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Articles 1261 - 1290 of 2930
Full-Text Articles in Social and Behavioral Sciences
Maximum Likelihood And Gaussian Estimation Of Continuous Time Models In Finance, Peter C.B. Phillips, Jun Yu
Maximum Likelihood And Gaussian Estimation Of Continuous Time Models In Finance, Peter C.B. Phillips, Jun Yu
Cowles Foundation Discussion Papers
This paper overviews maximum likelihood and Gaussian methods of estimating continuous time models used in finance. Since the exact likelihood can be constructed only in special cases, much attention has been devoted to the development of methods designed to approximate the likelihood. These approaches range from crude Euler-type approximations and higher order stochastic Taylor series expansions to more complex polynomial-based expansions and infill approximations to the likelihood based on a continuous time data record. The methods are discussed, their properties are outlined and their relative finite sample performance compared in a simulation experiment with the nonlinear CIR diffusion model, which …
Information Loss In Volatility Measurement With Flat Price Trading, Peter C.B. Phillips, Jun Yu
Information Loss In Volatility Measurement With Flat Price Trading, Peter C.B. Phillips, Jun Yu
Cowles Foundation Discussion Papers
A model of price determination is proposed that incorporates flat trading features into an efficient price process. The model involves the superposition of a Brownian semimartingale process for the efficient price and a Bernoulli process that determines the extent of flat price trading. A limit theory for the conventional realized volatility (RV) measure of integrated volatility is developed. The results show that RV is still consistent but has an inflated asymptotic variance that depends on the probability of flat trading. Estimated quarticity is similarly affected, so that both the feasible central limit theorem and the inferential framework suggested in Barndorff-Nielson …
Social Memory And Evidence From The Past, Luca Anderlini, Dino Gerardi, Roger Lagunoff
Social Memory And Evidence From The Past, Luca Anderlini, Dino Gerardi, Roger Lagunoff
Cowles Foundation Discussion Papers
Examples of repeated destructive behavior abound throughout the history of human societies. This paper examines the role of social memory — a society’s vicarious beliefs about the past — in creating and perpetuating destructive conflicts. We examine whether such behavior is consistent with the theory of rational strategic behavior. We analyze an infinite-horizon model in which two countries face off each period in an extended Prisoner’s Dilemma game in which an additional possibility of mutually destructive “all out war” yields catastrophic consequence for both sides. Each country is inhabited by a dynastic sequence of individuals who care about future individuals …
Gmm Estimation For Dynamic Panels With Fixed Effects And Strong Instruments At Unity, Chirok Han, Peter C.B. Phillips
Gmm Estimation For Dynamic Panels With Fixed Effects And Strong Instruments At Unity, Chirok Han, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper develops new estimation and inference procedures for dynamic panel data models with fixed effects and incidental trends. A simple consistent GMM estimation method is proposed that avoids the weak moment condition problem that is known to affect conventional GMM estimation when the autoregressive coefficient (rho) is near unity. In both panel and time series cases, the estimator has standard Gaussian asymptotics for all values of rho in (-1, 1] irrespective of how the composite cross section and time series sample sizes pass to infinity. Simulations reveal that the estimator has little bias even in very small samples. The …
Simulation-Based Estimation Of Contingent-Claims Prices, Peter C.B. Phillips, Jun Yu
Simulation-Based Estimation Of Contingent-Claims Prices, Peter C.B. Phillips, Jun Yu
Cowles Foundation Discussion Papers
A new methodology is proposed to estimate theoretical prices of financial contingent-claims whose values are dependent on some other underlying financial assets. In the literature the preferred choice of estimator is usually maximum likelihood (ML). ML has strong asymptotic justification but is not necessarily the best method in finite samples. The present paper proposes instead a simulation-based method that improves the finite sample performance of the ML estimator while maintaining its good asymptotic properties. The methods are implemented and evaluated here in the Black-Scholes option pricing model and in the Vasicek bond pricing model, but have wider applicability. Monte Carlo …
Asymptotic Theory For Local Time Density Estimation And Nonparametric Cointegrating Regression, Qiying Wang, Peter C.B. Phillips
