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Articles 1381 - 1410 of 2930
Full-Text Articles in Social and Behavioral Sciences
The Folk Theorem In Dynastic Repeated Games, Luca Anderlini, Dino Gerardi, Roger Lagunoff
The Folk Theorem In Dynastic Repeated Games, Luca Anderlini, Dino Gerardi, Roger Lagunoff
Cowles Foundation Discussion Papers
A canonical interpretation of an infinitely repeated game is that of a “dynastic” repeated game: a stage game repeatedly played by successive generations of finitely-lived players with dynastic preferences. These two models are in fact equivalent when the past history of play is observable to all players. In our model all players live one period and do not observe the history of play that takes place before their birth, but instead receive a private message from their immediate predecessors. Under very mild conditions, when players are sufficiently patient, all feasible payoff vectors (including those below the minmax) can be sustained …
Distribution And Politics: A Brief History And Prospect, John E. Roemer
Distribution And Politics: A Brief History And Prospect, John E. Roemer
Cowles Foundation Discussion Papers
A brief, historical review of the study of the interdependency between politics and economic distribution is offered. While the impact of economic interests on politics has been acknowledged for thousands of years, and the impact of politics on distribution for hundreds, it is only in the last thirty years that formal models of the interdependency between economic distribution and politics have been formulated. A general model of political-economic equilibrium is proposed, in which political competition and economic distribution jointly determine each other. Several examples are given. The author proposes that political economy, conceived of as studying this process of joint …
Competitive Experimentation With Private Information, Giuseppe Moscarini, Francesco Squintani
Competitive Experimentation With Private Information, Giuseppe Moscarini, Francesco Squintani
Cowles Foundation Discussion Papers
We study a winner-take-all R&D race where firms are privately informed about the uncertain arrival rate of the invention. Due to the interdependent-value nature of the problem, the equilibrium displays a strong herding effect that distinguishes our framework from war-of-attrition models. Nonetheless, equilibrium expenditure in R&D is sub-optimal when the planner is sufficiently impatient. Pessimistic firms prematurely exit the race, so that the expected discounted amount of R&D activity is inefficiently low. This result stands in contrast to the overinvestment in research that is typical of winner-take-all R&D races without private information. We conclude that secrecy in R&D inefficiently slows …
On The Nonparametric Identification Of Nonlinear Simultaneous Equations Models: Comment On B. Brown (1983) And Roehrig (1988), C. Lanier Benkard, Steven T. Berry
On The Nonparametric Identification Of Nonlinear Simultaneous Equations Models: Comment On B. Brown (1983) And Roehrig (1988), C. Lanier Benkard, Steven T. Berry
Cowles Foundation Discussion Papers
This note revisits the identification theorems of B. Brown (1983) and Roehrig (1988). We describe an error in the proofs of the main identification theorems in these papers, and provide an important counterexample to the theorems on the identification of the reduced form. Specifically, contrary to the theorems, the reduced form of a nonseparable simultaneous equations model is not identified even under the assumptions of those papers. We conclude the note with a conjecture that it may be possible to use classical exclusion restrictions to recover some of the key implications of the theorems.
Toward An Economic Theory Of Dysfunctional Identity, Hanming Fang, Glenn C. Loury
Toward An Economic Theory Of Dysfunctional Identity, Hanming Fang, Glenn C. Loury
Cowles Foundation Discussion Papers
We advance a novel choice-theoretic model of “identity” based on the notions of categories and narratives. Identity is conceived as a matter of “reflexive perception” — how people understand themselves. Choosing an identity is equivalent to making a generalization about one’s past that highlights the most salient aspects of experience. When many individuals make a common choice in this regard, they embrace a collective identity which is dysfunctional if it is Pareto dominated by an alternative self-classificatory schema. Using a simple multi-stage risk sharing game, we explore conditions under which dysfunctional collective identities might be expected to emerge.
