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Articles 1051 - 1080 of 3476
Full-Text Articles in Economics
Common Values, Unobserved Heterogeneity, And Endogenous Entry In U.S. Offshore Oil Lease Auctions, Giovanni Compiani, Philip A. Haile, Marcelo Sant'anna
Common Values, Unobserved Heterogeneity, And Endogenous Entry In U.S. Offshore Oil Lease Auctions, Giovanni Compiani, Philip A. Haile, Marcelo Sant'anna
Cowles Foundation Discussion Papers
In a "common values" environment, some market participants have private information relevant to others' assessments of their own valuations or costs. Economic theory shows that this type of informational asymmetry can have important implications for market performance and market design. Yet even for the classic example of an oil lease auction, formal evidence on the presence and strength of common values has been limited by the problem of auction-level unobserved heterogeneity that is likely to affect both participation in an auction and bidders' willingness to pay. Here we develop an empirical approach for first-price sealed bid auctions with affiliated values, …
Common Values, Unobserved Heterogeneity, And Endogenous Entry In U.S. Offshore Oil Lease Auctions, Giovanni Compiani, Philip A. Haile, Marcelo Sant'anna
Common Values, Unobserved Heterogeneity, And Endogenous Entry In U.S. Offshore Oil Lease Auctions, Giovanni Compiani, Philip A. Haile, Marcelo Sant'anna
Cowles Foundation Discussion Papers
An oil lease auction is the classic example motivating a common values model. However, formal testing for common values has been hindered by unobserved auction-level heterogeneity, which is likely to affect both participation in an auction and bidders' willingness to pay. We develop and apply an empirical approach for first-price sealed bid auctions with affiliated values, unobserved heterogeneity, and endogenous bidder entry. The approach also accommodates spatial dependence and sample selection. Following Haile, Hong and Shum (2003), we specify a reduced form for bidder entry outcomes and rely on an instrument for entry. However, we relax their control function requirements …
Oligopoly Price Discrimination: The Role Of Inventory Controls, James D. Dana Jr., Kevin R. Williams
Oligopoly Price Discrimination: The Role Of Inventory Controls, James D. Dana Jr., Kevin R. Williams
Cowles Foundation Discussion Papers
Inventory controls, used most notably by airlines, are sales limits assigned to individual prices. While typically viewed as a tool to manage demand uncertainty, we argue that inventory controls can also facilitate intertemporal price discrimination in oligopoly. In our model, competing firms first choose quantity and then choose prices in a series of advance-purchase markets. When demand becomes less elastic over time, as is the case in airline markets, a monopolist can easily price discriminate; however, we show that oligopoly firms generally cannot. We also show that using inventory controls allows oligopoly firms to set increasing prices, regardless of whether …
Extrapolation Using Selection And Moral Hazard Heterogeneity From Within The Oregon Health Insurance Experiment, Amanda E. Kowalski
Extrapolation Using Selection And Moral Hazard Heterogeneity From Within The Oregon Health Insurance Experiment, Amanda E. Kowalski
Cowles Foundation Discussion Papers
I aim to shed light on why emergency room (ER) utilization increased following the Oregon Health Insurance Experiment but decreased following a Massachusetts policy. To do so, I unite the literatures on insurance and treatment effects. Under an MTE model that assumes no more than the LATE assumptions, comparisons across always takers, compliers, and never takers can inform the impact of polices that expand and contract coverage. Starting from the Oregon experiment as the “gold standard,” I make comparisons within Oregon and extrapolate my findings to Massachusetts. Within Oregon, I find adverse selection and heterogeneous moral hazard. Although previous enrollees …
Speculation And Price Indeterminacy In Financial Markets: An Experimental Study, Shinichi Hirota, Juergen Huber, Thomas Stöckl, Shyam Sunder
Speculation And Price Indeterminacy In Financial Markets: An Experimental Study, Shinichi Hirota, Juergen Huber, Thomas Stöckl, Shyam Sunder
Cowles Foundation Discussion Papers
