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Full-Text Articles in Social and Behavioral Sciences
Optimal Inference In A Class Of Regression Models, Timothy B. Armstrong, Michal Kolesár
Optimal Inference In A Class Of Regression Models, Timothy B. Armstrong, Michal Kolesár
Cowles Foundation Discussion Papers
We consider the problem of constructing confidence intervals (CIs) for a linear functional of a regression function, such as its value at a point, the regression discontinuity parameter, or a regression coefficient in a linear or partly linear regression. Our main assumption is that the regression function is known to lie in a convex function class, which covers most smoothness and/or shape assumptions used in econometrics. We derive finite-sample optimal CIs and sharp efficiency bounds under normal errors with known variance. We show that these results translate to uniform (over the function class) asymptotic results when the error distribution is …
Money And Status: How Best To Incentivize Work, Pradeep Dubey, John Geanakoplos
Money And Status: How Best To Incentivize Work, Pradeep Dubey, John Geanakoplos
Cowles Foundation Discussion Papers
Status is greatly valued in the real world, yet it has not received much attention from economic theorists. We examine how the owner of a firm can best combine money and status to get her employees to work hard for the least total cost. We find that she should motivate workers of low skill mostly by status and high skill mostly by money. Moreover, she should do so by using a small number of titles and wage levels. This often results in star wages to the elite performers. By analogy, the governance of a society should pay special attention to …
Monte Carlo Confidence Sets For Identified Sets, Xiaohong Chen, Timothy M. Christensen, Elie Tamer
Monte Carlo Confidence Sets For Identified Sets, Xiaohong Chen, Timothy M. Christensen, Elie Tamer
Cowles Foundation Discussion Papers
In complicated/nonlinear parametric models, it is generally hard to know whether the model parameters are point identified. We provide computationally attractive procedures to construct confidence sets (CSs) for identified sets of full parameters and of subvectors in models defined through a likelihood or a vector of moment equalities or inequalities. These CSs are based on level sets of optimal sample criterion functions (such as likelihood or optimally-weighted or continuously-updated GMM criterions). The level sets are constructed using cutoffs that are computed via Monte Carlo (MC) simulations directly from the quasi-posterior distributions of the criterions. We establish new Bernstein-von Mises (or …
Energy Prices, Pass-Through, And Incidence In U.S. Manufacturing, Sharat Ganapati, Joseph S. Shapiro, Reed Walker
Energy Prices, Pass-Through, And Incidence In U.S. Manufacturing, Sharat Ganapati, Joseph S. Shapiro, Reed Walker
Cowles Foundation Discussion Papers
This paper studies how increases in energy input costs for production are split between consumers and producers via changes in product prices (i.e., pass-through). We show that in markets characterized by imperfect competition, marginal cost pass-through, a demand elasticity, and a price-cost markup are sucient to characterize the relative change in welfare between producers and consumers due to a change in input costs. We find that increases in energy prices lead to higher plant-level marginal costs and output prices but lower markups. This suggests that marginal cost pass-through is incomplete, with estimates centered around 0.7. Our confidence intervals reject both …
The Incidence Of Carbon Taxes In U.S. Manufacturing: Lessons From Energy Cost Pass-Through, Sharat Ganapati, Joseph S. Shapiro, Reed Walker
The Incidence Of Carbon Taxes In U.S. Manufacturing: Lessons From Energy Cost Pass-Through, Sharat Ganapati, Joseph S. Shapiro, Reed Walker
Cowles Foundation Discussion Papers
This paper estimates how increases in production costs due to energy inputs affect consumer versus producer surplus (i.e., incidence). In doing so, we develop a general methodology to measure the incidence of changes in input costs that can account for three first-order issues: factor substitution amongst inputs used for production, incomplete pass-through of input costs, and industry competitiveness. We apply this methodology to a set of U.S. manufacturing industries for which we observe plant-level output prices and input costs. We find that about 70 percent of energy price-driven changes in input costs are passed through to consumers. This implies that …
The Incidence Of Carbon Taxes In U.S. Manufacturing: Lessons From Energy Cost Pass-Through, Sharat Ganapati, Joseph S. Shapiro, Reed Walker
The Incidence Of Carbon Taxes In U.S. Manufacturing: Lessons From Energy Cost Pass-Through, Sharat Ganapati, Joseph S. Shapiro, Reed Walker
Cowles Foundation Discussion Papers
