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FullText Articles in Social and Behavioral Sciences
Labor Market Matching, Wages, And Amenities, Thibaut Lamadon, Jeremy Lise, Costas Meghir, JeanMarc Robin
Labor Market Matching, Wages, And Amenities, Thibaut Lamadon, Jeremy Lise, Costas Meghir, JeanMarc Robin
Cowles Foundation Discussion Papers
This paper develops the nonparametric identification of models with production complementarities, workerfirm specific disutility of labor and search frictions. Mobility in the model is subject to preference shocks, and we assume that firms can write wage contracts. We develop a constructive proof for the nonparametric identification of the model primitives from matched employeremployee data. We use the estimated model to decompose the sources of wage dispersion into worker heterogeneity, compensating differentials, and search frictions that generate betweenfirm and withinfirm dispersion. We find that compensating differentials are substantial on average, but the contribution differs greatly between the lowest and highest types …
A General Limit Theory For Nonlinear Functionals Of Nonstationary Time Series, Peter C. B. Phillips, Qiying Wang
A General Limit Theory For Nonlinear Functionals Of Nonstationary Time Series, Peter C. B. Phillips, Qiying Wang
Cowles Foundation Discussion Papers
New limit theory is provided for a wide class of sample variance and covariance functionals involving both nonstationary and stationary time series. Sample functionals of this type commonly appear in regression applications and the asymptotics are particularly relevant to estimation and inference in nonlinear nonstationary regressions that involve unit root, local unit root or fractional processes. The limit theory is unusually general in that it covers both parametric and nonparametric regressions. Self normalized versions of these statistics are considered that are useful in inference. Numerical evidence reveals interesting strong bimodality in the finite sample distributions of conventional self normalized statistics …
Intrahousehold Welfare: Theory And Application To Japanese Data, PierreAndré Chiappori, Costas Meghir, Yoko Okuyama
Intrahousehold Welfare: Theory And Application To Japanese Data, PierreAndré Chiappori, Costas Meghir, Yoko Okuyama
Cowles Foundation Discussion Papers
In this paper we develop a novel approach to measuring individual welfare within households, recognizing that individuals may have both different preferences (particularly regarding public consumption) and differential access to resources. We construct a money metric measure of welfare that accounts for public goods (by using personalized prices) and the allocation of time. We then use our conceptual framework to analyse intrahousehold inequality in Japan, allowing for the presence of two public goods: expenditures on children and other public goods including housing. We show empirically that women have much stronger preferences for both public goods and this has critical implications …
Limit Theory Of Local Polynomial Estimation In Functional Coefficient Regression, Ying Wang, Peter C. B. Phillips
Limit Theory Of Local Polynomial Estimation In Functional Coefficient Regression, Ying Wang, Peter C. B. Phillips
Cowles Foundation Discussion Papers
Limit theory for functional coefficient cointegrating regression was recently found to be considerably more complex than earlier understood. The issues were explained and correct limit theory derived for the kernel weighted local constant estimator in Phillips and Wang (2023b). The present paper provides complete limit theory for the general kernel weighted local pth order polynomial estimator of the functional coefficient and the coefficient derivatives. Both stationary and nonstationary regressors are allowed. Implications for bandwidth selection are discussed. An adaptive procedure to select the fit order p is proposed and found to work well. A robust tratio is constructed following the …
Dynamic Price Competition With Capacity Constraints, Jose M. Betancourt, Ali Hortaçsu, Aniko Öry, Kevin R. Williams
Dynamic Price Competition With Capacity Constraints, Jose M. Betancourt, Ali Hortaçsu, Aniko Öry, Kevin R. Williams
Cowles Foundation Discussion Papers
