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 Mechanism design (33)
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 Incomplete information (25)
 Unit root (25)

 Adverse selection (24)
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 Identiﬁcation (22)
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Articles 1  30 of 2686
FullText Articles in Social and Behavioral Sciences
Screening With Persuasion, Dirk Bergemann, Tibor Heumann, Stephen Morris
Screening With Persuasion, Dirk Bergemann, Tibor Heumann, Stephen Morris
Cowles Foundation Discussion Papers
We consider a general nonlinear pricing environment with private information. We characterize the information structure that maximizes the seller's profits. The seller who cannot observe the buyer's willingness to pay can control both the signal that a buyer receives about his value and the selling mechanism. The optimal screening mechanism has finitely many items even with a continuum of types. We identify sufficient conditions under which the optimal mechanism has a single item. Thus, the socially efficient variety of items is decreased drastically at the expense of higher revenue and lower information rents.
Trade, Leakage, And The Design Of A Carbon Tax, David A. Weisbach, Samuel Kortum, Michael Wang, Yujia Yao
Trade, Leakage, And The Design Of A Carbon Tax, David A. Weisbach, Samuel Kortum, Michael Wang, Yujia Yao
Cowles Foundation Discussion Papers
Climate policies vary widely across countries, with some countries imposing stringent emissions policies and others doing very little. When climate policies vary across countries, energyintensive industries have an incentive to relocate to places with few or no emissions restrictions, an effect known as leakage. Relocated industries would continue to pollute but would be operating in a less desirable location. We consider solutions to the leakage problem in a simple setting where one region of the world imposes a climate policy and the rest of the world is passive. We solve the model analytically and also calibrate and simulate the model. …
A General Limit Theory For Nonlinear Functionals Of Nonstationary Time Series, Qiying Wang, Peter C. B. Phillips
A General Limit Theory For Nonlinear Functionals Of Nonstationary Time Series, Qiying Wang, Peter C. B. Phillips
Cowles Foundation Discussion Papers
Limit theory is provided for a wide class of covariance functionals of
a nonstationary process and stationary time series. The results are relevant
to estimation and inference in nonlinear nonstationary regressions that involve unit root, local unit root or fractional processes and they include both parametric and nonparametric regressions. Self normalized versions of these
statistics are considered that are useful in inference. Numerical evidence reveals a strong bimodality in the finite sample distributions that persists for very large sample sizes although the limit theory is Gaussian. New self normalized versions are introduced that deliver improved approximations.
Why Have Interest Rates Been Low?, Ray C. Fair
Why Have Interest Rates Been Low?, Ray C. Fair
Cowles Foundation Discussion Papers
This paper uses an estimated interest rate rule of the Fed to argue that the low recent interest rates may be due to a change in Fed behavior. Prior to the Great Recession the Fed’s behavior is consistent with the rule. During the recession the zero lower bound was hit in 2008.4. The rule unconstrained called for negative nominal interest rates during this period, and so it became inoperative. The Fed kept the interest rate at roughly zero through 2015. This was a period of low inflation and still fairly high unemployment rates, and the rule called for essentially zero …
Prudential Policy With Distorted Beliefs, Eduardo Dávila, Ansgar Walther
Prudential Policy With Distorted Beliefs, Eduardo Dávila, Ansgar Walther
Cowles Foundation Discussion Papers
This paper studies leverage regulation when equity investors and/or creditors have distorted beliefs relative to a planner. We characterize how the optimal regulation responds to arbitrary changes in investors’/creditors’ beliefs, relating our results to practical scenarios. We show that the optimal regulation depends on the type and magnitude of such changes. Optimism by investors calls for looser leverage regulation, while optimism by creditors, or jointly by both investors/creditors, calls for tighter leverage regulation. Our results apply to environments with i) planners with imperfect knowledge of investors’/creditors’ beliefs, ii) monetary policy, iii) bailouts and pecuniary externalities, and iv) endogenous beliefs.
