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Articles 1621 - 1650 of 3476
Full-Text Articles in Economics
Identification In Differentiated Products Markets Using Market Level Data, Steven T. Berry, Philip A. Haile
Identification In Differentiated Products Markets Using Market Level Data, Steven T. Berry, Philip A. Haile
Cowles Foundation Discussion Papers
We consider nonparametric identification in models of differentiated products markets, using only market level observables. On the demand side we consider a nonparametric random utility model nesting random coefficients discrete choice models widely used in applied work. We allow for product/market-specific unobservables, endogenous product characteristics (e.g., prices), and high-dimensional taste shocks with arbitrary correlation and heteroskedasticity. On the supply side we specify marginal costs nonparametrically, allow for unobserved firm heterogeneity, and nest a variety of equilibrium oligopoly models. We pursue two approaches to identification. One relies on instrumental variables conditions used previously to demonstrate identification in a nonparametric regression framework. …
Identification In Differentiated Products Markets Using Market Level Data, Steven T. Berry, Philip A. Haile
Identification In Differentiated Products Markets Using Market Level Data, Steven T. Berry, Philip A. Haile
Cowles Foundation Discussion Papers
We present new identification results for nonparametric models of differentiated products markets, using only market level observables. We specify a nonparametric random utility discrete choice model of demand allowing rich preference heterogeneity, product/market unobservables, and endogenous prices. Our supply model posits nonparametric cost functions, allows latent costs shocks, and nests a range of standard oligopoly models. We consider identification of demand, identification of changes in aggregate consumer welfare, identification of marginal costs, identification of firms’ marginal cost functions, and discrimination between alternative models of firm conduct. We explore two complementary approaches. The first demonstrates identification under the same nonparametric instrumental …
Leverage Causes Fat Tails And Clustered Volatility, Stefan Thurner, J. Doyne Farmer, John Geanakoplos
Leverage Causes Fat Tails And Clustered Volatility, Stefan Thurner, J. Doyne Farmer, John Geanakoplos
Cowles Foundation Discussion Papers
We build a simple model of leveraged asset purchases with margin calls. Investment funds use what is perhaps the most basic financial strategy, called “value investing,” i.e. systematically attempting to buy underpriced assets. When funds do not borrow, the price fluctuations of the asset are normally distributed and uncorrelated across time. All this changes when the funds are allowed to leverage, i. e. borrow from a bank, to purchase more assets than their wealth would otherwise permit. During good times competition drives investors to funds that use more leverage, because they have higher profits. As leverage increases price fluctuations become …
X-Differencing And Dynamic Panel Model Estimation, Chirok Han, Peter C.B. Phillips, Donggyu Sul
X-Differencing And Dynamic Panel Model Estimation, Chirok Han, Peter C.B. Phillips, Donggyu Sul
Cowles Foundation Discussion Papers
This paper introduces a new estimation method for dynamic panel models with fixed effects and AR( p ) idiosyncratic errors. The proposed estimator uses a novel form of systematic differencing, called X -differencing, that eliminates fixed effects and retains information and signal strength in cases where there is a root at or near unity. The resulting “panel fully aggregated” estimator (PFAE) is obtained by pooled least squares on the system of X -differenced equations. The method is simple to implement, free from bias for all parameter values, including unit root cases, and has strong asymptotic and finite sample performance characteristics …
Two New Zealand Pioneer Econometricians, Peter C.B. Phillips
Two New Zealand Pioneer Econometricians, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Two distinguished New Zealanders pioneered some of the foundations of modern econometrics. Alec Aitken, one of the most famous and well-documented mental arithmeticians of all time, contributed the matrix formulation and projection geometry of linear regression, generalized least squares (GLS) estimation, algorithms for Hodrick Prescott (HP) style data smoothing (six decades before their use in economics), and statistical estimation theory leading to the Cramér Rao bound. Rex Bergstrom constructed and estimated by limited information maximum likelihood (LIML) the largest empirical structural model in the early 1950s, opened up the field of exact distribution theory, developed cyclical growth models in economic …
Solving The Present Crisis And Managing The Leverage Cycle, John Geanakoplos
Solving The Present Crisis And Managing The Leverage Cycle, John Geanakoplos
Cowles Foundation Discussion Papers
The present crisis is the bottom of a recurring problem that I call the leverage cycle, in which leverage gradually rises too high then suddenly falls much too low. The government must manage the leverage cycle in normal times by monitoring and regulating leverage to keep it from getting too high. In the crisis stage the government must stem the scary bad news that brought on the crisis, which often will entail coordinated write downs of principal; it must restore sane leverage by going around the banks and lending at lower collateral rates (not lower interest rates), and when necessary …
Pricing In Matching Markets, George J. Mailath, Andrew Postlewaite, Larry Samuelson
Pricing In Matching Markets, George J. Mailath, Andrew Postlewaite, Larry Samuelson
Cowles Foundation Discussion Papers
Different markets are cleared by different types of prices — a universal price for all buyers and sellers in some markets, seller-specific prices that are uniform across buyers in others, and personalized prices tailored to both the buyer and the seller in yet others. We introduce the notion of premuneration values — the values in the absence of any muneration (payments) — created by the buyer-seller match. We characterize the premuneration values under which uniform-price and personalized-price equilibria agree. In this case, we have efficient allocations, including pre-match investment decisions, without the costs of personalized pricing. We then examine the …
