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Articles 1201 - 1230 of 2930
Full-Text Articles in Social and Behavioral Sciences
Estimation Of Nonparametric Conditional Moment Models With Possibly Nonsmooth Generalized Residuals, Xiaohong Chen, Demian Pouzo
Estimation Of Nonparametric Conditional Moment Models With Possibly Nonsmooth Generalized Residuals, Xiaohong Chen, Demian Pouzo
Cowles Foundation Discussion Papers
This paper studies nonparametric estimation of conditional moment restrictions in which the generalized residual functions can be nonsmooth in the unknown functions of endogenous variables. This is a nonparametric nonlinear instrumental variables (IV) problem. We propose a class of penalized sieve minimum distance (PSMD) estimators, which are minimizers of a penalized empirical minimum distance criterion over a collection of sieve spaces that are dense in the infinite dimensional function parameter space. Some of the PSMD procedures use slowly growing finite dimensional sieves with flexible penalties or without any penalty; others use large dimensional sieves with lower semicompact and/or convex penalties. …
Estimation Of Nonparametric Conditional Moment Models With Possibly Nonsmooth Moments, Xiaohong Chen, Demian Pouzo
Estimation Of Nonparametric Conditional Moment Models With Possibly Nonsmooth Moments, Xiaohong Chen, Demian Pouzo
Cowles Foundation Discussion Papers
This paper studies nonparametric estimation of conditional moment models in which the residual functions could be nonsmooth with respect to the unknown functions of endogenous variables. It is a problem of nonparametric nonlinear instrumental variables (IV) estimation, and a difficult nonlinear ill-posed inverse problem with an unknown operator. We first propose a penalized sieve minimum distance (SMD) estimator of the unknown functions that are identified via the conditional moment models. We then establish its consistency and convergence rate (in strong metric), allowing for possibly non-compact function parameter spaces, possibly non-compact finite or infinite dimensional sieves with flexible lower semicompact or …
Foundations Of Intrinsic Habit Formation, Kareen Rozen
Foundations Of Intrinsic Habit Formation, Kareen Rozen
Cowles Foundation Discussion Papers
We provide theoretical foundations for several common (nested) representations of intrinsic linear habit formation. These representations are dynamically consistent and additive, with geometrically decaying coefficients of habit formation. Our axiomatization introduces a revealed preference theory of weaning a decision-maker from her habits using the device of compensation. We characterize linear habit formation in terms of the ability to wean using uniquely determined compensating streams. Moreover, we distinguish between habits that are responsive to weaning and those that are persistent, develop a simple choice-theoretic measure of the rate of habit decay, and demonstrate how to recover the entire sequence of habit …
A ‘Dual’-Improved Shortcut To The Long Run, Kareen Rozen
A ‘Dual’-Improved Shortcut To The Long Run, Kareen Rozen
Cowles Foundation Discussion Papers
I use the theories of duality and optimal branchings to find a necessary and sufficient characterization of stochastically stable limit sets (SSLS) that helps improve the radius — modified coradius test of Ellison (2000). The improved shortcut I offer may permit the identification of SSLS when Ellison’s radius — modified coradius test fails to identify any, or may be able to pinpoint the true SSLS in cases where Ellison’s test identifies only a superset. I also demonstrate precisely why the radius — modified coradius test is not universally applicable and illuminate the connection between the modified coradius and the Lagrange …
Understanding Sectoral Labor Market Dynamics: An Equilibrium Analysis Of The Oil And Gas Field Services Industry, Patrick Kline
Understanding Sectoral Labor Market Dynamics: An Equilibrium Analysis Of The Oil And Gas Field Services Industry, Patrick Kline
Cowles Foundation Discussion Papers
This paper examines the response of employment and wages in the US oil and gas field services industry to changes in the price of crude petroleum using a time series of quarterly data spanning the period 1972-2002. I find that labor quickly reallocates across sectors in response to price shocks but that substantial wage premia are necessary to induce such reallocation. The timing of these premia is at odds with the predictions of standard models-wage premia emerge quite slowly, peaking only as labor adjustment ends and then slowly dissipating. After considering alternative explanations, I argue that a dynamic market clearing …
Derivatives Markets For Home Prices, Robert J. Shiller
Derivatives Markets For Home Prices, Robert J. Shiller
Cowles Foundation Discussion Papers
The establishment recently of risk management vehicles for home prices is described. The potential value of such vehicles, once they become established, is seen in consideration of the inefficiency of the market for single family homes. Institutional changes that might derive from the establishment of these new markets are described. An important reason for these beginnings of real estate derivative markets is the advance in home price index construction methods, notably the repeat sales method, that have appeared over the last twenty years. Psychological barriers to the full success of such markets are discussed.