Asymptotic Theory For Local Time Density Estimation And Nonparametric Cointegrating Regression, Qiying Wang, Peter C.B. Phillips
Cowles Foundation Discussion Papers
We provide a new asymptotic theory for local time density estimation for a general class of functionals of integrated time series. This result provides a convenient basis for developing an asymptotic theory for nonparametric cointegrating regression and autoregression. Our treatment directly involves the density function of the processes under consideration and avoids Fourier integral representations and Markov process theory which have been used in earlier research on this type of problem. The approach provides results of wide applicability to important practical cases and involves rather simple derivations that should make the limit theory more accessible and useable in econometric applications. …
One-Way Essential Complements, Keith M. Chen, Barry Nalebuff
One-Way Essential Complements, Keith M. Chen, Barry Nalebuff
Cowles Foundation Discussion Papers
While competition between firms producing substitutes is well understood, less is known about rivalry between complementors. We study the interaction between firms in markets with one-way essential complements. One good is essential to the use of the other but not vice versa, as arises with an operating system and applications. Our interest is in the division of surplus between the two goods and the related incentive for firms to create complements to an essential good. Formally, we study a two-good model where consumers value A alone, but can only enjoy B if they also purchase A. When one firm sells …
Outsourcing Induced By Strategic Competition, Yutian Chen, Pradeep Dubey, Debapriya Sen
Outsourcing Induced By Strategic Competition, Yutian Chen, Pradeep Dubey, Debapriya Sen
Cowles Foundation Discussion Papers
We show that intermediate goods can be sourced to firms on the “outside” (that do not compete in the final product market), even when there are no economies of scale or cost advantages for these firms. What drives the phenomenon is that “inside” firms, by accepting such orders, incur the disadvantage of becoming Stackelberg followers in the ensuing competition to sell the final product. Thus they have incentive to quote high provider prices to ward off future competitors, driving the latter to source outside.
Identification And Inference Of Nonlinear Models Using Two Samples With Arbitrary Measurement Errors, Xiaohong Chen, Yingyao Hu
Identification And Inference Of Nonlinear Models Using Two Samples With Arbitrary Measurement Errors, Xiaohong Chen, Yingyao Hu
Cowles Foundation Discussion Papers
This paper considers identification and inference of a general latent nonlinear model using two samples, where a covariate contains arbitrary measurement errors in both samples, and neither sample contains an accurate measurement of the corresponding true variable. The primary sample consists of some dependent variables, some error-free covariates and an error-ridden covariate, where the measurement error has unknown distribution and could be arbitrarily correlated with the latent true values. The auxiliary sample consists of another noisy measurement of the mismeasured covariate and some error-free covariates. We first show that a general latent nonlinear model is nonparametrically identified using the two …
Competing For Customers In A Social Network, Pradeep Dubey, Rahul Garg, Bernard De Meyer
Competing For Customers In A Social Network, Pradeep Dubey, Rahul Garg, Bernard De Meyer
Cowles Foundation Discussion Papers
There are many situations in which a customer’s proclivity to buy the product of any firm depends not only on the classical attributes oft he product such as its price and quality, but also on who else is buying the same product. We model these situations as games in which firms compete for customers located in a “social network.” Nash Equilibrium (NE) in pure strategies exist in general. In the quasi-linear version of the model, NE turn out to be unique and can be precisely characterized. If there are no a priori biases between customers and firms, then there is …
Games Of Connectivity, Pradeep Dubey, Rahul Garg
Games Of Connectivity, Pradeep Dubey, Rahul Garg
Cowles Foundation Discussion Papers
We consider a communications network in which users transmit beneficial information to each other at a cost. We pinpoint conditions under which the induced cooperative game is supermodular (convex). Our analysis is in a lattice-theoretic framework, which is at once simple and able to encompass a wide variety of seemingly disparate models.
A Note On Fairness, Power, Property, And Behind The Veil, Martin Shubik
A Note On Fairness, Power, Property, And Behind The Veil, Martin Shubik
Cowles Foundation Discussion Papers
An Axiomatization for Power and for Equity differ only in the addition of a Behind the Veil Axiom.