We study dynamic price competition between sellers offering differentiated products with limited capacity and a common sales deadline. In every period, firms simultaneously set prices, and a randomly arriving buyer decides whether to purchase a product or leave the market. Given remaining capacities, firms trade off selling today against shifting demand to competitors to obtain future market power. We provide conditions for the existence and uniqueness of purestrategy Markov perfect equilibria. In the continuoustime limit, prices solve a system of ordinary differential equations. We derive properties of equilibrium dynamics and show that prices increase the most when the product with …
On The Alignment Of Consumer Surplus And Total Surplus Under Competitive Price Discrimination, Dirk Bergemann, Benjamin Brooks, Stephen Morris
On The Alignment Of Consumer Surplus And Total Surplus Under Competitive Price Discrimination, Dirk Bergemann, Benjamin Brooks, Stephen Morris
Cowles Foundation Discussion Papers
Producers of heterogeneous goods with heterogeneous costs compete in prices. When producers know their own production costs and the consumer knows their values, consumer surplus and total surplus are aligned: the information structure and equilibrium that maximize consumer surplus also maximize total surplus. We report when alignment extends to the case where either the consumer is uncertain about their own values or producers are uncertain about their own costs, and we also give examples showing when it does not. Less information for either producers or consumer may intensify competition in a way that benefits the consumer but results in inefficient …
Stride: A ToolAssisted Llm Agent Framework For Strategic And Interactive DecisionMaking, Chuanhao Li, Runhan Yang, Tiankai Li, Milad Bafarassat, Kourosh Sharifi, Dirk Bergemann, Zhuoran Yang
Stride: A ToolAssisted Llm Agent Framework For Strategic And Interactive DecisionMaking, Chuanhao Li, Runhan Yang, Tiankai Li, Milad Bafarassat, Kourosh Sharifi, Dirk Bergemann, Zhuoran Yang
Cowles Foundation Discussion Papers
Large Language Models (LLMs) like GPT4 have revolutionized natural language processing, showing remarkable linguistic proficiency and reasoning capabilities. However, their application in strategic multiagent decisionmaking environments is hampered by significant limitations including poor mathematical reasoning, difficulty in following instructions, and a tendency to generate incorrect information. These deficiencies hinder their performance in strategic and interactive tasks that demand adherence to nuanced game rules, longterm planning, exploration in unknown environments, and anticipation of opponents’ moves. To overcome these obstacles, this paper presents a novel LLM agent framework equipped with memory and specialized tools to enhance their strategic decisionmaking capabilities. We deploy …
Approximating Choice Data By Discrete Choice Models, Haoge Chang, Yusuke Narita, Kota Saito
Approximating Choice Data By Discrete Choice Models, Haoge Chang, Yusuke Narita, Kota Saito
Cowles Foundation Discussion Papers
We obtain a necessary and sufficient condition under which randomcoefficient discrete choice models, such as mixedlogit models, are rich enough to approximate any nonparametric random utility models arbitrarily well across choice sets. The condition turns out to be the affineindependence of the set of characteristic vectors. When the condition fails, resulting in some random utility models that cannot be closely approximated, we identify preferences and substitution patterns that are challenging to approximate accurately. We also propose algorithms to quantify the magnitude of approximation errors.
Algorithm As Experiment: Machine Learning, Market Design, And Policy Eligibility Rules, Yusuke Narita, Kohei Yata
Algorithm As Experiment: Machine Learning, Market Design, And Policy Eligibility Rules, Yusuke Narita, Kohei Yata
Cowles Foundation Discussion Papers
Algorithms make a growing portion of policy and business decisions. We develop a treatmenteffect estimator using algorithmic decisions as instruments for a class of stochastic and deterministic algorithms. Our estimator is consistent and asymptotically normal for welldefined causal effects. A special case of our setup is multidimensional regression discontinuity designs with complex boundaries. We apply our estimator to evaluate the Coronavirus Aid, Relief, and Economic Security Act, which allocated many billions of dollars worth of relief funding to hospitals via an algorithmic rule. The funding is shown to have little effect on COVID19related hospital activities. Naive estimates exhibit selection bias.