Conflict Leads To Cooperation In Nash Bargaining, Kareen Rozen
Conflict Leads To Cooperation In Nash Bargaining, Kareen Rozen
Cowles Foundation Discussion Papers
We consider a multilateral Nash demand game where short-sighted players come to the bargaining table with requests for both coalition partners and the potentially generated resource. We prove that group learning leads with probability one to complete cooperation and a strictly self-enforcing allocation (i.e., in the interior of the core). Highlighting group dynamics, we demonstrate that behaviors which appear destructive can themselves lead to beneficial and strictly self-enforcing cooperation.
Emerging Markets In An Anxious Global Economy, Ana Fostel, John Geanakoplos
Emerging Markets In An Anxious Global Economy, Ana Fostel, John Geanakoplos
Cowles Foundation Discussion Papers
We provide a theory of pricing for emerging asset classes, like emerging markets, that are not yet mature enough to be attractive to the general public. Our model provides an explanation for the volatile access of emerging economies to international financial markets and for several stylized facts we identify in the data during the 1990’s. We present a general equilibrium model with incomplete markets and endogenous collateral and an extension encompassing adverse selection. We show that contagion, flight to liquidity and issuance rationing can occur in equilibrium during what we call global anxious times.
Foundations Of Intrinsic Habit Formation, Kareen Rozen
Foundations Of Intrinsic Habit Formation, Kareen Rozen
Cowles Foundation Discussion Papers
We provide theoretical foundations for several common (nested) representations of intrinsic linear habit formation. Our axiomatization introduces an intertemporal theory of weaning a decision-maker from her habits using the device of compensation. We clarify differences across specifications of the model, provide measures of habit-forming tendencies, and suggest methods for axiomatizing time-nonseparable preferences.
Limit Theorems For Functionals Of Sums That Converge To Fractional Brownian And Stable Motions, P. Jeganathan
Limit Theorems For Functionals Of Sums That Converge To Fractional Brownian And Stable Motions, P. Jeganathan
Cowles Foundation Discussion Papers
No abstract provided.
Semiparametric Efficiency In Gmm Models Of Nonclassical Measurement Errors, Missing Data And Treatment Effects, Xiaohong Chen, Han Hong, Alessandro Tarozzi
Semiparametric Efficiency In Gmm Models Of Nonclassical Measurement Errors, Missing Data And Treatment Effects, Xiaohong Chen, Han Hong, Alessandro Tarozzi
Cowles Foundation Discussion Papers
We study semiparametric efficiency bounds and efficient estimation of parameters defined through general nonlinear, possibly non-smooth and over-identified moment restrictions, where the sampling information consists of a primary sample and an auxiliary sample. The variables of interest in the moment conditions are not directly observable in the primary data set, but the primary data set contains proxy variables which are correlated with the variables of interest. The auxiliary data set contains information about the conditional distribution of the variables of interest given the proxy variables. Identification is achieved by the assumption that this conditional distribution is the same in both …
The Virtues And Vices Of Equilibrium And The Future Of Financial Economics, J. Doyne Farmer, John Geanakoplos
The Virtues And Vices Of Equilibrium And The Future Of Financial Economics, J. Doyne Farmer, John Geanakoplos
Cowles Foundation Discussion Papers
The use of equilibrium models in economics springs from the desire for parsimonious models of economic phenomena that take human reasoning into account. This approach has been the cornerstone of modern economic theory. We explain why this is so, extolling the virtues of equilibrium theory; then we present a critique and describe why this approach is inherently limited, and why economics needs to move in new directions if it is to continue to make progress. We stress that this shouldn’t be a question of dogma, but should be resolved empirically. There are situations where equilibrium models provide useful predictions and …
A Positive Theory Of Income Taxation Where Politicians Focus Upon Swing And Core Voters, John E. Roemer
A Positive Theory Of Income Taxation Where Politicians Focus Upon Swing And Core Voters, John E. Roemer
Cowles Foundation Discussion Papers