Lookalike Targeting On Others' Journeys: Brand Versus Performance Marketing, K. Sudhir, Seung Yoon Lee, Subroto Roy
Lookalike Targeting On Others' Journeys: Brand Versus Performance Marketing, K. Sudhir, Seung Yoon Lee, Subroto Roy
Cowles Foundation Discussion Papers
Lookalike targeting is a widely used modelbased ad targeting approach that uses a seed database of individuals to identify matching “lookalikes” for targeted customer acquisition. An advertiser has to make two key choices: (1) who to seed on and (2) seedmatch rank range. First, we find that seeding on others’ journey stage can be effective in new customer acquisition; despite the cold start nature of customer acquisition using Lookalike audiences, third parties can indeed identify factors unobserved to the advertiser that move individuals along the journey and can be correlated with the lookalikes. Further, while journeybased seeding adds no incremental …
Econometric Analysis Of Asset Price Bubbles, Shuping Shi, Peter C. B. Phillips
Econometric Analysis Of Asset Price Bubbles, Shuping Shi, Peter C. B. Phillips
Cowles Foundation Discussion Papers
In the presence of bubbles, asset prices consist of a fundamental and a bubble component, with the bubble component following an explosive dynamic. The general idea for bubble identification is to apply explosive root tests to a proxy of the unobservable bubble. Three notable proxies are the real asset prices, log pricepayoff ratios, and estimated nonfundamental components. The rationale for all three proxy choices rests on the definition of bubbles, which has been presented in various forms in the literature. This chapter provides a theoretical framework that incorporates several definitions of bubbles (and fundamentals) and offers guidance for selecting proxies. …
Weak Identification Of Long Memory With Implications For Inference, Peter C. B. Phillips
Weak Identification Of Long Memory With Implications For Inference, Peter C. B. Phillips
Cowles Foundation Discussion Papers
This paper explores weak identification issues arising in commonly used models of
economic and financial time series. Two highly popular configurations are shown to
be asymptotically observationally equivalent: one with long memory and weak autoregressive dynamics, the other with antipersistent shocks and a nearunit autoregressive
root. We develop a datadriven semiparametric and identificationrobust approach to
inference that reveals such ambiguities and documents the prevalence of weak identification in many realized volatility and trading volume series. The identificationrobust empirical evidence generally favors long memory dynamics in volatility and volume, a conclusion that is corroborated using socialmedia news flow data.
Selection In The Presence Of Implicit Bias: The Advantage Of Intersectional Constraints, Anay Mehrota, Bary S.R. Pradelski, Nisheeth Vishnoi
Selection In The Presence Of Implicit Bias: The Advantage Of Intersectional Constraints, Anay Mehrota, Bary S.R. Pradelski, Nisheeth Vishnoi
Cowles Foundation Discussion Papers
In selection processes such as hiring, promotion, and college admissions, implicit bias toward sociallysalient attributes such as race, gender, or sexual orientation produces persistent inequality and reduces utility for the decisionmaker. Recent works show that interventions like the Rooney Rule, which require a minimum quota of individuals from each affected group, are very effective in improving utility when individuals belong to at most one affected group. However, in several settings, individuals belong to multiple affected groups and, consequently, face more extreme implicit bias due to this intersectionality. We consider independently drawn utilities and show that, with intersectionality, the aforementioned nonintersectional …
Asymptotics Of Polynomial Time Trend Estimation And Hypothesis Testing Under Rank Deficiency, Peter C. B. Phillips
Asymptotics Of Polynomial Time Trend Estimation And Hypothesis Testing Under Rank Deficiency, Peter C. B. Phillips
Cowles Foundation Discussion Papers