Meritocracy And Its Discontents: LongRun Effects Of Repeated School Admission Reforms, Chiaki Moriguchi, Yusuke Narita, Mari Tanaka
Meritocracy And Its Discontents: LongRun Effects Of Repeated School Admission Reforms, Chiaki Moriguchi, Yusuke Narita, Mari Tanaka
Cowles Foundation Discussion Papers
What happens if selective colleges change their admission policies? We study this question by analyzing the world’s first implementation of nationally centralized meritocratic admissions in the early twentieth century. We find a persistent meritocracyequity tradeoff. Compared to the decentralized system, the centralized system admitted more highachievers and produced more occupational elites (such as top income earners) decades later in the labor market. This gain came at a distributional cost, however. Meritocratic centralization also increased the number of urbanborn elites relative to ruralborn ones, undermining equal access to higher education and career advancement.
Inference In A Stationary/Nonstationary Autoregressive TimeVaryingParameter Model, Donald W.K. Andrews, Ming Li
Inference In A Stationary/Nonstationary Autoregressive TimeVaryingParameter Model, Donald W.K. Andrews, Ming Li
Cowles Foundation Discussion Papers
This paper considers nonparametric estimation and inference in firstorder autoregressive (AR(1)) models with deterministically timevarying parameters. A key feature of the proposed approach is to allow for timevarying stationarity in some time periods, timevarying nonstationarity (i.e., unit root or localtounit root behavior) in other periods, and smooth transitions between the two. The estimation of the AR parameter at any time point is based on a local least squares regression method, where the relevant initial condition is endogenous. We obtain limit distributions for the AR parameter estimator and tstatistic at a given point τ in time when the parameter exhibits unit …
Teaching Financial Econometrics To Students Converting To Finance, Stan Hurn, Peter C. B. Phillips, Vance Martin, Jun Yu
Teaching Financial Econometrics To Students Converting To Finance, Stan Hurn, Peter C. B. Phillips, Vance Martin, Jun Yu
Cowles Foundation Discussion Papers
Financial econometrics is a dynamic discipline that began to take on its present form around the turn of the century. Since then it has found a permanent position as a popular course sequence in both undergraduate and graduate teaching programs in economics, finance, and business schools. Because of the breadth of the subject’s foundations, its extensive coverage in applications and because these courses attract a wide range of students with accompanying interests and skill sets that cover diverse areas and technical capabilities, teaching financial econometrics presents many challenges to the university educator. This chapter addresses some of these challenges, provides …
SelfWeighted Estimation For Local Unit Root Regression With Applications, Zhishui Hu, Nan Liu, Peter C. B. Phillips, Qiying Wang
SelfWeighted Estimation For Local Unit Root Regression With Applications, Zhishui Hu, Nan Liu, Peter C. B. Phillips, Qiying Wang
Cowles Foundation Discussion Papers
A new selfweighted least squares (LS) estimation theory is developed for local unit root (LUR) autoregression with heteroskedasticity. The proposed estimator has a mixed Gaussian limit distribution and the corresponding studentized statistic converges to a standard normal distribution free of the unknown localizing coefficient which is not consistently estimable. The estimator is super consistent with a convergence rate slightly below the OP (n) rate of LS estimation. The asymptotic theory relies on a new framework of convergence to the local time of a Gaussian process, allowing for the sample moments generated from martingales and many other integrated dependent sequences. A …
Personalization And Privacy Choice, Andrew Rhodes, Jidong Zhou
Personalization And Privacy Choice, Andrew Rhodes, Jidong Zhou
Cowles Foundation Discussion Papers
This paper studies consumers’ privacy choices when firms can use their data to make personalized offers. We first introduce a general framework of personalization and privacy choice, and then apply it to personalized recommendations, personalized prices, and personalized product design. We argue that due to firms’ reaction in the product market, consumers who share their data often impose a negative externality on other consumers. Due to this privacychoice externality, too many consumers share their data relative to the consumer optimum; moreover, more competition, or improvements in data security, can lower consumer surplus by encouraging more data sharing.