Rationality Of Belief. Or: Why Bayesianism Is Neither Necessary Nor Sufficient For Rationality, Itzhak Gilboa, Andrew Postlewaite, David Schmeidler
Rationality Of Belief. Or: Why Bayesianism Is Neither Necessary Nor Sufficient For Rationality, Itzhak Gilboa, Andrew Postlewaite, David Schmeidler
Cowles Foundation Discussion Papers
Economic theory reduces the concept of rationality to internal consistency. The practice of economics, however, distinguishes between rational and irrational beliefs. There is therefore an interest in a theory of rational beliefs, and of the process by which beliefs are generated and justified. We argue that the Bayesian approach is unsatisfactory for this purpose, for several reasons. First, the Bayesian approach begins with a prior, and models only a very limited form of learning, namely, Bayesian updating. Thus, it is inherently incapable of describing the formation of prior beliefs. Second, there are many situations in which there is not sufficient …
Axiomatization Of An Exponential Similarity Function, Antoine Billot, Itzhak Gilboa, David Schmeidler
Axiomatization Of An Exponential Similarity Function, Antoine Billot, Itzhak Gilboa, David Schmeidler
Cowles Foundation Discussion Papers
An agent is asked to assess a real-valued variable y based on certain characteristics x = ( x 1 ,…, x m ), and on a database consisting of n observations of ( x 1 ,…, x m ,y). A possible approach to combine past observations of x and y with the current values of x to generate an assessment of y is similarity-weighted averaging. It suggests that the predicted value of y , y s n +1, be the weighted average of all previously observed values y i , where the weight of y i is the similarity between …
Modeling Party Competition In General Elections, John E. Roemer
Modeling Party Competition In General Elections, John E. Roemer
Cowles Foundation Discussion Papers
We survey critically the brief history of modeling party competition in general elections, beginning with the Hotelling-Downs model with a unidimensional policy space, and the Wittman model with endogenous parties, to the multi-dimensional citizen-candidate and PUNE models. Some applications of the newer models are discussed.
Empirical Similarity, Itzhak Gilboa, Offer Lieberman, David Schmeidler
Empirical Similarity, Itzhak Gilboa, Offer Lieberman, David Schmeidler
Cowles Foundation Discussion Papers
An agent is asked to assess a real-valued variable Y p based on certain characteristics X p = ( X 1 p ,…, X m p ), and on a database consisting ( X 1 i ,…, X m i , Y i ) for i = 1,…, n . A possible approach to combine past observations of X and Y with the current values of X to generate an assessment of Y is similarity-weighted averaging. It suggests that the predicted value of Y , Y s p , be the weighted average of all previously observed values Y i …
Coordination Failure In Repeated Games With Almost-Public Monitoring, George J. Mailath, Stephen Morris
Coordination Failure In Repeated Games With Almost-Public Monitoring, George J. Mailath, Stephen Morris
Cowles Foundation Discussion Papers
Some private-monitoring games, that is, games with no public histories, can have histories that are almost public. These games are the natural result of perturbing public monitoring games towards private monitoring. We explore the extent to which it is possible to coordinate continuation play in such games. It is always possible to coordinate continuation play by requiring behavior to have bounded recall (i.e., there is a bound L such that in any period, the last L signals are sufficient to determine behavior). We show that, in games with general almost-public private monitoring, this is essentially the only behavior that can …
Effective Labor Regulation And Microeconomic Flexibility, Ricardo J. Caballero, Kevin N. Cowan, Eduardo Engel, Alejandro Micco
Effective Labor Regulation And Microeconomic Flexibility, Ricardo J. Caballero, Kevin N. Cowan, Eduardo Engel, Alejandro Micco
Cowles Foundation Discussion Papers
Microeconomic flexibility is at the core of economic growth in modern market economies because it facilitates the process of creative-destruction, The main reason why this process is not infinitely fast, is the presence of adjustment costs, some of them technological, others institutional. Chief among the latter is labor market regulation. While few economists object to the hypothesis that labor market regulation hinders the process of creative-destruction, its empirical support is limited. In this paper we revisit this hypothesis, using a new sectoral panel for 60 countries and a methodology suitable for such a panel. We find that job security regulation …
Coordination Failure In Repeated Games With Almost-Public Monitoring, George J. Mailath, Stephen Morris
Coordination Failure In Repeated Games With Almost-Public Monitoring, George J. Mailath, Stephen Morris
Cowles Foundation Discussion Papers
Some private-monitoring games, that is, games with no public histories, can have histories that are almost public. These games are the natural result of perturbing public-monitoring games towards private monitoring. We explore the extent to which it is possible to coordinate continuation play in such games. It is always possible to coordinate continuation play by requiring behavior to have bounded recall (i.e., there is a bound L such that in any period, the last L signals are sufficient to determine behavior). We show that, in games with general almost-public private monitoring, this is essentially the only behavior that can coordinate …
