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Articles 2161 - 2190 of 2930
Full-Text Articles in Social and Behavioral Sciences
Aggregation And Linearity In The Provision Of Intertemporal Incentives, Bengt Holmstrom, Paul R. Milgrom
Aggregation And Linearity In The Provision Of Intertemporal Incentives, Bengt Holmstrom, Paul R. Milgrom
Cowles Foundation Discussion Papers
One of the main findings of the principal-agent literature has been that incentive schemes should be sensitive to all information that bears on the agent’s actions. As a manifestation of this principle, incentive schemes tend to take quite complex (non-linear) forms. In contrast, real world schemes are often based on aggregate information with a rather simple structure. This paper considers the optimality of linear schemes that use only aggregated information. The hypothesis is that linear schemes are to be expected in situations where the agent has a rich set of actions to choose from, because richness in action choice allows …
Do We Reject Too Often? Small Sample Bias In Tests Of Rational Expectations, N. Gregory Mankiw, Matthew D. Shapiro
Do We Reject Too Often? Small Sample Bias In Tests Of Rational Expectations, N. Gregory Mankiw, Matthew D. Shapiro
Cowles Foundation Discussion Papers
We examine the small sample properties of tests of rational expectations models. We show using Monte Carlo experiments that these tests can be extremely biased toward rejection for sample sizes typical in applied research. These biases are important when the time series examined are highly autoregressive. We also show that these tests are even more biased with detrended data. We present correct small sample critical values for our canonical problem.
An Axiomatization Of Utility And Subjective Probability Based On Objective Probability, Mamoru Kaneko
An Axiomatization Of Utility And Subjective Probability Based On Objective Probability, Mamoru Kaneko
Cowles Foundation Discussion Papers
This paper provides an axiomatic model based on an extraneous random device generating objective probabilities for the derivation of expected utilities and subjective probabilities. Four basic axioms fully determine a real-valued utility function and a finitely additive subjective probability measure. The restrictions of these axioms to lotteries depending only upon events of the random device yield the von Neumann-Morgenstern axioms.
Coordinating Coordination Failures In Keynesian Models, Russell Cooper, Andrew John
Coordinating Coordination Failures In Keynesian Models, Russell Cooper, Andrew John
Cowles Foundation Discussion Papers
This paper focuses on the importance of strategic complementarity in agents’ payoff functions as a basis for macroeconomic coordination failures. We first analyze an abstract game and find that inefficient equilibria and a multiplier process may arise in the presence of strategic complementarities (essentially positively sloped reaction curves). We then place additional economic content on complementarities arising from production functions, matching technologies and commodity demand functions in a multi-sector economy.
The Distribution Of Fiml In The Leading Case, Peter C.B. Phillips
The Distribution Of Fiml In The Leading Case, Peter C.B. Phillips
Cowles Foundation Discussion Papers
In a recent article (1984a) Phillips showed that the distribution of the limited information maximum likelihood (LIML) estimator of the coefficients of the endogenous variables in a single structural equation is multivariate Cauchy in the leading (totally unidentified) case. The purpose of the present note is to show that the same result holds for the full information maximum likelihood (FIML) estimator. Our proof relies on the theory of invariant measures on a Stiefel manifold. This approach provides a major simplification of the derivation of the LIML result given in the earlier article and extends to the FIML case without difficulty. …
Two Stage And Related Estimators And Their Applications, Adrian Pagan
Two Stage And Related Estimators And Their Applications, Adrian Pagan
Cowles Foundation Discussion Papers
Applied econometric research frequently encounters the difficulty that estimation of the parameters of interest is complex owing to the presence of incidental parameters. It is tempting therefore to try to circumvent the difficulties by proceeding in two stages. In the first, some estimates are made of the incidental parameters. In the second, these estimates are treated as though they were population values, leading to a large reduction in the dimension of the unknown parameter space, possibly even down to that of the parameters of interest only. The properties of such a staged process (particularly as they relate to issues arising …
Coordinating Coordination Failures In Keynesian Models, Russell Cooper, John Andrew
Coordinating Coordination Failures In Keynesian Models, Russell Cooper, John Andrew
Cowles Foundation Discussion Papers
This paper focuses on the importance of strategic complementarity in agents’ payoff functions as a basis for macroeconomic coordination failures. We first analyze an abstract game and find that inefficient equilibria and a multiplier process may arise in the presence of strategic complementarities (essentially positively sloped reaction curves). We then place additional economic content on complementarities arising from production functions, matching technologies and commodity demand functions in a multi-sector economy.