Limit theory is developed for least squares regression estimation of a model involving time trend polynomials and a moving average error process with a unit root. Models with these features can arise from data manipulation such as overdifferencing and model features such as the presence of multicointegration. The impact of such features on the asymptotic equivalence of least squares and generalized least squares is considered. Problems of rank deficiency that are induced asymptotically by the presence of time polynomials in the regression are also studied, focusing on the impact that singularities have on hypothesis testing using Wald statistics and matrix …
The Impact Of Upzoning On Housing Construction In Auckland, Ryan GreenawayMcgrevy, Peter C. B. Phillips
The Impact Of Upzoning On Housing Construction In Auckland, Ryan GreenawayMcgrevy, Peter C. B. Phillips
Cowles Foundation Discussion Papers
There is a growing debate about whether upzoning is an effective policy response to housing shortages and unaffordable housing. This paper provides empirical evidence to further inform debate by examining the various impacts of recently implemented zoning reforms on housing construction in Auckland, the largest metropolitan area in New Zealand. In 2016, the city upzoned approximately three quarters of its inner suburban land to facilitate construction of more intensive housing. We use a quasiexperimental approach to analyze the shortrun impacts of the reform on construction, allowing for potential shifts in construction from nonupzoned to upzoned areas (negative spillovers) that would, …
Personalized Pricing And Competition, Andrew Rhodes, Jidong Zhou
Personalized Pricing And Competition, Andrew Rhodes, Jidong Zhou
Cowles Foundation Discussion Papers
We study personalized pricing (or firstdegree price discrimination) in a general oligopoly model. In the shortrun, when the market structure is fixed, the impact of personalized pricing hinges on the degree of market coverage (i.e., how many consumers buy). If coverage is high (e.g., because the production cost is low, or the number of firms is large), personalized pricing intensifies competition and so harms firms but benefits consumers, whereas the opposite is true if coverage is low. However in the longrun, when the market structure is endogenous, personalized pricing always benefits consumers because it induces the socially optimal level of …
Belief Convergence Under Misspecified Learning: A Martingale Approach, Mira Frick, Ryota Iijima, Yuhta Ishii
Belief Convergence Under Misspecified Learning: A Martingale Approach, Mira Frick, Ryota Iijima, Yuhta Ishii
Cowles Foundation Discussion Papers
We present an approach to analyze learning outcomes in a broad class of misspecified environments, spanning both singleagent and social learning. We introduce a novel “prediction accuracy” order over subjective models, and observe that this makes it possible to partially restore standard martingale convergence arguments that apply under correctly specified learning. Based on this, we derive general conditions to determine when beliefs in a given environment converge to some longrun belief either locally or globally (i.e., from some or all initial beliefs). We show that these conditions can be applied, first, to unify and generalize various convergence results in previously …
Gerrymandering And The Limits Of Representative Democracy, Kai Hao Yang, Alexander K. Zentefis
Gerrymandering And The Limits Of Representative Democracy, Kai Hao Yang, Alexander K. Zentefis
Cowles Foundation Discussion Papers
We assess the capacity of gerrymandering to undermine the will of the people in a representative democracy. Citizens have political positions represented on a spectrum, and electoral maps separate people into districts. We show that unrestrained gerrymandering can severely distort the composition of a legislature, potentially leading half the population to lose all representation of their views. This means that, under majority rule in the congress, gerrymandering enables politicians to enact any legislation of their choice as long as it falls within the interquartile range of the political spectrum. Just as worrisome, gerrymandering can rig any legislation to pass instead …
Framing Human Action In Physics: Valid Reconstruction, Invalid Reduction, Shabnam Mousavi, Shyam Sunder
Framing Human Action In Physics: Valid Reconstruction, Invalid Reduction, Shabnam Mousavi, Shyam Sunder
Cowles Foundation Discussion Papers