Network Markets And Consumer Coordination, Attila Ambrus, Rossella Argenziano
Network Markets And Consumer Coordination, Attila Ambrus, Rossella Argenziano
Cowles Foundation Discussion Papers
This paper assumes that groups of consumers in network markets can coordinate their choices when it is in their best interest to do so, and when coordination does not require communication. It is shown that multiple asymmetric networks can coexist in equilibrium if consumers have heterogeneous reservation values. A monopolist provider might choose to operate multiple networks to price differentiate consumers on both sides of the market. Competing network providers might operate networks such that one of them targets high reservation value consumers on one side of the market, while the other targets high reservation value consumers on the other …
Locational Competition And The Environment: Should Countries Harmonize Their Environmental Policies?, William D. Nordhaus
Locational Competition And The Environment: Should Countries Harmonize Their Environmental Policies?, William D. Nordhaus
Cowles Foundation Discussion Papers
In debates about economic unification or trade liberalization, it is often asked whether harmonization should go beyond taxes and macroeconomic policies to include regulations, particularly environmental policy. This issue also arises when countries, states, and cities engage in competition for plants, jobs, or exports in what we might call “locational competition.” This essay analyzes locational competition with particular reference to environmental policy. The conclusions are the following: First, economic efficiency requires harmonization of policies for global environmental issues; second, for local public goods or externalities, there is a strong presumptive case against harmonization; and finally that a competitive “race to …
Xenophobia And Distribution In France: A Politico-Economic Analysis, John E. Roemer, Karine Van Der Straeten
Xenophobia And Distribution In France: A Politico-Economic Analysis, John E. Roemer, Karine Van Der Straeten
Cowles Foundation Discussion Papers
Anti-immigrant feeling (xenophobia) among voters has been proposed as a key factor explaining why, in the 2002 French national election, Jean Le Pen’s National Front Party won second place. Here, we study the effect of anti-immigrant sentiments among voters on the equilibrium position of political parties on the economic issue, which we take to be the size of the public sector. We model political competition among three parties (Left, Right, and Extreme Right) on a two-dimensional policy space (public sector size, immigration issue) using the PUNE model. We calibrate the model to French data for the election years 1988 and …
Impartiality And Priority. Part 2: A Characterization With Solidarity, Juan D. Moreno-Ternero, John E. Roemer
Impartiality And Priority. Part 2: A Characterization With Solidarity, Juan D. Moreno-Ternero, John E. Roemer
Cowles Foundation Discussion Papers
The ethic of ‘priority’ is a compromise between the extremely compensatory ethic of ‘welfare equality’ and the needs-blind ethic of ‘income equality’. We propose an axiom of priority, and characterize resource allocation rules that are impartial, prioritarian, and solidaristic. They comprise a class of rules which equalize across individuals some index of resources and welfare. Consequently, we provide an ethical rationalization for the many applications in which such indices have been used (e.g., the ‘human development index,’ ‘index of primary goods,’ etc.).
Impartiality, Solidarity, And Priority In The Theory Of Justice, Juan D. Moreno-Ternero, John E. Roemer
Impartiality, Solidarity, And Priority In The Theory Of Justice, Juan D. Moreno-Ternero, John E. Roemer
Cowles Foundation Discussion Papers
The veil of ignorance has been used often as a tool for recommending what justice requires with respect to the distribution of wealth. We show that John Harsanyi’s and Ronald Dworkin’s conceptions of the veil, when modeled formally, recommend wealth allocations in conflict with the prominently espoused view that priority should be given to the worse off with respect to wealth allocation. It follows that those who believe that justice requires impartiality and priority must seek some method of assuring the former other than the veil of ignorance. We propose that impartiality and solidarity are fundamentals of justice, and study …
Impartiality And Priority. Part 1: The Veil Of Ignorance, Juan D. Moreno-Ternero, John E. Roemer
Impartiality And Priority. Part 1: The Veil Of Ignorance, Juan D. Moreno-Ternero, John E. Roemer
Cowles Foundation Discussion Papers
The veil of ignorance has been used often as a tool for recommending what justice requires with respect to the distribution of wealth. We complete Harsanyi’s model of the veil of ignorance by appending information permitting interpersonal comparability of welfare. We show that the veil-of-ignorance conception of John Harsanyi, so completed, and Ronald Dworkin’s, when modeled formally, recommend wealth allocations in conflict with the prominently espoused view that priority should be given to the worse off with respect to wealth allocation.