To explore how speculative trading influences prices in financial markets, we conduct a laboratory market experiment with speculating investors (who do not collect dividends and trade only for capital gains) and dividend-collecting investors. Moreover, we operate markets at two different levels of money supply. We find that in phases with only speculating investors present (i) price deviations from fundamentals are larger; (ii) prices are more volatile; (iii) mispricing increases with the number of transfers until maturity; and (iv) speculative trading pushes prices upward (downward) when the supply of money is high (low). These results suggest that controlling the money supply …
Oligopoly Price Discrimination: The Role Of Inventory Controls, James D. Dana Jr., Kevin R. Williams
Oligopoly Price Discrimination: The Role Of Inventory Controls, James D. Dana Jr., Kevin R. Williams
Cowles Foundation Discussion Papers
Inventory controls, used most notably by airlines, are sales limits assigned to individual prices. While typically viewed as a tool to manage demand uncertainty, we argue that inventory controls also facilitate intertemporal price discrimination. In our model, competing firms first choose quantity and then choose prices in a series of advance-purchase markets. When demand becomes more inelastic over time, as in the airline and hotel markets, a monopolist can easily price discriminate; however, we show that oligopoly firms generally cannot. Inventory controls let firms set increasing prices regardless of whether or not demand is uncertain.
Speculation And Price Indeterminacy In Financial Markets: An Experimental Study, Shinichi Hirota, Juergen Huber, Thomas Stöckl, Shyam Sunder
Speculation And Price Indeterminacy In Financial Markets: An Experimental Study, Shinichi Hirota, Juergen Huber, Thomas Stöckl, Shyam Sunder
Cowles Foundation Discussion Papers
To explore how speculative trading influences prices in financial markets we conduct a laboratory market experiment with speculating investors (who do not collect dividends and trade only for capital gains) as well as dividend-collecting investors. We find that in markets with only speculating investors (i) price deviations from fundamentals are larger; (ii) prices are more volatile; (iii) the “mispricing” is likely to be strategic and not irrational; (iv) mispricing increases with the number of transfers until maturity; and (v) speculative trading pushes prices upward (downward) when liquidity is high (low).
Intertemporal Price Discrimination In Sequential Quantity-Price Games, James D. Dana Jr., Kevin R. Williams
Intertemporal Price Discrimination In Sequential Quantity-Price Games, James D. Dana Jr., Kevin R. Williams
Cowles Foundation Discussion Papers
This paper develops an oligopoly model in which firms first choose capacity and then compete in prices in a series of advance-purchase markets. We show the existence of multiple sales opportunities creates strong competitive forces that prevent firms from utilizing intertemporal price discrimination. We then show that intertemporal price discrimination is possible, but only when firms adopt inventory controls (sales limit restrictions) and demand becomes more inelastic over time. Therefore, in addition to being useful to manage demand uncertainty, we show that inventory controls are also a tool to soften price competition. We discuss model extensions, including product differentiation, aggregate …
Intertemporal Price Discrimination In Sequential Quantity-Price Games, James D. Dana Jr., Kevin R. Williams
Intertemporal Price Discrimination In Sequential Quantity-Price Games, James D. Dana Jr., Kevin R. Williams
Cowles Foundation Discussion Papers
When firms first choose capacity and then compete on prices in a series of advance-purchase markets, we show that strong competitive forces prevent firms from utilizing intertemporal price discrimination. We then enrich the model by allowing firms to use inventory controls, or sales limits assigned to individual prices. We show that firms will choose to set inventory controls in order to engage in intertemporal price discrimination, but only if demand becomes more inelastic over time. Thus, although typically viewed as a tool to manage demand uncertainty, we show that inventory controls can also facilitate price discrimination in oligopoly.