We propose framing human action in physics before reaching to biology and social sciences, rearranging the order of their usual deployment. As an example, consider efforts to model altruism that start in a frame of psychological or social attributes such as reciprocity, empathy, and identity. Evolutionary roots might also be used by appeal to survival of the species from biology. Only then the modeler abstracts to work on notations, and to establish relationships using mathematical apparatus from physics. This topdown deployment of principles from various scientific disciplines has generated a body of coherent models, partially generalizable theories, and disagreements. In …
Consumer Bankruptcy, Mortgage Default And Labor Supply, Wenli Li, Costas Meghir, Florian Oswald
Consumer Bankruptcy, Mortgage Default And Labor Supply, Wenli Li, Costas Meghir, Florian Oswald
Cowles Foundation Discussion Papers
We specify and estimate a lifecycle model of consumption, housing demand and labor supply in an environment where individuals may file for bankruptcy or default on their mortgage. Uncertainty in the model is driven by house price shocks, education specific productivity shocks, and catastrophic consumption events, while bankruptcy is governed by the basic institutional framework in the US as implied by Chapter 7 and Chapter 13. The model is estimated using micro data on credit reports and mortgages combined with data from the American Community Survey. We use the model to understand the relative importance of the two chapters (7 …
Distributions Of Posterior Quantiles And Economic Applications, Kai Hao Yang, Alexander K. Zentefis
Distributions Of Posterior Quantiles And Economic Applications, Kai Hao Yang, Alexander K. Zentefis
Cowles Foundation Discussion Papers
We characterize the distributions of posterior quantiles under a given prior. Unlike the distributions of posterior means, which are known to be meanpreserving contractions of the prior, the distributions of posterior quantiles coincide with a firstorder stochastic dominance interval bounded by an upper and a lower truncation of the prior. We apply this characterization to several environments, ranging across political economy, Bayesian persuasion, industrial organization, econometrics, finance, and accounting.
Is Selling Complete Information (Approximately) Optimal?, Dirk Bergemann, Yang Cai, Grigoris Velegkas, Mingfei Zhao
Is Selling Complete Information (Approximately) Optimal?, Dirk Bergemann, Yang Cai, Grigoris Velegkas, Mingfei Zhao
Cowles Foundation Discussion Papers
We study the problem of selling information to a databuyer who faces a decision problem under uncertainty. We consider the classic Bayesian decisiontheoretic model pioneered by Blackwell [Bla51, Bla53]. Initially, the data buyer has only partial information about the payoffrelevant state of the world. A data seller offers additional information about the state of the world. The information is revealed through signaling schemes, also referred to as experiments. In the singleagent setting, any mechanism can be represented as a menu of experiments. A recent paper by Bergemann et al. [BBS18] present a complete characterization of the revenueoptimal mechanism in a …
The Value Of Arbitrage, Eduardo Dávila, Daniel Graves, Cecilia Parlatore
The Value Of Arbitrage, Eduardo Dávila, Daniel Graves, Cecilia Parlatore
Cowles Foundation Discussion Papers
This paper studies the social value of closing price differentials in financial markets. We show that arbitrage gaps (price differentials between markets) exactly correspond to the marginal social value of executing an arbitrage trade. We further show that arbitrage gaps and measures of price impact are sufficient to compute the total social value from closing an arbitrage gap. Theoretically, we show that, for a given arbitrage gap, the total social value of arbitrage is higher in more liquid markets. We apply our framework to compute the welfare gains from closing arbitrage gaps in the context of covered interest parity violations …
A Panel Clustering Approach To Analyzing Bubble Behavior, Yanbo Liu, Peter C. B. Phillips, Jun Yu
A Panel Clustering Approach To Analyzing Bubble Behavior, Yanbo Liu, Peter C. B. Phillips, Jun Yu
Cowles Foundation Discussion Papers