Limit Theory And Inference In NonCointegrated Functional Coefficient Regression, Ying Wang, Yundong Tu, Peter C.B. Phillips
Limit Theory And Inference In NonCointegrated Functional Coefficient Regression, Ying Wang, Yundong Tu, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Functional coefficient (FC) cointegrating regressions offer empirical investigators flexibility in modeling economic relationships by introducing covariates that influence the direction and intensity of comovement among nonstationary time series. FC regression models are also useful when formal cointegration is absent, in the sense that the equation errors may themselves be nonstationary, but where the nonstationary series display welldefined FC linkages that can be meaningfully interpreted as correlation measures involving the covariates. The present paper proposes new nonparametric estimators for such FC regression models where the nonstationary series display linkages that enable consistent estimation of the correlation measures between them. Specifically, we …
Technology And The Global Economy, Jonathan Eaton, Samuel Kortum
Technology And The Global Economy, Jonathan Eaton, Samuel Kortum
Cowles Foundation Discussion Papers
Interpreting individual heterogeneity in terms of probability theory has proved powerful in connecting behaviour at the individual and aggregate levels. Returning to Ricardo's focus on comparative efficiency as a basis for international trade, much recent quantitative equilibrium modeling of the global economy builds on particular probabilistic assumptions about technology. We review these assumptions and how they deliver a unified framework underlying a wide range of static and dynamic equilibrium models.
Earnings Dynamics And FirmLevel Shocks, Benjamin Friedrich, Lisa Laun, Costas Meghir, Luigi Pistaferri
Earnings Dynamics And FirmLevel Shocks, Benjamin Friedrich, Lisa Laun, Costas Meghir, Luigi Pistaferri
Cowles Foundation Discussion Papers
We use matched employeremployee data from Sweden to study the role of the ﬁrm in affecting the stochastic properties of wages. Our model accounts for endogenous participation and mobility decisions. We find that firmspecific permanent productivity shocks transmit to individual wages, but the effect is mostly concentrated among the highskilled workers. The passthrough of temporary shocks is smaller in magnitude and similar for high and lowskilled workers. The updates to workerﬁrm specific match effects over the life of a ﬁrmworker relationship are small. Substantial growth in earnings variance over the life cycle for highskilled workers is driven by ﬁrms. In …
Trade And Domestic Distortions: The Case Of Informality, Rafael DixCarneiro, Pinelopi K. Goldberg, Costas Meghir, Gabriel Ulyssea
Trade And Domestic Distortions: The Case Of Informality, Rafael DixCarneiro, Pinelopi K. Goldberg, Costas Meghir, Gabriel Ulyssea
Cowles Foundation Discussion Papers
We examine the effects of international trade in the presence of a set of domestic distortions giving rise to informality, a prevalent phenomenon in developing countries. In our quantitative model, the informal sector arises from burdensome taxes and regulations that are imperfectly enforced by the government. Consequently, smaller, less productive firms face fewer distortions than larger, more productive ones, potentially leading to substantial misallocation. We show that in settings with a large informal sector, the gains from trade are significantly amplified, as reductions in trade barriers imply a reallocation of resources from initially less distorted to more distorted firms. We …
BidderOptimal Information Structures In Auctions, Dirk Bergemann, Tibor Heumann, Stephen Morris
BidderOptimal Information Structures In Auctions, Dirk Bergemann, Tibor Heumann, Stephen Morris
Cowles Foundation Discussion Papers
We characterize the bidders' surplus maximizing information structure in an optimal auction for a single unit good and related extensions to multiunit and multigood problems. The bidders seek to find a balance between participation (and the avoidance of exclusion) and efficiency. The information structure that maximizes the bidders' surplus is given by a generalized Pareto distribution at the center of demand distribution, and displays complete information disclosure at either end of the Pareto distribution.