Adaptive Estimation Of Autoregressive Models With Time-Varying Variances, Ke-Li Xu, Peter C.B. Phillips
Adaptive Estimation Of Autoregressive Models With Time-Varying Variances, Ke-Li Xu, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Stable autoregressive models of known finite order are considered with martingale differences errors scaled by an unknown nonparametric time-varying function generating heterogeneity. An important special case involves structural change in the error variance, but in most practical cases the pattern of variance change over time is unknown and may involve shifts at unknown discrete points in time, continuous evolution or combinations of the two. This paper develops kernel-based estimators of the residual variances and associated adaptive least squares (ALS) estimators of the autoregressive coefficients. These are shown to be asymptotically efficient, having the same limit distribution as the infeasible generalized …
A Complete Asymptotic Series For The Autocovariance Function Of A Long Memory Process, Offer Lieberman, Peter C.B. Phillips
A Complete Asymptotic Series For The Autocovariance Function Of A Long Memory Process, Offer Lieberman, Peter C.B. Phillips
Cowles Foundation Discussion Papers
An infinite-order asymptotic expansion is given for the autocovariance function of a general stationary long-memory process with memory parameter d in (-1/2,1/2). The class of spectral densities considered includes as a special case the stationary and invertible ARFIMA(p,d,q) model. The leading term of the expansion is of the order O (1/ k 1-2 d ), where k is the autocovariance order, consistent with the well known power law decay for such processes, and is shown to be accurate to an error of O(1/ k 3-2d ). The derivation uses Erdélyi’s (1956) expansion for Fourier-type integrals when there are critical points …
Efficient Dynamic Auctions, Dirk Bergemann, Juuso Välimäki
Efficient Dynamic Auctions, Dirk Bergemann, Juuso Välimäki
Cowles Foundation Discussion Papers
We consider the truthful implementation of the socially efficient allocation in a dynamic private value environment in which agents receive private information over time. We show that a suitable generalization of the Vickrey-Clark-Groves mechanism, based on the marginal contribution of each agent, leads to truthtelling in every period. A leading example of a dynamic allocation model is the sequential auction of a single good in which the current winner of the object receives additional information about her valuation. We show that a modified sequential second price auction in which only the current winner makes a positive payment leads to truthtelling. …
Log Periodogram Regression: The Nonstationary Case, Chang Sik Kim, Peter C.B. Phillips
Log Periodogram Regression: The Nonstationary Case, Chang Sik Kim, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Estimation of the memory parameter ( d ) is considered for models of nonstationary fractionally integrated time series with d > (1/2). It is shown that the log periodogram regression estimator of d is inconsistent when 1 < d < 2 and is consistent when (1/2) < d = 1. For d > 1, the estimator is shown to converge in probability to unity.
Adaptive Estimation Of Autoregressive Models With Time-Varying Variances, Ke-Li Xu, Peter C.B. Phillips
Adaptive Estimation Of Autoregressive Models With Time-Varying Variances, Ke-Li Xu, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Stable autoregressive models of known finite order are considered with martingale differences errors scaled by an unknown nonparametric time-varying function generating heterogeneity. An important special case involves structural change in the error variance, but in most practical cases the pattern of variance change over time is unknown and may involve shifts at unknown discrete points in time, continuous evolution or combinations of the two. This paper develops kernel-based estimators of the residual variances and associated adaptive least squares (ALS) estimators of the autoregressive coefficients. These are shown to be asymptotically efficient, having the same limit distribution as the infeasible generalized …
A Comparison Of Five Federal Reserve Chairmen: Was Greenspan The Best?, Ray C. Fair
A Comparison Of Five Federal Reserve Chairmen: Was Greenspan The Best?, Ray C. Fair
Cowles Foundation Discussion Papers
This paper examines the performances of the past five Federal Reserve chairmen using optimal control techniques and a macroeconometric model. Each chairman is evaluated in two ways. The first way is comparing the actual performance of the economy under his term relative to what the performance would have been had he behaved optimally. Comparing chairmen only on the basis of the actual performance of the economy is not appropriate because it does not control for different exogenous-variable values and shocks that the Fed has no control over. This comparison is done for a wide range of loss functions. It does …