This study provides new mechanisms for identifying and estimating explosive bubbles in mixedroot panel autoregressions with a latent group structure. A postclustering approach is employed that combines a recursive kmeans clustering algorithm with paneldata test statistics for testing the presence of explosive roots in time series trajectories. Uniform consistency of the kmeans clustering algorithm is established, showing that the postclustering estimate is asymptotically equivalent to the oracle counterpart that uses the true group identities. Based on the estimated group membership, righttailed selfnormalized ttests and coeﬀicientbased Jtests, each with pivotal limit distributions, are introduced to detect the explosive roots. The usual …
Optimal InterRelease Time Between Sequentially Released Products, Jackie Luan, K. Sudhir
Optimal InterRelease Time Between Sequentially Released Products, Jackie Luan, K. Sudhir
Cowles Foundation Discussion Papers
Marketers routinely use timing as a segmentation device through sequential product releases. While there has been much theoretical research on the optimal introduction strategy of sequential releases, there is little empirical research on this problem. This paper develops an econometric model to empirically solve the interrelease timing problem: it involves (1) developing and estimating a structural model of consumers’ choice for sequentially released products and (2) using the estimates of the structural model to solve for the optimal interrelease time. The empirical application focuses on the movie industry, where we specifically address the issue of the interrelease time between a …
MarketMinded Informational Intermediary And Unintended Welfare Loss, Wenji Xu, Kai Hao Yang
MarketMinded Informational Intermediary And Unintended Welfare Loss, Wenji Xu, Kai Hao Yang
Cowles Foundation Discussion Papers
This paper examines the welfare effects of informational intermediation. A (shortlived) seller sets the price of a product that is sold through a (longlived) informational intermediary. The intermediary can disclose information about the product to consumers, earns a fixed percentage of the sales revenue in each period, and has concerns about its prominencethe market size it faces in the future, which in turn is increasing in past consumer surplus. We characterize the Markov perfect equilibria and the set of subgame perfect equilibrium payoffs of this game and show that when the market feedback (i.e., how much past consumer surplus affects …
Consumer Guilt And Sustainable Choice: Environmental Impact Of Durable Goods Innovation, K. Sudhir, Ramesh Shankar, Yuan Jin
Consumer Guilt And Sustainable Choice: Environmental Impact Of Durable Goods Innovation, K. Sudhir, Ramesh Shankar, Yuan Jin
Cowles Foundation Discussion Papers
The paper develops a modeling framework to study how sustainability interventions impact consumer adoption of durable goods innovation, firm profit and environmental outcomes in equilibrium. Our two period model with forward looking consumers and a monopoly firm introducing an innovation in the second period accommodates three key features: (1) it builds on the psychology literature linking reactive and anticipatory guilt to consumers’ environmental sensitivity on initial purchase and upgrade decisions; (2) it disentangles environmental harm over the product life into that arising from product use and dumping at replacement; and (3) it clarifies how a taxonomy of innovations (function, fashion …
Informational Intermediation, Market Feedback, And Welfare Losses, Wenji Xu, Kai Hao Yang
Informational Intermediation, Market Feedback, And Welfare Losses, Wenji Xu, Kai Hao Yang
Cowles Foundation Discussion Papers
This paper examines the welfare implications of thirdparty informational intermediation. A seller sets the price of a product that is sold through an informational intermediary. The intermediary can disclose information about the product to consumers and earns a fied percentage of sales revenue in each period. The intermediary's market base grows at a rate that increases with past consumer surplus. We characterize the stationary equilibria and the set of subgame perfect equilibrium payoffs. When market feedback (i.e., the extent to which past consumer surplus affects future market bases) increases, welfare may decrease in the Pareto sense.