A Unified Approach To Second And Third Degree Price Discrimination, Dirk Bergemann, Tibor Heumann, Michael C. Wang
A Unified Approach To Second And Third Degree Price Discrimination, Dirk Bergemann, Tibor Heumann, Michael C. Wang
Cowles Foundation Discussion Papers
We analyze the welfare impact of a monopolist able to segment a multiproduct market and offer differentiated price menus within each segment. We characterize a family of extremal distributions such that all achievable welfare outcomes can be reached by selecting segments from within these distributions. This family of distributions arises as the solution to the consumer maximizing distribution of values for multigood markets. With these results, we analyze the effect of segmentation on consumer surplus and prices in both interior and extremal markets, including conditions under which there exists a segmentation benefiting all consumers. Finally, we present an efficient algorithm …
Aiming For The Goal: Contribution Dynamics Of Crowdfunding, Joyee Deb, Aniko Öry (Oery), Kevin R. Williams
Aiming For The Goal: Contribution Dynamics Of Crowdfunding, Joyee Deb, Aniko Öry (Oery), Kevin R. Williams
Cowles Foundation Discussion Papers
We study a dynamic contribution game where investors seek private benefits that are offered in exchange for contributions and a single, publiclyminded donor values project success. We show that donor contributions serve as costly signals that encourage sociallyproductive contributions by investors who face a coordination problem. Investors and the donor prefer different equilibria but all benefit in expectation from the donor’s ability to dynamically signal his valuation. We explore various contexts in which our model can be applied and delve empirically into the case of Kickstarter. We calibrate our model and quantify the coordination benefits of dynamic signaling in counterfactuals.
BidderOptimal Information Structures In Auctions, Dirk Bergemann, Tibor Heumann, Stephen Morris
BidderOptimal Information Structures In Auctions, Dirk Bergemann, Tibor Heumann, Stephen Morris
Cowles Foundation Discussion Papers
We characterize the bidders' surplus maximizing information structure in an optimal auction for a single unit good and related extensions to multiunit and multigood problems. The bidders seeks to find a balance between participation (and the avoidance of exclusion) and efficiency. The information structure that maximizes the bidders surplus is given by a generalized Pareto distribution at the center of demand distribution, and displays complete information disclosure at either end of the Pareto distribution.
An Interview Study Of Pricing, Truman F. Bewley
An Interview Study Of Pricing, Truman F. Bewley
Cowles Foundation Discussion Papers
Why do the prices of some products change little during business cycles while the prices of others vary wildly and tend to rise during economic booms and fall during recessions? In particular, why do the prices of some products not fall or fall only a little when the demand for them declines dramatically. It is not surprising that in highly competitive industries prices fluctuate with shifts in demand and supply, but what explains the stability of prices in markets where firms have more direct control of prices? These questions are central to an understanding of business cycles, and good answers …
On The Alignment Of Consumer Surplus And Total Surplus Under Competitive Price Discrimination, Dirk Bergemann, Benjamin Brooks, Stephen Morris
On The Alignment Of Consumer Surplus And Total Surplus Under Competitive Price Discrimination, Dirk Bergemann, Benjamin Brooks, Stephen Morris
Cowles Foundation Discussion Papers
A number of producers of heterogeneous goods with heterogeneous costs compete in prices. When producers know their own production costs and consumers know their values, consumer surplus and total surplus are aligned: the information structure and equilibrium that maximize consumer surplus also maximize total surplus. We report when alignment extends to the case where either consumers are uncertain about their own values or producers are uncertain about their own costs, and we also give examples showing when it does not. Less information for either producers or consumers may intensify competition in a way that benefits consumers but results in inefficient …
Physical Decline Rates: Men Versus Women, Ray C. Fair
Physical Decline Rates: Men Versus Women, Ray C. Fair
Cowles Foundation Discussion Papers
This paper uses world records by age in running, swimming, and rowing to estimate a biological frontier of decline rates for both men and women. Decline rates are assumed to be linear in percent terms up to a certain age and then quadratic after that, where the transition age is estimated. For both men and women decline rates are smallest for rowing, followed by swimming and then running.