Competitive Screening And Market Segmentation, Gerald David Jaynes
Competitive Screening And Market Segmentation, Gerald David Jaynes
Cowles Foundation Discussion Papers
We characterize competitive equilibrium in markets (financial etc.) where price taking Bayesian decision makers screen to accept or reject applicants. Unlike signaling models, equilibrium fails to resolve imperfect information. In classical statistics terminology, some qualified applicants are rejected (type I error) and some unqualified applicants are accepted (type II error). We report three new results: i. optimal firm behavior is deduced to be a Bayesian variant of the Neyman-Pearson theorem; ii. competitive equilibrium entails screening if and only if (net of screening costs) the cost of type II errors exceed the cost of type I errors, i.e. contrary to signaling …
Generalized Utilitarianism And Harsanyi’S Partial Observer Theorem, Simon Grant, Atsushi Kajii, Ben Polak, Zvi Safra
Generalized Utilitarianism And Harsanyi’S Partial Observer Theorem, Simon Grant, Atsushi Kajii, Ben Polak, Zvi Safra
Cowles Foundation Discussion Papers
We provide an axiomatization of generalized utilitarian social welfare functions in the context of Harsanyi’s impartial observer theorem. To do this, we reformulate Harsanyi’s problem such that lotteries over identity (accidents of birth) and lotteries over outcomes (life chances) are independent. We show how to accommodate (first) Diamond’s critique concerning fairness and (second) Pattanaik’s critique concerning differing attitudes toward risk. In each case, we show what separates them from Harsanyi by showing what extra axioms return us to Harsanyi. Thus we provide two new axiomatizations of Harsanyi’s utilitarianism.
Interpreting The Predictive Uncertainty Of Elections, Ray C. Fair
Interpreting The Predictive Uncertainty Of Elections, Ray C. Fair
Cowles Foundation Discussion Papers
This paper provides an interpretation of the uncertainty that exists at the beginning of the day of an election as to who will win. It is based on the theory that there are a number of possible conditions of nature that can exist on election day, of which one is drawn. Political betting markets like Intrade provide a way of trying to estimate this uncertainty. It is argued that polling standard errors do not provide estimates of this type of uncertainty. They instead estimate sample-size uncertainty, which can be driven close to zero with a large enough sample. This paper …
Mixed Oligopoly Equilibria When Firms’ Objectives Are Endogenous, Philippe De Donder, John E. Roemer
Mixed Oligopoly Equilibria When Firms’ Objectives Are Endogenous, Philippe De Donder, John E. Roemer
Cowles Foundation Discussion Papers
We study a vertically differentiated market where two firms simultaneously choose the quality and price of the good they sell and where consumers also care for the average quality of the goods supplied. Firms are composed of two factions whose objectives differ: one is maximizing profit while the other maximizes revenues. The equilibrium concept we model, called Firm Unanimity Nash Equilibrium (FUNE), corresponds to Nash equilibria between firms when there is efficient bargaining between the two factions inside both firms. One conceptual advantage of FUNE is that oligopolistic equilibria exist in pure strategies, even though the strategy space (price, quality) …
Kantian Allocations, John E. Roemer
Kantian Allocations, John E. Roemer
Cowles Foundation Discussion Papers
Several authors in the economics literature have referred to Kantian behavior, informally, as a kind of cooperation. We model this notion precisely, and define two kinds of Kantian allocation. An set of strategies by players is Kantian if, informally, no player would advocate that all players change their strategies in the ‘same kind of way.’ We prove existence and Pareto efficiency of Kantian allocations. The proportional solution in a production economy with a common access technology emerges as a special case. We study whether Kantian behavior can ‘resolve’ the prisoners’ dilemma and the voting paradox. It turns out that Kant’s …
Economic Development As Opportunity Equalization, John E. Roemer
Economic Development As Opportunity Equalization, John E. Roemer
Cowles Foundation Discussion Papers
The justification of using GNP per capita as a measure of economic development is utilitarian ethics plus an assumption that no needs are more urgent than others. Here, we advocate a measure of economic development based on the degree to which the society in question has equalized opportunities for the acquisition of income. In highly developed economies, inequality of opportunity accounts for less than 10% of total inequality, while in developing economies, it accounts for over 30%.