Efficient Estimation Of Average Derivatives In Npiv Models: Simulation Comparisons Of Neural Network Estimators, Jiafeng Chen, Xiaohong Chen, Elie Tamer
Efficient Estimation Of Average Derivatives In Npiv Models: Simulation Comparisons Of Neural Network Estimators, Jiafeng Chen, Xiaohong Chen, Elie Tamer
Cowles Foundation Discussion Papers
Artiﬁcial Neural Networks (ANNs) can be viewed as \emph{nonlinear sieves} that can approximate complex functions of high dimensional variables more eﬀectively than linear sieves. We investigate the computational performance of various ANNs in nonparametric instrumental variables (NPIV) models of moderately high dimensional covariates that are relevant to empirical economics. We present two eﬀicient procedures for estimation and inference on a weighted average derivative (WAD): an orthogonalized plugin with optimallyweighted sieve minimum distance (OPOSMD) procedure and a sieve eﬀicient score (ES) procedure. Both estimators for WAD use ANN sieves to approximate the unknown NPIV function and are rootn asymptotically normal …
A GameTheoretic Analysis Of Childhood Vaccination Behavior: Nash Versus Kant, Philippe De Donder, Humberto Llavador, Stefan Penczynski, John E. Roemer, Roberto Vélez
A GameTheoretic Analysis Of Childhood Vaccination Behavior: Nash Versus Kant, Philippe De Donder, Humberto Llavador, Stefan Penczynski, John E. Roemer, Roberto Vélez
Cowles Foundation Discussion Papers
Whether or not to vaccinate one’s child is a decision that a parent may approach in several ways. The vaccination game, in which parents must choose whether to vaccinate a child against a disease, is one with positive externalities (herd immunity). In some societies, not vaccinating is an increasingly prevalent behavior, due to deleterious side eﬀects that parents believe may accompany vaccination. The standard gametheoretic approach assumes that parents make decisions according to the Nash behavioral protocol, which is individualistic and noncooperative. Because of the positive externality that each child’s vaccination generates for others, the Nash equilibrium suﬀers from a …
The Measuring Of Assortativeness In Marriage, PierreAndré Chiappori, Monica CostaDias, Costas Meghir
The Measuring Of Assortativeness In Marriage, PierreAndré Chiappori, Monica CostaDias, Costas Meghir
Cowles Foundation Discussion Papers
Measuring the extent to which assortative matching
differs between two economies is challenging when the marginal distributions of the characteristic along which sorting takes place (e.g. education) also changes for either or both sexes. Drawing from the statistics literature we define simple conditions that any index has to satisfy to provide a measure of change in sorting that is not distorted by changes in the marginal distributions of the characteristic. While our characterisation of indices of assortativeness is not complete, and hence cannot exclude the possibility of multiple indices providing contradictory results, in an empirical application to US data we …
A Structural Model Of Organizational Buying For B2b Markets: Innovation Adoption With Share Of Wallet Contracts, Navid Mojir, K. Sudhir
A Structural Model Of Organizational Buying For B2b Markets: Innovation Adoption With Share Of Wallet Contracts, Navid Mojir, K. Sudhir
Cowles Foundation Discussion Papers
The paper develops the ﬁrst structural model of organizational buying to study innovation diﬀusion in a B2B market. Our model is particularly applicable for routinized exchange relationships, whereby centralized buyers periodically evaluate and choose contracts, then downstream users or der items on contracted terms. The model captures diﬀerent utility tradeoﬀs for users and buyers while accounting for how buyer and user choices interact to impact user adoption/usage and buyer contracting. Further, the paper considers the dynamics induced by share of wallet (SOW) pricing contracts, commonly used in B2B markets to reward customer loyalty with discounts for buying more than a …
Incorporating Search And Sales Information In Demand Estimation, Ali Hortaçsu, Olivia R. Natan, Hayden Parsley, Timothy Schwieg, Kevin R. Williams
Incorporating Search And Sales Information In Demand Estimation, Ali Hortaçsu, Olivia R. Natan, Hayden Parsley, Timothy Schwieg, Kevin R. Williams
Cowles Foundation Discussion Papers
We propose an approach to modeling and estimating discrete choice demand 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 then 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 marketlevel data and measures of consumer search intensity. After presenting simulation studies, we consider an empirical application of air travel demand where productlevel sales …
Endogenous Spatial Production Networks: Quantitative Implications For Trade & Productivity, Piyush Panigrahi
Endogenous Spatial Production Networks: Quantitative Implications For Trade & Productivity, Piyush Panigrahi
Cowles Foundation Discussion Papers
Larger Indian ﬁrms selling inputs to other ﬁrms tend to have more customers, tend to be used more intensively by their customers, and tend to have larger customers. Motivated by these regularities, I propose a novel empirical model of trade featuring endogenous formation of inputoutput linkages between spatially distant ﬁrms. The empirical model consists of (a) a theoretical framework that accommodates ﬁrst order features of ﬁrmtoﬁrm network data, (b) a maximum likelihood framework for structural estimation that is uninhibited by the scale of data, and (c) a procedure for counterfactual analysis that speaks to the eﬀects of micro and macro …