This paper studies how changes in energy input costs for U.S. manufacturers affect the relative welfare of manufacturing producers and consumers (i.e. incidence). In doing so, we develop a partial equilibrium methodology to estimate the incidence of input taxes that can simultaneously account for three determinants of incidence that are typically studied in isolation: incomplete pass-through of input costs, differences in industry competitiveness, and factor substitution amongst inputs used for production. We apply this methodology to a set of U.S. manufacturing industries for which we observe plant-level unit prices and input choices. We find that about 70 percent of energy …
Reputation With Opportunities For Coasting, Heski Bar-Isaac, Joyee Deb
Reputation With Opportunities For Coasting, Heski Bar-Isaac, Joyee Deb
Cowles Foundation Discussion Papers
Reputation concerns can discipline agents to take costly effort and generate good outcomes. But what if outcomes are not always observed? We consider a model of reputation with shifting observability, and ask how this affects agents’ incentives. We identify a novel and intuitive mechanism by which infrequent observation or inattention can actually strengthen reputation incentives and encourage effort. If an agent anticipates that outcomes may not be observed in the future, the benefits from effort today are enhanced due to a “coasting” effect. By investing effort when outcomes are more likely observed, the agent can improve her reputation, and when …
Reputation Building Under Uncertain Monitoring, Joyee Deb, Yuhta Ishii
Reputation Building Under Uncertain Monitoring, Joyee Deb, Yuhta Ishii
Cowles Foundation Discussion Papers
We study a canonical model of reputation between a long-run player and a sequence of short-run opponents, in which the long-run player is privately informed about an uncertain state that determines the monitoring structure in the reputation game. The long-run player plays a stage-game repeatedly against a sequence of short-run opponents. We present necessary and sufficient conditions (on the monitoring structure and the type space) to obtain reputation building in this setting. Specifically, in contrast to the previous literature, with only stationary commitment types, reputation building is generally not possible and highly sensitive to the inclusion of other commitment types. …
Optimal Inference In A Class Of Regression Models, Timothy B. Armstrong, Michal Kolesár
Optimal Inference In A Class Of Regression Models, Timothy B. Armstrong, Michal Kolesár
Cowles Foundation Discussion Papers
We consider the problem of constructing confidence intervals (CIs) for a linear functional of a regression function, such as its value at a point, the regression discontinuity parameter, or a regression coefficient in a linear or partly linear regression. Our main assumption is that the regression function is known to lie in a convex function class, which covers most smoothness and/or shape assumptions used in econometrics. We derive finite-sample optimal CIs and sharp efficiency bounds under normal errors with known variance. We show that these results translate to uniform (over the function class) asymptotic results when the error distribution is …
Mechanism Design With Partially Verifiable Information, Roland Strausz
Mechanism Design With Partially Verifiable Information, Roland Strausz
Cowles Foundation Discussion Papers
In mechanism design with (partially) verifiable information, the revelation principle obtains in full generality if allocations are modelled as the product set of outcomes and verifiable information. Incentive constraints fully characterize the implementable set of these product-allocations. The revelation principle does not generally hold when an allocation is modelled as only an outcome. However, any outcome of an implementable product-allocation is also implementable under this restricted modelling, provided that the mechanism designer can expand communication by adding unverifiable messages and restrict communication by limiting the use of messages. A canonical representation of such mechanisms is presented, implying that an inalienable …
Motivational Ratings, Johannes Hörner, Nicolas Lambert
Motivational Ratings, Johannes Hörner, Nicolas Lambert
Cowles Foundation Discussion Papers
Rating systems not only provide information to users but also motivate the rated agent. This paper solves for the optimal (effort-maximizing) rating system within the standard career concerns framework. It is a mixture two-state rating system. That is, it is the sum of two Markov processes, with one that re-effects the belief of the rater and the other the preferences of the rated agent. The rating, however, is not a Markov process. Our analysis shows how the rating combines information of different types and vintages. In particular, an increase in effort may affect some (but not all) future ratings adversely.
Three Lectures On The Theory Of Money And Financial Institutions: Lecture 1: A Nontechnical Overview, Martin Shubik
Three Lectures On The Theory Of Money And Financial Institutions: Lecture 1: A Nontechnical Overview, Martin Shubik
Cowles Foundation Discussion Papers
This is a nontechnical retrospective paper on a game theoretic approach to the theory of money and financial institutions. The stress is on process models and the reconciliation of general equilibrium with Keynes and Schumpeter’s approaches to non-equilibrium dynamics.