Understanding Temporal Aggregation Effects On Kurtosis In Financial Indices, Offer Lieberman, Peter C.B. Phillips
Understanding Temporal Aggregation Effects On Kurtosis In Financial Indices, Offer Lieberman, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Indices of financial returns typically display sample kurtosis that declines towards the Gaussian value 3 as the sampling interval increases. This paper uses stochastic unit root (STUR) and continuous time analysis to explain the phenomenon. Limit theory for the sample kurtosis reveals that STUR specifications provide two sources of excess kurtosis, both of which decline with the sampling interval. Limiting kurtosis is shown to be random and is a functional of the limiting price process. Using a continuous time version of the model under no-drift, local drift, and drift inclusions, we suggest a new continuous time kurtosis measure for financial …
Intertemporal Price Discrimination In Sequential Quantity-Price Games, James D. Dana Jr., Kevin R. Williams
Intertemporal Price Discrimination In Sequential Quantity-Price Games, James D. Dana Jr., Kevin R. Williams
Cowles Foundation Discussion Papers
This paper develops an oligopoly model in which firms first choose capacity and then compete in prices in a series of advance-purchase markets. We show the existence of multiple sales opportunities creates strong competitive forces that prevent firms from utilizing intertemporal price discrimination. We then show that intertemporal price discrimination is possible, but only when firms adopt inventory controls (sales limit restrictions) and demand becomes more inelastic over time. Therefore, in addition to being useful to manage demand uncertainty, inventory controls are also a tool to soften price competition. We also discuss model extensions, including product differentiation, aggregate demand uncertainty, …
Revenue Guarantee Equivalence, Dirk Bergemann, Benjamin Brooks, Stephen Morris
Revenue Guarantee Equivalence, Dirk Bergemann, Benjamin Brooks, Stephen Morris
Cowles Foundation Discussion Papers
We revisit the revenue comparison of standard auction formats, including first-price, second-price, and English auctions. We rank auctions according to their revenue guarantees, i.e., the greatest lower bound of revenue across all informational environments, where we hold fixed the distribution of bidders' values. We conclude that if we restrict attention to the symmetric affiliated models of Milgrom and Weber (1982) and monotonic pure-strategy equilibria, first-price, second-price, and English auctions all have the same revenue guarantee, which is equal to that of the first-price auction as characterized by Bergemann, Brooks, and Morris (2017a). If we consider all equilibria or if we …
First-Price Auctions With General Information Structures: A Short Introduction, Dirk Bergemann, Benjamin Brooks, Stephen Morris
First-Price Auctions With General Information Structures: A Short Introduction, Dirk Bergemann, Benjamin Brooks, Stephen Morris
Cowles Foundation Discussion Papers
In a recent paper, [Bergemann et al. 2017a], we derive results about equilibrium behavior in the first-price auction that hold across all common-prior information structures. The purpose of this letter is to give an informal introduction into the results. At the end we offer a brief discussion of related work.
Asymptotic Theory For Near Integrated Process Driven By Tempered Linear Process, Farzad Sabzikar, Qiying Wang, Peter C.B. Phillips
Asymptotic Theory For Near Integrated Process Driven By Tempered Linear Process, Farzad Sabzikar, Qiying Wang, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper develops an asymptotic theory for near-integrated random processes and some associated regressions when the errors are tempered linear processes. Tempered processes are stationary time series that have a semi-long memory property in the sense that the autocovariogram of the process resembles that of a long memory model for moderate lags but eventually diminishes exponentially fast according to the presence of a decay factor governed by a tempering parameter. When the tempering parameter is sample size dependent, the resulting class of processes admits a wide range of behavior that includes both long memory, semi-long memory, and short memory processes. …
The Persistent Power Of Promises, Florian Ederer, Frédéric Schneider
The Persistent Power Of Promises, Florian Ederer, Frédéric Schneider
Cowles Foundation Discussion Papers
This paper investigates how the passage of time affects trust, trustworthiness, and cooperation. We use a hybrid lab and online experiment to provide the first evidence for the persistent power of communication. Even when 3 weeks pass between messages and actual choices, communication raises cooperation, trust, and trustworthiness by about 50 percent. Lags between the beginning of the interaction and the time to respond do not substantially alter trust or trustworthiness. Our results further suggest that the findings of the large experimental literature on trust that focuses on laboratory scenarios in which subjects are forced to choose their actions immediately …
Entry Games Under Private Information, José-Antonio Espín-Sánchez, Álvaro Parra
Entry Games Under Private Information, José-Antonio Espín-Sánchez, Álvaro Parra
Cowles Foundation Discussion Papers
We study market entry decisions when firms have private information about their profitability. We generalize current models by allowing general forms of market competition and heterogeneous firms that self-select when entering the market. Post-entry profits depend on market structure, and on the identities and the private information of the entering firms. We introduce a notion of the firm's strength and show that an equilibrium where players' strategies are ranked by strength, or herculean equilibrium, always exists. Moreover, when profits are elastic enough with respect to the firm's private information, the herculean equilibrium is the unique equilibrium of the game.
