimated to be 18% of the price in the rst year of ownership, declining with the length of ownership. It leads to large reductions in the turnover of cars and in the probability of downgrading at job loss.
A Structural Model Of A Multitasking Salesforce: Multidimensional Incentives And Plan Design, Minkyung Kim, K. Sudhir, Kosuke Uetake
A Structural Model Of A Multitasking Salesforce: Multidimensional Incentives And Plan Design, Minkyung Kim, K. Sudhir, Kosuke Uetake
Cowles Foundation Discussion Papers
The paper broadens the focus of empirical research on salesforce management to include multitasking settings with multidimensional incentives, where salespeople have private information about customers. This allows us to ask novel substantive questions around multidimensional incentive design and job design while managing the costs and benefits of private information. To this end, the paper introduces the first structural model of a multitasking salesforce in response to multidimensional incentives. The model also accommodates (i) dynamic intertemporal tradeoffs in effort choice across the tasks and (ii) salesperson’s private information about customers. We apply our model in a rich empirical setting in microfinance …
On Her Own Account: How Strengthening Women’S Financial Control Impacts Labor Supply And Gender Norms, Erica Field, Rohini Pande, Natalia Rigol, Simone Schaner, Charity Troyer Moore
On Her Own Account: How Strengthening Women’S Financial Control Impacts Labor Supply And Gender Norms, Erica Field, Rohini Pande, Natalia Rigol, Simone Schaner, Charity Troyer Moore
Cowles Foundation Discussion Papers
Can greater control over earned income incentivize women to work and influence gender norms? In collaboration with Indian government partners, we provided rural women with individual bank accounts and randomly varied whether their wages from a public workfare program were directly deposited into these accounts or into the male household head’s account (the status quo). Women in a random subset of villages were also trained on account use. In the short run, relative to women just offered bank accounts, those who also received direct deposit and training increased their labor supply in the public and private sectors. In the long …
The Economics Of Social Data, Dirk Bergemann, Alessandro Bonatti, Tan Gan
The Economics Of Social Data, Dirk Bergemann, Alessandro Bonatti, Tan Gan
Cowles Foundation Discussion Papers
A data intermediary acquires signals from individual consumers regarding their preferences. The intermediary resells the information in a product market wherein firms and consumers tailor their choices to the demand data. The social dimension of the individual data -whereby a consumer’s data are predictive of others’ behavior- generates a data externality that can reduce the intermediary’s cost of acquiring the information. The intermediary optimally preserves the privacy of consumers’ identities if and only if doing so increases social surplus. This policy enables the intermediary to capture the total value of the information as the number of consumers becomes large.
The Economics Of Social Data, Dirk Bergemann, Alessandro Bonatti, Tan Gan
The Economics Of Social Data, Dirk Bergemann, Alessandro Bonatti, Tan Gan
Cowles Foundation Discussion Papers
We propose a model of data intermediation to analyze the incentives for sharing individual data in the presence of informational externalities. A data intermediary acquires signals from individual consumers regarding their preferences. The intermediary resells the information in a product market in which firms and consumers can tailor their choices to the demand data. The social dimension of the individual data - whereby an individual’s data are predictive of the behavior of others - generates a data externality that can reduce the intermediary’s cost of acquiring information. We derive the intermediary’s optimal data policy and establish that it preserves the …
The Economics Of Social Data, Dirk Bergemann, Alessandro Bonatti, Tan Gan
The Economics Of Social Data, Dirk Bergemann, Alessandro Bonatti, Tan Gan
Cowles Foundation Discussion Papers
A data intermediary pays consumers for information about their preferences, and sells the information so-acquired to firms that use it to tailor their product offers and prices. The social dimension of the individual data - whereby an individual’s data is predictive of the behavior of others - generates a data externality that reduces the intermediary’s cost of acquiring information. We derive the data intermediary’s optimal information policy, and show that it preserves privacy over the identity of the consumers, but provides precise information about market demand to the firms.