Three Essays On The Theory Of Money And Financial Institutions: Essay 1: A Nontechnical Overview, Martin Shubik
Three Essays On The Theory Of Money And Financial Institutions: Essay 1: A Nontechnical Overview, Martin Shubik
Cowles Foundation Discussion Papers
This is a nontechnical retrospective paper on a game theoretic approach to the theory of money and financial institutions. The stress is on process models and the reconciliation of general equilibrium with Keynes and Schumpeter’s approaches to non-equilibrium dynamics.
The Optimal Distribution Of Income Revisited, Ray C. Fair
The Optimal Distribution Of Income Revisited, Ray C. Fair
Cowles Foundation Discussion Papers
This paper revisits the optimal distribution of income model in Fair (1971). This model is the same as in Mirrlees (1971) except that education is also a decision variable and tax rates are restricted to lie on a tax function. In the current paper the tax-rate restriction is relaxed. As in Fair (1971), a numerical method is used. The current method uses the DFP algorithm with numeric derivatives. Because no analytic derivatives have to be taken,it is easy to change assumptions and functional forms and run alternative experiments. Gini coefficients are computed, which provides a metric for comparing the redistributive …
Methods For Nonparametric And Semiparametric Regressions With Endogeneity: A Gentle Guide, Xiaohong Chen, Yin Jia Qiu
Methods For Nonparametric And Semiparametric Regressions With Endogeneity: A Gentle Guide, Xiaohong Chen, Yin Jia Qiu
Cowles Foundation Discussion Papers
This paper reviews recent advances in estimation and inference for nonparametric and semiparametric models with endogeneity. It first describes methods of sieves and penalization for estimating unknown functions identified via conditional moment restrictions. Examples include nonparametric instrumental variables regression (NPIV), nonparametric quantile IV regression and many more semi-nonparametric structural models. Asymptotic properties of the sieve estimators and the sieve Wald, quasi-likelihood ratio (QLR) hypothesis tests of functionals with nonparametric endogeneity are presented. For sieve NPIV estimation, the rate-adaptive data-driven choices of sieve regularization parameters and the sieve score bootstrap uniform confidence bands are described. Finally, simple sieve variance estimation and …
Simple Nonparametric Estimators For The Bid-Ask Spread In The Roll Model, Xiaohong Chen, Oliver B. Linton, Stefan Schneeberger
Simple Nonparametric Estimators For The Bid-Ask Spread In The Roll Model, Xiaohong Chen, Oliver B. Linton, Stefan Schneeberger
Cowles Foundation Discussion Papers
We propose new methods for estimating the bid-ask spread from observed transaction prices alone. Our methods are based on the empirical characteristic function instead of the sample autocovariance function like the method of Roll (1984). As in Roll (1984), we have a closed form expression for the spread, but this is only based on a limited amount of the model-implied identification restrictions. We also provide methods that take account of more identification information. We compare our methods theoretically and numerically with the Roll method as well as with its best known competitor, the Hasbrouck (2004) method, which uses a Bayesian …
Dynamic Equality Of Opportunity, John E. Roemer, Burak Unveren
Dynamic Equality Of Opportunity, John E. Roemer, Burak Unveren
Cowles Foundation Discussion Papers
What are the long-term effects of policies intended to equalize opportunities among different social classes of children? To find out, we study the stationary states of an intergenerational model where adults are either White or Blue collar employees. Both adults and the state invest in their children’s education. Our analysis indicates that the major obstacle to equalizing opportunities in the long-run is private educational investment. Next we examine economies where only the state invests in education, motivated by the Nordic experience. In a majority of these economies, no child lags behind regarding future prospects, a theoretical result confirmed by simulations.
Popular Attitudes Towards Markets And Democracy: Russia And United States Compared 25 Years Later, Maxim Boycko, Robert J. Shiller
Popular Attitudes Towards Markets And Democracy: Russia And United States Compared 25 Years Later, Maxim Boycko, Robert J. Shiller
Cowles Foundation Discussion Papers
We repeat a survey we did in the waning days of the Soviet Union (Shiller, Boycko and Korobov, AER 1991) comparing attitudes towards free markets between Moscow and New York. Additional survey questions, from Gibson Duch and Tedin (J. Politics 1992) are added to compare attitudes towards democracy. Two comparisons are made: between countries, and through time, to explore the existence of international differences in allegiance to democratic free-market institutions, and the stability of these differences. While we find some differences in attitudes towards markets across countries and through time, we do not find most of the differences large or …
Information Design, Bayesian Persuasion And Bayes Correlated Equilibrium, Dirk Bergemann, Stephen Morris
Information Design, Bayesian Persuasion And Bayes Correlated Equilibrium, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
A set of players have preferences over a set of outcomes. We consider the problem of an “information designer” who can choose an information structure for the players to serve his ends, but has no ability to change the mechanism (or force the players to make particular action choices). We describe a unifying perspective for information design. We consider a simple example of Bayesian persuasion with both an uninformed and informed receiver. We extend information design to many players and relate it to the literature on incomplete information correlated equilibrium.