We construct an equilibrium model of party competition, in which parties are especially concerned with their core and swing voters, concerns which American political scientists have focused upon in their attempts to understand party behavior in general elections. Parties compete on a large policy space of possible income-tax policies. An element in this infinite-dimensional space is a function which maps pre-fisc income into post-fisc income. The only restrictions are that the function be continuous, and satisfy exogenously specified upper and lower bounds on its derivative, where it is differentiable. Only a fraction of each voter type will vote for each …
Efficient Estimation Of Semiparametric Conditional Moment Models With Possibly Nonsmooth Residuals, Xiaohong Chen, Demian Pouzo
Efficient Estimation Of Semiparametric Conditional Moment Models With Possibly Nonsmooth Residuals, Xiaohong Chen, Demian Pouzo
Cowles Foundation Discussion Papers
For semi/nonparametric conditional moment models containing unknown parametric components (theta) and unknown functions of endogenous variables (h), Newey and Powell (2003) and Ai and Chen (2003) propose sieve minimum distance (SMD) estimation of (theta, h) and derive the large sample properties. This paper greatly extends their results by establishing the followings: (1) The penalized SMD (PSMD) estimator (hat{theta}, hat{h}) can simultaneously achieve root- n asymptotic normality of theta hat and nonparametric optimal convergence rate of hat{h}, allowing for models with possibly nonsmooth residuals and/or noncompact infinite dimensional parameter spaces. (2) A simple weighted bootstrap procedure can consistently estimate the limiting …
Do Local Economic Development Programs Work? Evidence From The Federal Empowerment Zone Program, Matias Busso, Patrick Kline
Do Local Economic Development Programs Work? Evidence From The Federal Empowerment Zone Program, Matias Busso, Patrick Kline
Cowles Foundation Discussion Papers
This paper evaluates the impact of Round I of the federal urban Empowerment Zone (EZ) program on neighborhood level labor and housing market outcomes over the period 1994-2000. Using four decades of Census data in conjunction with information on the proposed boundaries of rejected EZs, we find that neighborhoods receiving EZ designation experienced substantial improvements in labor market conditions and moderate increases in rents relative to rejected and future zones. These effects were accompanied by small changes in the demographic composition of the neighborhoods, though evidence from disaggregate Census tabulations suggests that these changes account for little of the observed …
Communication And Learning, Luca Anderlini, Dino Gerardi, Roger Lagunoff
Communication And Learning, Luca Anderlini, Dino Gerardi, Roger Lagunoff
Cowles Foundation Discussion Papers
We study the intergenerational accumulation of knowledge in an infinite-horizon model of communication. Each in a sequence of players receives an informative but imperfect signal of the once-and-for-all realization of an unobserved state. The state affects all players’ preferences over present and future decisions. Each player observes his own signal but does not directly observe the realized signals or actions of his predecessors. Instead, he must rely on cheap-talk messages from the previous players to fathom the past. Each player is therefore both a receiver of information with respect to his decision, and a sender with respect to all future …
Efficient Estimation Of Semiparametric Conditional Moment Models With Possibly Nonsmooth Residuals, Xiaohong Chen, Demian Pouzo
Efficient Estimation Of Semiparametric Conditional Moment Models With Possibly Nonsmooth Residuals, Xiaohong Chen, Demian Pouzo
Cowles Foundation Discussion Papers
This paper considers semiparametric efficient estimation of conditional moment models with possibly nonsmooth residuals in unknown parametric components ( theta ) and unknown functions ( h ) of endogenous variables. We show that: (1) the penalized sieve minimum distance (PSMD) estimator ( theta\hat,h\hat ) can simultaneously achieve root- n asymptotic normality of theta\hat and nonparametric optimal convergence rate of h\hat , allowing for noncompact function parameter spaces; (2) a simple weighted bootstrap procedure consistently estimates the limiting distribution of the PSMD theta\hat ; (3) the semiparametric efficiency bound formula of Ai and Chen (2003) remains valid for conditional models with …
Estimating Exchange Rate Equations Using Estimated Expectations, Ray C. Fair
Estimating Exchange Rate Equations Using Estimated Expectations, Ray C. Fair
Cowles Foundation Discussion Papers