Global Melting? The Economics Of Disintegration Of The Greenland Ice Sheet, William D. Nordhaus
Global Melting? The Economics Of Disintegration Of The Greenland Ice Sheet, William D. Nordhaus
Cowles Foundation Discussion Papers
Concerns about the impact on large-scale earth systems have taken center stage in the scientific and economic analysis of climate change. The present study analyzes the economic impact of a potential disintegration of the Greenland Ice Sheet (GIS). The method is to combine a small geophysical model of the GIS with the DICE integrated assessment model. The result shows that the GIS is likely to disappear over the next millennium or so without climate policy, but an active climate policy may prevent the GIS from crossing the threshold of irreversibility. Additionally, the study estimates the impact of the GIS on …
Dispersed Behavior And Perceptions In Assortative Societies, Mira Frick, Ryota Iijima, Yuhta Ishii
Dispersed Behavior And Perceptions In Assortative Societies, Mira Frick, Ryota Iijima, Yuhta Ishii
Cowles Foundation Discussion Papers
Motivated by the fact that people’s perceptions of their societies are routinely incorrect, we study the possibility and implications of misperception in social interactions. We focus on coordination games with assortative interactions, where agents with higher types (e.g., wealth, political attitudes) are more likely than lower types to interact with other high types. Assortativity creates scope for misperception, because what agents observe in their local interactions need not be representative of society as a whole. To model this, we define a tractable solution concept, “local perception equilibrium” (LPE), that describes possible behavior and perceptions when agents’ beliefs are derived only …
Dispersed Behavior And Perceptions In Assortative Societies, Mira Frick, Ryota Iijima, Yuhta Ishii
Dispersed Behavior And Perceptions In Assortative Societies, Mira Frick, Ryota Iijima, Yuhta Ishii
Cowles Foundation Discussion Papers
We take an equilibrium-based approach to study the interplay between behavior and misperceptions in coordination games with assortative interactions. Our focus is assortativity neglect, where agents fail to take into account the extent of assortativity in society. We show, first, that assortativity neglect amplifies action dispersion, both in fixed societies and by exacerbating the effect of social changes. Second, unlike other misperceptions, assortativity neglect is a misperception that agents can rationalize in any true environment. Finally, assortativity neglect provides a lens through which to understand how empirically documented misperceptions about distributions of population characteristics (e.g., income inequality) vary across societies.
Experiment-As-Market: Incorporating Welfare Into Randomized Controlled Trials, Yusuke Narita
Experiment-As-Market: Incorporating Welfare Into Randomized Controlled Trials, Yusuke Narita
Cowles Foundation Discussion Papers
Randomized Controlled Trials (RCTs) enroll hundreds of millions of subjects and involve many human lives. To improve subjects’ welfare, I propose a design of RCTs that I call Experiment-as-Market (EXAM). EXAM produces a Pareto efficient allocation of treatment assignment probabilities, is asymptotically incentive compatible for preference elicitation, and unbiasedly estimates any causal effect estimable with standard RCTs. I quantify these properties by applying EXAM to a water cleaning experiment in Kenya (Kremer et al., 2011). In this empirical setting, compared to standard RCTs, EXAM substantially improves subjects’ predicted well-being while reaching similar treatment effect estimates with similar precision.