Grading Exams: 100, 99, ..., 1 Or A, B, C? Incentives In Games Of Status, Pradeep Dubey, John Geanakoplos
Grading Exams: 100, 99, ..., 1 Or A, B, C? Incentives In Games Of Status, Pradeep Dubey, John Geanakoplos
Cowles Foundation Discussion Papers
We show that if students care primarily about their status (relative rank) in class, they are best motivated to work not by revealing their exact numerical exam scores (100,99,…,1), but instead by clumping them in broad categories (A,B,C). If their abilities are disparate, the optimal grading scheme awards fewer A’s than there are alpha-quality students, creating small elites. If their abilities are common knowledge, then it is better to grade them on an absolute scale (100 to 90 is an A, etc.) rather than on a curve (top 15% is an A, etc.). We develop criteria for optimal grading schemes …
Hac Estimation By Automated Regression, Peter C.B. Phillips
Hac Estimation By Automated Regression, Peter C.B. Phillips
Cowles Foundation Discussion Papers
A simple regression approach to HAC and LRV estimation is suggested. The method exploits the fact that the quantities of interest relate to only one point of the spectrum (the origin). The new estimator is simply the explained sum of squares in a linear regression whose regressors are a set of trend basis functions. Positive definiteness in the estimate is therefore automatically enforced and the technique can be implemented with standard regression packages. No kernel choice is needed in practical implementation but basis functions need to be chosen and a smoothing parameter corresponding to the number of basis functions needs …
Challenges Of Trending Time Series Econometrics, Peter C.B. Phillips
Challenges Of Trending Time Series Econometrics, Peter C.B. Phillips
Cowles Foundation Discussion Papers
We discuss some challenges presented by trending data in time series econometrics. To the empirical economist there is little guidance from theory about the source of trend behavior and even less guidance about practical formulations. Moreover, recent proximity theorems reveal that trends are more elusive to model empirically than stationary processes, with the upshot that optimal forecasts are also harder to estimate when the data involve trends. These limitations are implicitly acknowledged in much practical modeling and forecasting work, where adaptive methods are often used to help keep models on track as trends evolve. The paper discusses these broader issues …
Expansions For Approximate Maximum Likelihood Estimators Of The Fractional Difference Parameter, Offer Lieberman, Peter C.B. Phillips
Expansions For Approximate Maximum Likelihood Estimators Of The Fractional Difference Parameter, Offer Lieberman, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper derives second-order expansions for the distributions of the Whittle and profile plug-in maximum likelihood estimators of the fractional difference parameter in the ARFIMA(0, d ,0) with unknown mean and variance. Both estimators are shown to be second-order pivotal. This extends earlier findings of Lieberman and Phillips (2001), who derived expansions for the Gaussian maximum likelihood estimator under the assumption that the mean and variance are known. One implication of the results is that the parametric bootstrap upper one-sided confidence interval provides an o ( n -1 ln n ) improvement over the delta method. For statistics that are …
Regression Asymptotics Using Martingale Convergence Methods, Rustam Ibragimov, Peter C.B. Phillips
Regression Asymptotics Using Martingale Convergence Methods, Rustam Ibragimov, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Weak convergence of partial sums and multilinear forms in independent random variables and linear processes to stochastic integrals now plays a major role in nonstationary time series and has been central to the development of unit root econometrics. The present paper develops a new and conceptually simple method for obtaining such forms of convergence. The method relies on the fact that the econometric quantities of interest involve discrete time martingales or semimartingales and shows how in the limit these quantities become continuous martingales and semimartingales. The limit theory itself uses very general convergence results for semimartingales that were obtained in …
An Alternative Test Of Racial Prejudice In Motor Vehicle Searches: Theory And Evidence, Shamena Anwar, Hanming Fang
An Alternative Test Of Racial Prejudice In Motor Vehicle Searches: Theory And Evidence, Shamena Anwar, Hanming Fang
Cowles Foundation Discussion Papers
We exploit a simple but realistic model of trooper behavior to design empirical tests that address the following two questions. Are police monolithic in their search behavior? Is racial profiling in motor vehicle searches motivated by troopers’ desire for effective policing (statistical discrimination) or by their racial prejudice (racism)? Our tests require data sets with race information about both the motorists and troopers. When applied to vehicle stop and search data from Florida, our tests can soundly reject the null hypothesis that troopers of different races are monolithic in their search behavior, but fail to reject the null hypothesis that …