Common Learning, Martin W. Cripps, Jeffrey C. Ely, George J. Mailath, Larry Samuelson
Common Learning, Martin W. Cripps, Jeffrey C. Ely, George J. Mailath, Larry Samuelson
Cowles Foundation Discussion Papers
Consider two agents who learn the value of an unknown parameter by observing a sequence of private signals. The signals are independent and identically distributed across time but not necessarily across agents. We show that that when each agent’s signal space is finite, the agents will commonly learn its value, i.e., that the true value of the parameter will become approximate common-knowledge. In contrast, if the agents’ observations come from a countably infinite signal space, then this contraction mapping property fails. We show by example that common learning can fail in this case.
Common Learning, Martin W. Cripps, Jeffrey C. Ely, George J. Mailath, Larry Samuelson
Common Learning, Martin W. Cripps, Jeffrey C. Ely, George J. Mailath, Larry Samuelson
Cowles Foundation Discussion Papers
Consider two agents who learn the value of an unknown parameter by observing a sequence of private signals. The signals are independent and identically distributed across time but not necessarily agents. Does it follow that the agents will commonly learn its value, i.e., that the true value of the parameter will become (approximate) common-knowledge? We show that the answer is affirmative when each agent’s signal space is finite and show by example that common learning can fail when observations come from a countably infinite signal space.
Pareto Improving Taxes, John Geanakoplos, Heracles M. Polemarchakis
Pareto Improving Taxes, John Geanakoplos, Heracles M. Polemarchakis
Cowles Foundation Discussion Papers
We show that in almost every economy with separable externalities, every competitive equilibrium can be Pareto improved by a package of anonymous commodity taxes that cause prices to adjust and markets to reclear at different levels of individual consumption. The argument can be extended to economies with strategic interactions, incomplete asset markets or asymmetric information. This constrained suboptimality of competitive allocations might provide a rationale for economic policy in economies with externalities.
Purification In The Infinitely-Repeated Prisoners’ Dilemma, V. Bhaskar, George J. Mailath, Stephen Morris
Purification In The Infinitely-Repeated Prisoners’ Dilemma, V. Bhaskar, George J. Mailath, Stephen Morris
Cowles Foundation Discussion Papers
This paper investigates the Harsanyi (1973)-purifiability of mixed strategies in the repeated prisoners’ dilemma with perfect monitoring. We perturb the game so that in each period, a player receives a private payoff shock which is independently and identically distributed across players and periods. We focus on the purifiability of a class of one-period memory mixed strategy equilibria used by Ely and Valimaki (2002) in their study of the repeated prisoners’ dilemma with private monitoring. We find that all such strategy profiles are not the limit of one-period memory equilibrium strategy profiles of the perturbed game, for almost all noise distributions. …
Money And Production, And Liquidity Trap, Pradeep Dubey, John Geanakoplos
Money And Production, And Liquidity Trap, Pradeep Dubey, John Geanakoplos
Cowles Foundation Discussion Papers
We prove the existence of monetary equilibrium in a finite horizon economy with production. We also show that if agents expect the monetary authority to significantly decrease the supply of bank money available for short term loans in the future, then the economy will fall into a liquidity trap today.
The Theory Of Money And Financial Institutions: A Summary Of A Game Theoretic Approach, Martin Shubik
The Theory Of Money And Financial Institutions: A Summary Of A Game Theoretic Approach, Martin Shubik
Cowles Foundation Discussion Papers
A game theoretic approach to the theory of money and financial institution is given utilizing both the strategic and coalitional forms for describing the economy. The economy is first modeled as a strategic market game, then the strategic form is used to calculate several cooperative forms that differ from each other in their utilization of money and credit and their treatment of threats. It is shown that there are natural upper and lower bounds to the monetary needs of an economy, but even in the extreme structures the concept of “enough money” can be defined usefully, and for large economies …