The Balance Of Payments Adjustment Mechanism In A Rational Expectations Equilibrium, Richard H. Clarida
The Balance Of Payments Adjustment Mechanism In A Rational Expectations Equilibrium, Richard H. Clarida
Cowles Foundation Discussion Papers
This paper provides a choice theoretic, general equilibrium account of the balance of payments adjustment process and the determination of national price levels in a world comprised of countries populated by rational households. Balance of payments adjustment dynamics arise in the equilibrium of this model from the precautionary saving behavior of risk-averse households who self-insure against random productivity fluctuations by accumulating, via balance of payments surpluses in productive periods, buffer stocks of domestic money which can be drawn down to finance payments deficits, and thus a less variable profile of consumption relative to output, when productivity is unexpectedly low. Precautionary …
Time Series Regression With A Unit Root, Peter C.B. Phillips
Time Series Regression With A Unit Root, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper studies the random walk in a general time series setting that allows for weakly dependent and heterogeneously distributed innovations of the type recently considered in [39] and [40]. It is shown that simple least squares regression consistently estimates a unit root under very general conditions in spite of the presence of autocorrelated errors. The limiting distribution of the standardized estimator and the associated regression t -statistic are found using functional central limit theory. New tests of the random walk hypothesis are developed which permit a wide class of dependent and heterogeneous innovation sequences. A new limiting distribution theory …
Asymptotic Results For Generalized Wald Tests, Donald W.K. Andrews
Asymptotic Results For Generalized Wald Tests, Donald W.K. Andrews
Cowles Foundation Discussion Papers
This note presents (i) necessary and sufficient conditions for the consistency of estimators of Moore-Penrose inverted matrices, and (ii) sufficient conditions for convergence to a chi-square distribution of quadratic forms based on g-inverted weighting matrices. The latter results are needed to establish asymptotic significance levels and local power properties of generalized Wald tests (i.e., Wald tests with singular covariance matrices). Included in this class of tests are Hausman specification tests and various goodness of fit tests, among others. The results are relevant to procedures currently in the literature, since they illustrate that some results stated in the literature hold only …
Capital Utilization And Capital Accumulation: Theory And Evidence, Matthew D. Shapiro
Capital Utilization And Capital Accumulation: Theory And Evidence, Matthew D. Shapiro
Cowles Foundation Discussion Papers
A firm may acquire additional capital input by purchasing new capital or by increasing the utilization of its current capital. The margin between capita accumulation and capital utilization is studied in a model of dynamic factor demand where the firm chooses capital, labor, and their rates of utilization. A direct measure of capital utilization — the work week of capital — is incorporated into the theory and estimates. The methodology advocated by Hansen and Singleton (1982) is used to obtain estimates of the model’s parameters. This methodology allows the firm’s decision problem to depend on expected values of future endogenous …
Risk And Return: Consumption Beta Versus Market Beta, N. Gregory Mankiw, Matthew D. Shapiro
Risk And Return: Consumption Beta Versus Market Beta, N. Gregory Mankiw, Matthew D. Shapiro
Cowles Foundation Discussion Papers
Much recent work emphasizes the joint nature of the consumption decision and the portfolio allocation decision. In this paper, we compare two formulations of the Capital Asset Pricing Model. The traditional CAPM suggests that the appropriate measure of an asset’s risk is the covariance of the asset’s return with the market return. The consumption CAPM, on the other hand, implies that a better measure of risk is the covariance with aggregate consumption growth. We examine a cross-section of 464 stocks and find that the beta measured with respect to a stock market index outperforms the beta measured with respect to …
An Unbiased Reexamination Of Stock Market Volatility, N. Gregory Mankiw, David Romer, Matthew D. Shapiro
An Unbiased Reexamination Of Stock Market Volatility, N. Gregory Mankiw, David Romer, Matthew D. Shapiro
Cowles Foundation Discussion Papers
No abstract provided.
A Note On The Unbiasedness Of Feasible Gls, Quasi-Maximum Likelihood, Robust Adaptive, And Spectral Estimators Of The Linear Model, Donald W.K. Andrews
A Note On The Unbiasedness Of Feasible Gls, Quasi-Maximum Likelihood, Robust Adaptive, And Spectral Estimators Of The Linear Model, Donald W.K. Andrews
Cowles Foundation Discussion Papers
This note presents a set of conditions on the defining functions of regression parameter estimators of the linear model. These conditions guarantee that the estimators are symmetrically distributed about the true parameter value, and hence are median unbiased, provided the conditional distribution of the vector of errors is symmetric given the matrix of regressors. The symmetry result holds even if the regression parameters are subject to linear restrictions. If the estimators posses one or more moments, then the symmetry result also implies mean unbiasedness. Similar conditions are provided that establish the property of origin (or shift) equivariance for the estimators. …
On A General Existence Theorem For Marginal Cost Pricing Equilibria, Donald J. Brown, Geoffrey M. Heal, M. Ali Khan, Rajiv Vohra
On A General Existence Theorem For Marginal Cost Pricing Equilibria, Donald J. Brown, Geoffrey M. Heal, M. Ali Khan, Rajiv Vohra
Cowles Foundation Discussion Papers
We report a generalization of recent results on the existence of marginal cost pricing equilibria (MCPE) in economies with an increasing returns to scale industry. Our result makes no ad hoc assumptions which force the equilibrium to be on the efficiency frontier of the aggregate production possibility set. We also present an additional condition under which our MCPE are productivity efficient in the aggregate.