Toward An Ethical Experiment, Yusuke Narita
Toward An Ethical Experiment, Yusuke Narita
Cowles Foundation Discussion Papers
Randomized Controlled Trials (RCTs) enroll hundreds of millions of subjects and involve many human lives. To improve subjects’ welfare, I propose an alternative design of RCTs that I call Experiment-as-Market (EXAM). EXAM Pareto optimally randomly assigns each treatment to subjects predicted to experience better treatment effects or to subjects with stronger preferences for the treatment. EXAM is also asymptotically incentive compatible for preference elicitation. Finally, EXAM unbiasedly estimates any causal effect estimable with standard RCTs. I quantify the welfare, incentive, and information properties by applying EXAM to a water cleaning experiment in Kenya (Kremer et al., 2011). Compared to standard …
The Persistent Power Of Promises, Florian Ederer, Frédéric Schneider
The Persistent Power Of Promises, Florian Ederer, Frédéric Schneider
Cowles Foundation Discussion Papers
Using a large-scale hybrid laboratory and online trust experiment with pre-play communication this paper investigates how the passage of time affects trust, trustworthiness, and cooperation. We provide evidence for the persistent power of communication. Even when three weeks pass between messages and actual choices and even when these choices are made outside of the lab, communication (predominantly through the use of promises) raises cooperation, trust, and trustworthiness by about 50 percent. Delays between the beginning of the interaction and the time to reciprocate neither substantially alter trust or trustworthiness nor affect how subjects choose to communicate.
Equilibrium Uniqueness In Entry Games With Private Information, José-Antonio Espín-Sánchez, Álvaro Parra, Yuzhou Wang
Equilibrium Uniqueness In Entry Games With Private Information, José-Antonio Espín-Sánchez, Álvaro Parra, Yuzhou Wang
Cowles Foundation Discussion Papers
We study equilibrium uniqueness in entry games with private information. Our framework embeds models commonly used in applied work, allowing rich forms of firm heterogeneity and selective entry. We introduce the notion of strength, which summarizes a firm’s ability to endure competition. In environments of applied interest, an equilibrium in which entry strategies are ranked according to strength, called herculean equilibrium, always exists. Thus, when the entry game has a unique equilibrium, it must be herculean. We derive simple sufficient conditions guaranteeing equilibrium uniqueness and, consequently, robust counterfactual analyses.
Dispersed Behavior And Perceptions In Assortative Societies, Mira Frick, Ryota Iijima, Yuhta Ishii
Dispersed Behavior And Perceptions In Assortative Societies, Mira Frick, Ryota Iijima, Yuhta Ishii
Cowles Foundation Discussion Papers
We formulate a model of social interactions and misinferences by agents who neglect assortativity in their society, mistakenly believing that they interact with a representative sample of the population. A key component of our approach is the interplay between this bias and agents’ strategic incentives. We highlight a mechanism through which assortativity neglect, combined with strategic complementarities in agents’ behavior, drives up action dispersion in society (e.g., socioeconomic disparities in education investment). We also show how the combination of assortativity neglect and strategic incentives may help to explain empirically documented misperceptions of income inequality and political attitude polarization.
Dispersed Behavior And Perceptions In Assortative Societies, Mira Frick, Ryota Iijima, Yuhta Ishii
Dispersed Behavior And Perceptions In Assortative Societies, Mira Frick, Ryota Iijima, Yuhta Ishii
Cowles Foundation Discussion Papers
We formulate a model of social interactions and misinferences by agents who neglect assortativity in their society, mistakenly believing that they interact with a representative sample of the population. A key component of our approach is the interplay between this bias and agents’ strategic incentives. We highlight a mechanism through which assortativity neglect, combined with strategic complementarities in agents’ behavior, drives up action dispersion in society (e.g., socioeconomic disparities in education investment). We also suggest that the combination of assortativity neglect and strategic incentives may be relevant in understanding empirically documented misperceptions of income inequality and political attitude polarization.