Competition, Consumer Welfare And Monopoly Power, Donald J. Brown, G. A. Wood
Competition, Consumer Welfare And Monopoly Power, Donald J. Brown, G. A. Wood
Cowles Foundation Discussion Papers
An applied general equilibrium analysis of monopoly power is proposed as an alternative to the partial equilibrium analyses of monopoly pricing current in antitrust economics. This analysis introduces a new notion of market equilibrium where firms with monopoly power are cost-minimizing price-takers in competitive factor markets and make supracompetitive profits in equilibrium, i.e., the monopoly price exceeds the marginal cost of production. We assume that the primary goals of antitrust policy are the promotion of competition and the enhancement of consumer welfare. To that end, we use Debreu’s coefficient of resource utilization to determine the counterfactual competitive price levels in …
Collateral Restrictions And Liquidity Under-Supply: A Simple Model, Ana Fostel, John Geanakoplos
Collateral Restrictions And Liquidity Under-Supply: A Simple Model, Ana Fostel, John Geanakoplos
Cowles Foundation Discussion Papers
We show that very little is needed to create liquidity under-supply in equilibrium. Credit constraints on demand by themselves can cause an under-supply of liquidity, without the uncertainty, intermediation, asymmetric information or complicated international financial framework used in other models in the literature. We show that the under-supply is a non-monotone function of the demand distortion that causes it, a result that may have interesting implications for emerging markets economies. Finally, when we make the credit constraint endogenous, the inefficiency can be large due to the presence of a multiplier.
Automated Discovery In Econometrics, Peter C.B. Phillips
Automated Discovery In Econometrics, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Our subject is the notion of automated discovery in econometrics. Advances in computer power, electronic communication, and data collection processes have all changed the way econometrics is conducted. These advances have helped to elevate the status of empirical research within the economics profession in recent years and they now open up new possibilities for empirical econometric practice. Of particular significance is the ability to build econometric models in an automated way according to an algorithm of decision rules that allow for (what we call here) heteroskedastic and autocorrelation robust (HAR) inference. Computerized search algorithms may be implemented to seek out …
Non-Monotone Liquidity Under-Supply, Ana Fostel, John Geanakoplos
Non-Monotone Liquidity Under-Supply, Ana Fostel, John Geanakoplos
Cowles Foundation Discussion Papers
We define liquidity as the flexibility to move goods (money) from one project (investment) to another. We show that credit constraints on demand by themselves can cause an under-supply of liquidity, without the uncertainty, intermediation, asymmetric information or complicated international financial framework used in other models in the literature. In this respect liquidity is like a commodity: according to our offsetting distortions principle, a distortion in the demand for any good can often be understood as an inefficiency of supply. We show that the liquidity under-supply is a non-monotone function of the credit constraint. This result is also a particular …
Limit Theory For Moderate Deviations From A Unit Root, Peter C.B. Phillips, Tassos Magdalinos
Limit Theory For Moderate Deviations From A Unit Root, Peter C.B. Phillips, Tassos Magdalinos
Cowles Foundation Discussion Papers
An asymptotic theory is given for autoregressive time series with a root of the form ρ n = 1 + c/ n α , which represents moderate deviations from unity when α in (0,1). The limit theory is obtained using a combination of a functional law to a diffusion on D [0,∞) and a central limit law to a scalar normal variate. For c > 0, the results provide a n (1+α)/2 rate of convergence and asymptotic normality for the first order serial correlation, partially bridging the squareroot of n and n convergence rates for the stationary (α = 0) and …
Uniform Limit Theory For Stationary Autoregression, Liudas Giraitis, Peter C.B. Phillips
Uniform Limit Theory For Stationary Autoregression, Liudas Giraitis, Peter C.B. Phillips
Cowles Foundation Discussion Papers
First order autoregression is shown to satisfy a limit theory which is uniform over stationary values of the autoregressive coefficient ρ = ρ n in [0,1) provided (1 - ρ n )n approaches infinity. This extends existing Gaussian limit theory by allowing for values of stationary rho that include neighbourhoods of unity provided they are wider than ( n 1 ), even by a slowly varying factor. Rates of convergence depend on rho and are at least squareroot of / n but less than n . Only second moments are assumed, as in the case of stationary autoregression with fixed …