Decline rates for women are roughly the same as those for men for the short swimming events. They are slightly larger for the longer swimming events and for the rowing events. They …
Managing Persuasion Robustly: The Optimality Of Quota Rules, Dirk Bergemann, Tan Gan, Yingkai Li
Managing Persuasion Robustly: The Optimality Of Quota Rules, Dirk Bergemann, Tan Gan, Yingkai Li
Cowles Foundation Discussion Papers
We study a senderreceiver model where the receiver can commit to a decision rule before the sender determines the information policy. The decision rule can depend on the signal structure and the signal realization that the sender adopts. This framework captures applications where a decisionmaker (the receiver) solicit advice from an interested party (sender). In these applications, the receiver faces uncertainty regarding the sender’s preferences and the set of feasible signal structures. Consequently, we adopt a unified robust analysis framework that includes maxmin utility, minmax regret, and minmax approximation ratio as special cases. We show that it is optimal for …
Leverage Cycle Theory Of Economic Crises And Booms, John Geanakoplos
Leverage Cycle Theory Of Economic Crises And Booms, John Geanakoplos
Cowles Foundation Discussion Papers
Traditionally, booms and busts have been attributed to investors' excessive or insufficient demand, irrational exuberance and panics, or fraud. The leverage cycle begins with the observation that much of demand is facilitated by borrowing, and that crashes often occur simultaneously with the withdrawal of lending.
Lenders are worried about default, and therefore attach credit terms like collateral or minimum credit ratings to their contracts. The credit surface, depicting interest rates as a function of the credit terms, emerges in leverage cycle equilibrium. Investors and lenders (and regulators) choose where on the credit surface they trade. The leverage cycle …
Cost Based Nonlinear Pricing, Dirk Bergemann, Tibor Heumann, Stephen Morris
Cost Based Nonlinear Pricing, Dirk Bergemann, Tibor Heumann, Stephen Morris
Cowles Foundation Discussion Papers
How should a seller offer quantity or quality differentiated products if they have no information about the distribution of demand? We consider a seller who cares about the "profit guarantee" of a pricing rule, that is, the minimum ratio of expected profits to expected social surplus for any distribution of demand.
We show that the profit guarantee is maximized by setting the price markup over cost equal to the elasticity of the cost function. We provide profit guarantees (and associated mechanisms) that the seller can achieve across all possible demand distributions. With a constant elasticity cost function, constant markup pricing …
Policy With Stochastic Hysteresis, Job Boerma, Georgii Riabov, Aleh Tsyvinski
Policy With Stochastic Hysteresis, Job Boerma, Georgii Riabov, Aleh Tsyvinski
Cowles Foundation Discussion Papers
This paper studies stochastic hysteresis − general dependence on the path of past decisions and shocks. We develop a new methodology for deriving the explicit dynamics of optimal policy with pathdependence and show that stochastic hysteresis changes optimal policy both qualitatively and quantitatively. We showcase our methodology by deriving new results for optimal policy with stochastic habits, tipping points, robustness concerns, limited commitment, and dynamic private information.
How Do Digital Advertising Auctions Impact Product Prices?, Alessandro Bonatti, Dirk Bergemann, Nicholas Wu
How Do Digital Advertising Auctions Impact Product Prices?, Alessandro Bonatti, Dirk Bergemann, Nicholas Wu
Cowles Foundation Discussion Papers
We ask how the advertising mechanisms of digital platforms impact product prices. We present a model that integrates three fundamental features of digital advertising markets: (i) advertisers can reach customers on and offplatform, (ii) additional data enhances the value of matching advertisers and consumers, and (iii) bidding follows auctionlike mechanisms. We compare dataaugmented auctions, which leverage the platform’s data advantage to improve match quality, with managed campaign mechanisms, where advertisers’ budgets are transformed into personalized matches and prices through autobidding algorithms. In dataaugmented secondprice auctions, advertisers increase offplatform product prices to boost their competitiveness onplatform. This leads to socially efficient …