Affective Portfolio Analysis: Risk, Ambiguity And (Ir)Rationality, Donald J. Brown
Affective Portfolio Analysis: Risk, Ambiguity And (Ir)Rationality, Donald J. Brown
Cowles Foundation Discussion Papers
Ambiguous assets are characterized as assets where objective and subjective probabilities of tomorrow’s asset-returns are ill-defined or may not exist, e.g., bitcoin, volatility indices or any IPO. Investors may choose to diversify their portfolios of fiat money, stocks and bonds by investing in ambiguous assets, a fourth asset class, to hedge the uncertainties of future returns that are not risks. (IR)rational probabilities are computable alternative descriptions of the distribution of returns for ambiguous assets. (IR)rational probabilities can be used to define an investor’s (IR)rational expected utility function in the class of non-expected utilities. Investment advisors use revealed preference analysis to …
Information, Market Power And Price Volatility, Dirk Bergemann, Tibor Heumann, Stephen Morris
Information, Market Power And Price Volatility, Dirk Bergemann, Tibor Heumann, Stephen Morris
Cowles Foundation Discussion Papers
We consider demand function competition with a finite number of agents and private information. We show that any degree of market power can arise in the unique equilibrium under an information structure that is arbitrarily close to complete information. In particular, regardless of the number of agents and the correlation of payoff shocks, market power may be arbitrarily close to zero (so we obtain the competitive outcome) or arbitrarily large (so there is no trade in equilibrium). By contrast, price volatility is always less than the variance of the aggregate shock across all information structures.
A Structural Model Of A Multitasking Salesforce: Multidimensional Incentives And Plan Design, Minkyung Kim, K. Sudhir, Kosuke Uetake
A Structural Model Of A Multitasking Salesforce: Multidimensional Incentives And Plan Design, Minkyung Kim, K. Sudhir, Kosuke Uetake
Cowles Foundation Discussion Papers
We develop the first structural model of a multitasking salesforce to address questions of job design and incentive compensation design. The model incorporates three novel features: (i) multitasking effort choice given a multidimensional incentive plan; (ii) salesperson’s private information about customers and (iii) dynamic intertemporal tradeoffs in effort choice across the tasks. The empirical application uses data from a micro nance bank where loan officers are jointly responsible and incentivized for both loan acquisition repayment but has broad relevance for salesforce management in CRM settings involving customer acquisition and retention. We extend two-step estimation methods used for unidimensional compensation plans …
Jacob Marschak And The Cowles Approaches To The Theory Of Money And Assets, Robert W. Dimand, Harald Hagemann
Jacob Marschak And The Cowles Approaches To The Theory Of Money And Assets, Robert W. Dimand, Harald Hagemann
Cowles Foundation Discussion Papers
Jacob Marschak shaped the emergence of monetary theory and portfolio choice at the Cowles Commission (which he directed from 1943 to 1948, but with which he was involved already from 1937) at the University of Chicago, where he was the doctoral teacher of Leonid Hurwicz, Harry Markowitz and Don Patinkin, and then from 1955 at the Cowles Foundation at Yale University, where he was a senior colleague of James Tobin until moving to UCLA in 1960. Marschak’s later attempts to clarify the concept of liquidity and to emphasize the role of new information for economic behavior date back as far …
Macroeconomic Dynamics At The Cowles Commission From The 1930s To The 1950s, Robert W. Dimand
Macroeconomic Dynamics At The Cowles Commission From The 1930s To The 1950s, Robert W. Dimand
Cowles Foundation Discussion Papers
This paper explores the development of dynamic modelling of macroeconomic fluctuations at the Cowles Commission from Roos, Dynamic Economics (Cowles Monograph No. 1, 1934) and Davis, Analysis of Economic Time Series (Cowles Monograph No. 6, 1941) to Koopmans, ed., Statistical Inference in Dynamic Economic Models (Cowles Monograph No. 10, 1950) and Klein’s Economic Fluctuations in the United States, 1921-1941 (Cowles Monograph No. 11, 1950), emphasizing the emergence of a distinctive Cowles Commission approach to structural modelling of macroeconomic fluctuations influenced by Cowles Commission work on structural estimation of simulation equations models, as advanced by Haavelmo (“A Probability Approach to Econometrics,” …
Business Cycle During Structural Change: Arthur Lewis' Theory From A Neoclassical Perspective, Kjetil Storesletten, Bo Zhao, Fabrizio Zilibotti
Business Cycle During Structural Change: Arthur Lewis' Theory From A Neoclassical Perspective, Kjetil Storesletten, Bo Zhao, Fabrizio Zilibotti
Cowles Foundation Discussion Papers
We document that the nature of business cycles evolves over the process of development and structural change. In countries with large declining agricultural sectors, aggregate employment is uncorrelated with GDP. During booms, employment in agriculture declines while labor productivity increases in agriculture more than in other sectors. We construct a unified theory of business cycles and structural change consistent with the stylized facts. The focal point of the theory is the simultaneous decline and modernization of agriculture. As capital accumulates, agriculture becomes increasingly capital intensive as modern agriculture crowds out traditional agriculture. Structural change accelerates in booms and slows down …