This paper takes a somewhat different approach from the recent literature in estimating exchange rate equations. It assumes uncovered interest rate parity and models how expectations are formed. Agents are assumed to base their expectations of future interest rates and prices, which are needed in the determination of the exchange rate, on predictions from a ten equation VAR model. The overall model is estimated by FIML under model consistent expectations. The model generally does better than the random walk model, and its properties are consistent with observed effects on exchange rates from surprise interest rate and price announcements. Also, the …
Estimating Term Structure Equations Using Macroeconomic Variables, Ray C. Fair
Estimating Term Structure Equations Using Macroeconomic Variables, Ray C. Fair
Cowles Foundation Discussion Papers
This paper begins with the expectations theory of the term structure of interest rates with constant term premia and then postulates how expectations of future short term interest rates are formed. Expectations depend in part on predictions from a set of VAR equations and in part on the current and two lagged values of the short term interest rate. The results suggest that there is relevant independent information in both the VAR equations’ predictions and the current and two lagged values of the short rate. The model fits the long term interest rate data well, including the 2004-2006 period, which …
Optimal Resource Extraction Contracts Under Threat Of Expropriation, Eduardo Engel, Ronald Fischer
Optimal Resource Extraction Contracts Under Threat Of Expropriation, Eduardo Engel, Ronald Fischer
Cowles Foundation Discussion Papers
The government contracts with a foreign firm to extract a natural resource that requires an upfront investment and which faces price uncertainty. In states where profits are high, there is a likelihood of expropriation, which generates a social cost that increases with the expropriated value. In this environment, the planner’s optimal contract avoids states with high probability of expropriation. The contract can be implemented via a competitive auction with reasonable informational requirements. The bidding variable is a cap on the present value of discounted revenues, and the firm with the lowest bid wins the contract. The basic framework is extended …
Affective Decision Making: A Behavioral Theory Of Choice, Anat Bracha, Donald J. Brown
Affective Decision Making: A Behavioral Theory Of Choice, Anat Bracha, Donald J. Brown
Cowles Foundation Discussion Papers
Affective decision-making (ADM) is a refutable and predictive theory of individual choice under risk and uncertainty. It generalizes expected utility theory by positing the existence of two cognitive processes — the “rational” and the “emotional” process. Observed choice is the result of their simultaneous interaction. We present a model of affective choice in insurance markets, where risk perceptions are endogenous.
Affective Decision Making: A Behavioral Theory Of Choice, Anat Bracha, Donald J. Brown
Affective Decision Making: A Behavioral Theory Of Choice, Anat Bracha, Donald J. Brown
Cowles Foundation Discussion Papers
Affective decision-making is a strategic model of choice under risk and uncertainty where we posit two cognitive processes — the “rational” and the “emotional” process. Observed choice is the result of equilibirum in this intrapersonal game. As an example, we present applications of affective decision-making in insurance markets, where the risk perceptions of consumers are endogenous. We then derive the axiomatic foundation of affective decision making, and show that, although beliefs are endogenous, not every pattern of behavior is possible under affective decision making.
Low Interest Rates And High Asset Prices: An Interpretation In Terms Of Changing Popular Models, Robert J. Shiller
Low Interest Rates And High Asset Prices: An Interpretation In Terms Of Changing Popular Models, Robert J. Shiller
Cowles Foundation Discussion Papers
There has been a widespread perception in the past few years that long-term asset prices are generally high because monetary authorities have effectively kept long-term interest rates, which the market uses to discount cash flows, low. This perception is not accurate. Long-term interest rates have not been especially low. What has changed to produce high asset prices appears instead to be changes in popular economic models that people actually rely on when valuing assets. The public has mostly forgotten the concept of “real interest rate.” Money illusion appears to be an important factor to consider.