Testing The Random Walk Hypothesis: Power Versus Frequency Of Observation, Robert J. Shiller, Pierre Perron
Testing The Random Walk Hypothesis: Power Versus Frequency Of Observation, Robert J. Shiller, Pierre Perron
Cowles Foundation Discussion Papers
Power functions of tests of the random walk hypothesis versus stationary first order autoregressive alternatives are tabulated for samples of fixed span but various frequencies of observation. For a t -test and normalized test, power is found to depend, for a substantial range of parameter values, more on the span of the data in time than on the number of observations. For a runs test, power rapidly declines as the number of observations is increased beyond a certain point.
A Note On The Unbiasedness Of Feasible Gls, Quasi-Maximum Likelihood, Robust Adaptive, And Spectral Estimators Of The Linear Model, Donald W.K. Andrews
A Note On The Unbiasedness Of Feasible Gls, Quasi-Maximum Likelihood, Robust Adaptive, And Spectral Estimators Of The Linear Model, Donald W.K. Andrews
Cowles Foundation Discussion Papers
This note presents a set of conditions on the defining functions of regression parameter estimators of the linear model. These conditions guarantee that the estimators are symmetrically distributed about the true parameter value, and hence are median unbiased, provided the conditional distribution of the vector of errors is symmetric given the matrix of regressors. The symmetry result holds even if the regression parameters are subject to linear restrictions. If the estimators posses one or more moments, then the symmetry result also implies mean unbiasedness. Similar conditions are provided that establish the property of origin (or shift) equivariance for the estimators. …
Games With Perceptive Commanders But Less Perceptive Subordinates, Martin Shubik
Games With Perceptive Commanders But Less Perceptive Subordinates, Martin Shubik
Cowles Foundation Discussion Papers
We introduce a model of the 2 x 2 games played by agents or subordinates of the players. We assume that each agent or subordinates of the players. We assume that each agent is not as perceptive as his commander in that he can make only two distinctions among the four outcomes whose value can be distinguished by the commanders.
Managerial Incentives And Capital Management, Bengt Holmstrom, Joan E. Ricart-Costa
Managerial Incentives And Capital Management, Bengt Holmstrom, Joan E. Ricart-Costa
Cowles Foundation Discussion Papers
In Holmstrom (1982) an example is given, which shows that a manager’s concern for the value of his human capital will lead to a natural incongruity in risk-preferences between himself and the owners, even when no effort considerations are involved. In this paper we present a formal model of this channel of incongruity based on learning about managerial talent. We also explore the nature of an optimal incentive contract in the case where the manager may withhold but not misrepresent information about investment returns. The optimal contract is an option on the manager’s human capital value with a possible bonus …
The Dynamic Demand For Capital And Labor, Matthew D. Shapiro
The Dynamic Demand For Capital And Labor, Matthew D. Shapiro
Cowles Foundation Discussion Papers
A model of the dynamically interrelated demand for capital and labor is specified and estimated. The estimates are of the first-order conditions of the firm’s problem rather than of the closed-form decision rules. This use of the first-order conditions allows a random rate of return and a flexible specification of the technology. The estimates do not imply the very slow rates of adjustment displayed in other, related estimates of the demand for capital. Because adjustment is estimated to be rapid, there is, contrary to the standard view, scope for factor-prices to affect investment at relatively high frequencies.
A Note On Enough Money In A Strategic Market Game With Complete Or Fewer Markets, Martin Shubik
A Note On Enough Money In A Strategic Market Game With Complete Or Fewer Markets, Martin Shubik
Cowles Foundation Discussion Papers
This paper discusses the notion of “enough money” in strategic market games. In an economy with one money, m-1 markets and no credit, in order to be able to achieve efficient trade there must be “enough money” held by all traders. In essence “enough money” means that the noncooperative equilibrium solutions to a strategic market game is interior, in other words it is not considered by lack of liquidity. For simplicity two specific market mechanisms are described to illustrate the relationship between market structure and liquidity.