How Fast Do Equilibrium Payoff Sets Converge In Repeated Games?, Johannes Hörner, Satoru Takahashi
How Fast Do Equilibrium Payoff Sets Converge In Repeated Games?, Johannes Hörner, Satoru Takahashi
Cowles Foundation Discussion Papers
We provide tight bounds on the rate of convergence of the equilibrium payoff sets for repeated games under both perfect and imperfect public monitoring. The distance between the equilibrium payoff set and its limit vanishes at rate (1 − δ) 1/2 under perfect monitoring, and at rate (1 − δ) 1/4 under imperfect monitoring. For strictly individually rational payoff vectors, these rates improve to 0 (i.e., all strictly individually rational payoff vectors are exactly achieved as equilibrium payoffs for delta high enough) and (1 − δ) 1/2 , respectively.
The Extensive Margin Of Exporting Products: A Firm-Level Analysis, Costas Arkolakis, Sharat Ganapati, Marc-Andreas Muendler
The Extensive Margin Of Exporting Products: A Firm-Level Analysis, Costas Arkolakis, Sharat Ganapati, Marc-Andreas Muendler
Cowles Foundation Discussion Papers
We examine multi-product exporters and use firm-product-destination data to quantify export entry barriers. Our general-equilibrium model of multi-product firms generalizes earlier models. To match main facts about multi-product exporters, we estimate our model with rich demand and access cost shocks for Brazilian firms. The estimates document that additional products farther from a firm’s core competency incur higher unit costs, but face lower market access costs. We find that these market access costs differ across destinations and evaluate a scenario that standardizes market access between countries. The resulting welfare gains are similar to eliminating all current tariffs.
Human Capital Development And Parental Investment In India, Orazio P. Attanasio, Costas Meghir, Emily Nix
Human Capital Development And Parental Investment In India, Orazio P. Attanasio, Costas Meghir, Emily Nix
Cowles Foundation Discussion Papers
In this paper we estimate production functions for cognition and health throughout four stages of childhood from 5-15 years of age using two cohorts of children drawn from the Young Lives Survey for India. The inputs into the production function include parental background, prior child cognition and health and child investments. We allow investments to be endogenous and they depend on local prices and household income, as well as on the exogenous determinants of cognition and health. We find that investments are very important determinants of child cognition and of health at an earlier age. We also find that inputs …
Human Capital Development And Parental Investment In India, Orazio P. Attanasio, Costas Meghir, Emily Nix
Human Capital Development And Parental Investment In India, Orazio P. Attanasio, Costas Meghir, Emily Nix
Cowles Foundation Discussion Papers
We estimate production functions for cognition and health for children aged 1-12 in India, based on the Young Lives Survey. India has over 70 million children aged 0-5 who are at risk of developmental deficits. The inputs into the production functions include parental background, prior child cognition and health, and child investments, which are taken as endogenous. Estimation is based on a nonlinear factor model, based on multiple measurements for both inputs and child outcomes. Our results show an important effect of early health on child cognitive development, which then becomes persistent. Parental investments affect cognitive development at all ages, …
Human Capital Development And Parental Investment In India, Orazio P. Attanasio, Costas Meghir, Emily Nix
Human Capital Development And Parental Investment In India, Orazio P. Attanasio, Costas Meghir, Emily Nix
Cowles Foundation Discussion Papers
We estimate production functions for cognition and health for children aged 1-12 in India, where over 70 million children aged 0-5 are at risk of developmental deficits. The inputs into the production functions include parental background, prior child cognition and health, and child investments. We use income and local prices to control for the endogeneity of investments. We find that cognition is sensitive to investments throughout the age range we consider, while health is mainly affected by early investments. We also find that inputs are complementary, and crucially that health is very important in determining cognition. Our paper contributes in …
Long Term Effects Of Experience During Youth: Evidence From Consumptions In China, K. Sudhir, Ishani Tewari
Long Term Effects Of Experience During Youth: Evidence From Consumptions In China, K. Sudhir, Ishani Tewari
Cowles Foundation Discussion Papers
We test for the long-term effects of experience during youth on consumption in nontraditional taste-forming categories. A unique dataset that tracks individuals over twenty years from 1992-2011, residing in nine Chinese provinces that vary widely in both income levels and rate of economic growth, helps us identify cohort and intra-cohort “prosperity-inyouth” (PIY) effects on consumption. We first demonstrate that non-traditional category consumption increases strongly among cohorts that entered adulthood during China’s boom years. We then show evidence of the intra-cohort PIY effect, controlling for individual level experience by leveraging the heterogeneity in the timing and rate of growth in prosperity …