A Theory Of Cooperation In Games With An Application To Market Socialism, John E. Roemer
A Theory Of Cooperation In Games With An Application To Market Socialism, John E. Roemer
Cowles Foundation Discussion Papers
Economic theory has focused almost exclusively on how humans compete with each other in their economic activity, culminating in general equilibrium (Walras) and game theory (Nash). Cooperation in economic activity is, however, important, and is virtually ignored. Because our models influence our view of the world, this theoretical lacuna biases economists’ interpretation of economic behavior. Here, I propose models that provide micro-foundations for how cooperation is decentralized by economic agents. It is wrong, in particular, to view competition as decentralized and cooperation as organized only by central diktat. My approach is not to alter preferences, which is the strategy behavioral …
Explaining The Slow U.S.Recovery: 2010–2017, Ray C. Fair
Explaining The Slow U.S.Recovery: 2010–2017, Ray C. Fair
Cowles Foundation Discussion Papers
This paper argues that the slow U.S. recovery after the 2008–2009 recession was due to sluggish government spending. The analysis uses a structural macroeconometric model. Conditional on government policy, the errors in predicting output for the 2009.4–2017.4 period are within what one would expect historically. Productivity and labor force participation are endogenous variables in the model, and so their behavior in this period is a consequence of the slow growth rather than a cause.
Intuitive Solutions In Game Representations: The Shapley Value Revisited, Pradeep Dubey
Intuitive Solutions In Game Representations: The Shapley Value Revisited, Pradeep Dubey
Cowles Foundation Discussion Papers
We show that any transferable utility game can be represented by an assignment of facilities to players, in which it is intuitively obvious how to allocate the total cost of the facilities. The intuitive solution in the representation turns out to be the Shapley value of the game, and thus serves as an alternative justification of the value.
When Salespeople Manage Customer Relationships: Multidimensional Incentives And Private Information, Minkyung Kim, K. Sudhir, Kosuke Uetake, Rodrigo Canales
When Salespeople Manage Customer Relationships: Multidimensional Incentives And Private Information, Minkyung Kim, K. Sudhir, Kosuke Uetake, Rodrigo Canales
Cowles Foundation Discussion Papers
At many firms, incentivized salespeople with private information about customers are responsible for CRM. While incentives motivate sales performance, private information can induce moral hazard by salespeople to gain compensation at the expense of the firm. We investigate the sales performance–moral hazard tradeoff in response to multidimensional performance (acquisition and maintenance) incentives in the presence of private information. Using unique panel data on customer loan acquisition and repayments linked to salespeople from a microfinance bank, we detect evidence of salesperson private information. Acquisition incentives induce salesperson moral hazard leading to adverse customer selection, but maintenance incentives moderate it as salespeople …
Marriage, Labor Supply And The Dynamics Of The Social Safety Net, Hamish Low, Costas Meghir, Luigi Pistaferri, Alessandra Voena
Marriage, Labor Supply And The Dynamics Of The Social Safety Net, Hamish Low, Costas Meghir, Luigi Pistaferri, Alessandra Voena
Cowles Foundation Discussion Papers
The 1996 US welfare reform introduced limits on years of welfare receipt. We show that this reduced program participation, raised employment for single mothers, and reduced divorce. A limited commitment, lifecycle model of labor supply, marriage and divorce, estimated on pre-reform data, replicates these effects. A large part of the responses occur in anticipation of benefit exhaustion, impacting primarily women with low potential earnings. The reform reduces lifetime utility of women, even allowing for the government savings, but has negligible effects on men. The expectation of marriage attenuates the losses for women and an increased probability of single-motherhood raises them.