The Exact Distribution Of The Wald Statistic: The Non-Central Case, Peter C.B. Phillips, Sam Ouliaris
The Exact Distribution Of The Wald Statistic: The Non-Central Case, Peter C.B. Phillips, Sam Ouliaris
Cowles Foundation Discussion Papers
This paper extends earlier results, which were reported in [7], to include non null distributions. As in [7], attention is concentrated on the Wald statistic for testing general linear restrictions on the coefficients in the multivariate linear model. The results of the present paper encompass the null distributions derived in [7] and generalize all previously known results for such statistics as the standard regression test and Hotelling’s T 2 test.
Expansionary Government Policy In An Economy With Commodity And Labor, Russell Cooper
Expansionary Government Policy In An Economy With Commodity And Labor, Russell Cooper
Cowles Foundation Discussion Papers
This paper considers a model in which all exchange is mediated by contracts. The analysis explores the indexation of labor and commodities contracts to observable variations in government spending financed by money creation. In one of the many equilibria, prices and nominal wages are shown to be independent of current money shocks. Except in the extreme equilibrium exhibiting full indexation, policy shocks will generate correlated movements in output and employment over time. The analysis thus suggests an inverse relationship between indexation of contracts and persistence of policy effects.
Neighborhood Systems For Production Sets With Indivisibilities, Herbert E. Scarf
Neighborhood Systems For Production Sets With Indivisibilities, Herbert E. Scarf
Cowles Foundation Discussion Papers
No abstract provided.
A Mean-Variance Approach To Fundamental Valuations, James Tobin
A Mean-Variance Approach To Fundamental Valuations, James Tobin
Cowles Foundation Discussion Papers
No abstract provided.
Strategic Market Games: A Dynamic Programming Application To Money, Banking And Insurance, Martin Shubik
Strategic Market Games: A Dynamic Programming Application To Money, Banking And Insurance, Martin Shubik
Cowles Foundation Discussion Papers
A series of models (kept simple in order to stress the structure of the models and the nature of the questions) are described and problems are posed pertaining to a dynamic economy with various possibilities for the issuance of fiat money, credit and insurance.
Optimal Cartel Equilibria With Imperfect Monitoring, Dilip Abreu, David G. Pearce, Ennio Stacchetti
Optimal Cartel Equilibria With Imperfect Monitoring, Dilip Abreu, David G. Pearce, Ennio Stacchetti
Cowles Foundation Discussion Papers
There exist optimal symmetric equilibria in the Green-Porter model [5, 8] having an elementary intertemporal structure. Such an equilibrium is described entirely by two subsets of price space and two quantities, the only production levels used by firms in any contingency. The central technique employed in the analysis is the reduction of the repeated game to a family of static games.
An Everywhere Convergent Series Representation Of The Distribution Of Hotelling's Generalized T 2^0, Peter C.B. Phillips
An Everywhere Convergent Series Representation Of The Distribution Of Hotelling's Generalized T 2^0, Peter C.B. Phillips
Cowles Foundation Discussion Papers
A new series representation of the exact distribution of Hotelling’s generalized T 0 2 statistic is obtained. Unlike earlier work, the series representation given here is everywhere convergent. Explicit formulae are given for both the null and the noncentral distributions. Earlier results by Constantine [1], which are convergent on the interval [0,1), are also derived quite simply from our formulae.
Testing For Serial Correlation And Unit Roots Using A Computer Function Routine Based On Era's, Peter C.B. Phillips, Peter C. Reiss
Testing For Serial Correlation And Unit Roots Using A Computer Function Routine Based On Era's, Peter C.B. Phillips, Peter C. Reiss
Cowles Foundation Discussion Papers
This paper initiates a research program to provide computer function routines that can be used to deliver critical values or significance levels for statistical tests. These routines are easily integrated into existing econometric software and can be made available on a user call basis. The mathematical formulae underlying these approximants belong to the family of extended rational approximants (ERA’s) introduced in [15]. The first part of this paper extends the algebraic theory of ERA’s to distribution function approximation. Composite functional approximants are also developed to treat the parameter multidimensionally that is common in practical application. The second part of the …
An Everywhere Convergent Series Representation Of The Distribution Of Hotellings Generalized T 2^0, Peter C.B. Phillips
An Everywhere Convergent Series Representation Of The Distribution Of Hotellings Generalized T 2^0, Peter C.B. Phillips
Cowles Foundation Discussion Papers
A new series representation of the exact distribution of Hotelling’s generalized T 0 2 statistic is found which is everywhere convergent. Earlier results by Constantine which are convergent on the interval [0,1) are also derived from the formulae given here. The new results are made possible by the use of a matrix operator calculus developed by the author.