Optimal Product Variety In Radio Markets, Steven T. Berry, Alon Eizenberg, Joel Waldfogel
Optimal Product Variety In Radio Markets, Steven T. Berry, Alon Eizenberg, Joel Waldfogel
Cowles Foundation Discussion Papers
A vast theoretical literature shows that inefficient market structures may arise in free entry equilibria. Previous empirical work demonstrated that excessive entry may obtain in local radio markets. Our paper extends that literature by relaxing the assumption that stations are symmetric, allowing instead for endogenous station differentiation along both (observed) horizontal and (unobserved) vertical dimensions. We find that, in most broadcasting formats, a social planner who takes into account the welfare of market participants (stations and advertisers) would eliminate 50%–60% of the stations observed in equilibrium. In 80%–94.9% of markets that have high quality stations in the observed equilibrium, welfare …
Long Term Effects Of “Prosperity In Youth” On Consumption: Evidence From China, K. Sudhir, Ishani Tewari
Long Term Effects Of “Prosperity In Youth” On Consumption: Evidence From China, K. Sudhir, Ishani Tewari
Cowles Foundation Discussion Papers
We test for the long-term impact of experiencing “prosperity in youth” (PIY) on non-traditional category consumption. Using unique twenty-year panel data of individuals from nine Chinese provinces with varying levels of per-capita GDP and rates of per-capita GDP growth, we find robust evidence for the PIY effect. We find both a direct effect of one’s own prosperity and an indirect effect of the prosperity of one’s province during youth on long-term consumption. In particular, the indirect PIY effect is driven more strongly by individuals with low incomes during youth — suggesting that norms and aspirations created by the consumption of …
Premuneration Values And Investments In Matching Markets, George J. Mailath, Andrew Postlewaite, Larry Samuelson
Premuneration Values And Investments In Matching Markets, George J. Mailath, Andrew Postlewaite, Larry Samuelson
Cowles Foundation Discussion Papers
We analyze a model in which agents make investments and then match into pairs to create a surplus. The agents can make transfers to reallocate their pretransfer ownership claims on the surplus. Mailath, Postlewaite and Samuelson (2013) showed that when investments are unobservable, equilibrium investments are generally inefficient. In this paper we work with a more structured model that is sufficiently tractable to analyze the nature of the investment inefficiencies. We provide conditions under which investment is inefficiently high or low and conditions under which changes in the pretransfer ownership claims on the surplus will be Pareto improving, as well …
Are We Approaching An Economic Singularity? Information Technology And The Future Of Economic Growth, William D. Nordhaus
Are We Approaching An Economic Singularity? Information Technology And The Future Of Economic Growth, William D. Nordhaus
Cowles Foundation Discussion Papers
What are the prospects for long-run economic growth?, the present study looks at a more recently launched hypothesis, which I label Singularity . The idea here is that rapid growth in computation and artificial intelligence will cross some boundary or Singularity after which economic growth will accelerate sharply as an ever-accelerating pace of improvements cascade through the economy. The paper develops a growth model that features Singularity and presents several tests of whether we are rapidly approaching Singularity. The key question for Singularity is the substitutability between information and conventional inputs. The tests suggest that the Singularity is not near.
Modeling Uncertainty In Climate Change: A Multi‐Model Comparison, Kenneth Gillingham, William D. Nordhaus, David Anthoff, Geoffrey Blanford, Valentina Bosetti, Peter Christensen, Haewon Mcjeon
Modeling Uncertainty In Climate Change: A Multi‐Model Comparison, Kenneth Gillingham, William D. Nordhaus, David Anthoff, Geoffrey Blanford, Valentina Bosetti, Peter Christensen, Haewon Mcjeon
Cowles Foundation Discussion Papers
The economics of climate change involves a vast array of uncertainties, complicating both the analysis and development of climate policy. This study presents the results of the first comprehensive study of uncertainty in climate change using multiple integrated assessment models. The study looks at model and parametric uncertainties for population, total factor productivity, and climate sensitivity. It estimates the pdfs of key output variables, including CO 2 concentrations, temperature, damages, and the social cost of carbon (SCC). One key finding is that parametric uncertainty is more important than uncertainty in model structure. Our resulting pdfs also provide insights on tail …