Inference For Parameters Defined By Moment Inequalities Using Generalized Moment Selection, Donald W.K. Andrews, Patrik Guggenberger
Inference For Parameters Defined By Moment Inequalities Using Generalized Moment Selection, Donald W.K. Andrews, Patrik Guggenberger
Cowles Foundation Discussion Papers
The topic of this paper is inference in models in which parameters are defined by moment inequalities and/or equalities. The parameters may or may not be identified. This paper introduces a new class of confidence sets and tests based on generalized moment selection (GMS). GMS procedures are shown to have correct asymptotic size in a uniform sense and are shown not to be asymptotically conservative. The power of GMS tests is compared to that of subsampling, m out of n bootstrap, and “plug-in asymptotic” (PA) tests. The latter three procedures are the only general procedures in the literature that have …
The Role Of The Common Prior In Robust Implementation, Dirk Bergemann, Stephen Morris
The Role Of The Common Prior In Robust Implementation, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
We consider the role of the common prior for robust implementation in an environment with interdependent values. Specifically, we investigate a model of public good provision which allows for negative and positive informational externalities. In the corresponding direct mechanism, the agents’ reporting strategies are strategic complements with negative informational externalities and strategic substitutes with positive informational externalities. We derive the necessary and sufficient conditions for robust implementation in common prior type spaces and contrast this with our earlier results without the common prior. In the case of strategic complements the necessary and sufficient conditions for robust implementation do not depend …
Belief Free Incomplete Information Games, Dirk Bergemann, Stephen Morris
Belief Free Incomplete Information Games, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
We consider the following belief free solution concepts for games with incomplete information: (i) incomplete information rationalizability, (ii) incomplete information correlated equilibrium and (iii) ex post equilibrium. We present epistemic foundations for these solution concepts and establish relationships between them. The properties of these solution concepts are further developed in supermodular games and potential games.
On Rate Optimality For Ill-Posed Inverse Problems In Econometrics, Xiaohong Chen, Markus Reiss
On Rate Optimality For Ill-Posed Inverse Problems In Econometrics, Xiaohong Chen, Markus Reiss
Cowles Foundation Discussion Papers
In this paper, we clarify the relations between the existing sets of regularity conditions for convergence rates of nonparametric indirect regression (NPIR) and nonparametric instrumental variables (NPIV) regression models. We establish minimax risk lower bounds in mean integrated squared error loss for the NPIR and the NPIV models under two basic regularity conditions that allow for both mildly ill-posed and severely ill-posed cases. We show that both a simple projection estimator for the NPIR model, and a sieve minimum distance estimator for the NPIV model, can achieve the minimax risk lower bounds, and are rate-optimal uniformly over a large class …
Collective Reputation, Professional Regulation And Franchising, Robert Evans, Timothy W. Guinnane
Collective Reputation, Professional Regulation And Franchising, Robert Evans, Timothy W. Guinnane
Cowles Foundation Discussion Papers
Collective reputation and its associated free-rider problem have been invoked to justify state licensing of professions and to explain the incidence of franchising. We examine the conditions under which it is possible to create a Pareto-improving collective reputation among groups of heterogeneous producers. If the regulator or franchisor cannot credibly commit to high quality then a common reputation can be created only if the groups are not too different and if marginal cost is declining. High cost groups benefit most from forming a common regime.
Pricing Without Priors, Dirk Bergemann, Karl Schlag
Pricing Without Priors, Dirk Bergemann, Karl Schlag
Cowles Foundation Discussion Papers
We consider the problem of pricing a single object when the seller has only minimal information about the true valuation of the buyer. Specifically, the seller only knows the support of the possible valuations and has no further distributional information. The seller is solving this choice problem under uncertainty by minimizing her regret. The pricing policy hedges against uncertainty by randomizing over a range of prices. The support of the pricing policy is bounded away from zero. Buyers with low valuations cannot generate substantial regret and are priced out of the market. We generalize the pricing policy without priors to …
Understanding Recent Trends In House Prices And Home Ownership, Robert J. Shiller
Understanding Recent Trends In House Prices And Home Ownership, Robert J. Shiller
Cowles Foundation Discussion Papers
This paper looks at a broad array of evidence concerning the recent boom in home prices, and considers what this means for future home prices and the economy. It does not appear possible to explain the boom in terms of fundamentals such as rents or construction costs. A psychological theory, that represents the boom as taking place because of a feedback mechanism or social epidemic that encourages a view of housing as an important investment opportunity, fits the evidence better. Three case studies of past booms are considered for comparison: the US housing boom of 1950, the US farmland boom …