Recursive Methods In Discounted Stochastic Games: An Algorithm For Delta Approaching 1 And A Folk Theorem, Johannes Hörner, Takuo Sugaya, Satoru Takahashi, Nicolas Vieille
Recursive Methods In Discounted Stochastic Games: An Algorithm For Delta Approaching 1 And A Folk Theorem, Johannes Hörner, Takuo Sugaya, Satoru Takahashi, Nicolas Vieille
Cowles Foundation Discussion Papers
We present an algorithm to compute the set of perfect public equilibrium payoffs as the discount factor tends to one for stochastic games with observable states and public (but not necessarily perfect) monitoring when the limiting set of (long-run players’) equilibrium payoffs is independent of the state. This is the case, for instance, if the Markov chain induced by any Markov strategy profile is irreducible. We then provide conditions under which a folk theorem obtains: if in each state the joint distribution over the public signal and next period’s state satisfies some rank condition, every feasible payoff vector above the …
A Specification Test For Instrumental Variables Regression With Many Instruments, Yoonseok Lee, Ryo Okui
A Specification Test For Instrumental Variables Regression With Many Instruments, Yoonseok Lee, Ryo Okui
Cowles Foundation Discussion Papers
This paper considers specification testing for instrumental variables estimation in the presence of many instruments. The test proposed is a modified version of the Sargan (1958, Econometrica 26(3): 393-415) test of overidentifying restrictions. The test statistic asymptotically follows the standard normal distribution under the null hypothesis of correct specification when the number of instruments increases with the sample size. We find that the new test statistic is numerically equivalent up to a sign to the test statistic proposed by Hahn and Hausman (2002, Econometrica 70(1): 163-189). We also assess the size and power properties of the test.
Selling Information, Johannes Hörner, Andrzej Skrzypacz
Selling Information, Johannes Hörner, Andrzej Skrzypacz
Cowles Foundation Discussion Papers
We study a dynamic buyer-seller problem in which the good is information and there are no property rights. The potential buyer is reluctant to pay for information whose value to him is uncertain, but the seller cannot credibly convey its value to the buyer without disclosing the information itself. Information comes as divisible hard evidence. We show how and why the seller can appropriate a substantial fraction of the value through gradual revelation, and how the entire value can be extracted with the help of a mediator.
Selling Information, Johannes Hörner, Andrzej Skrzypacz
Selling Information, Johannes Hörner, Andrzej Skrzypacz
Cowles Foundation Discussion Papers
We characterize optimal selling protocols/equilibria of a game in which an Agent first puts hidden effort to acquire information and then transacts with a Firm that uses this information to take a decision. We determine the equilibrium payoffs that maximize incentives to acquire information. Our analysis is similar to finding ex ante optimal self-enforcing contracts since information sharing, outcomes and transfers cannot be contracted upon. We show when and how selling and transmitting information gradually helps. We also show how mixing/side bets increases the Agent’s incentives.
Selling Information, Johannes Hörner, Andrzej Skrzypacz
Selling Information, Johannes Hörner, Andrzej Skrzypacz
Cowles Foundation Discussion Papers
An Agent who owns information that is potentially valuable to a Firm bargains for its sale, without commitment and certification possibilities, short of disclosing it. We propose a model of gradual persuasion and show how gradualism helps mitigate the hold-up problem (that the Firm would not pay once it learns the information). An example illustrates how it is optimal to give away part of the information at the beginning of the bargaining, and sell the remainder in dribs and drabs. The Agent can only appropriate part of the value of information. Introducing a third-party allows her to extract the maximum …
Belief-Free Equilibria In Games With Incomplete Information: Characterization And Existence, Johannes Hörner, Stefano Lovo, Tristan Tomala
Belief-Free Equilibria In Games With Incomplete Information: Characterization And Existence, Johannes Hörner, Stefano Lovo, Tristan Tomala
Cowles Foundation Discussion Papers
We characterize belief-free equilibria in infinitely repeated games with incomplete information with N > 2 players and arbitrary information structures. This characterization involves a new type of individual rational constraint linking the lowest equilibrium payoffs across players. The characterization is tight: we define a set of payoffs that contains all the belief-free equilibrium payoffs; conversely, any point in the interior of this set is a belief-free equilibrium payoff vector when players are sufficiently patient. Further, we provide necessary conditions and sufficient conditions on the information structure for this set to be non-empty, both for the case of known-own payoffs, and for …
Nonparametric Tests Of Conditional Treatment Effects, Sokbae Lee, Yoon-Jae Whang
Nonparametric Tests Of Conditional Treatment Effects, Sokbae Lee, Yoon-Jae Whang
Cowles Foundation Discussion Papers
We develop a general class of nonparametric tests for treatment effects conditional on covariates. We consider a wide spectrum of null and alternative hypotheses regarding conditional treatment effects, including (i) the null hypothesis of the conditional stochastic dominance between treatment and control groups; (ii) the null hypothesis that the conditional average treatment effect is positive for each value of covariates; and (iii) the null hypothesis of no distributional (or average) treatment effect conditional on covariates against a one-sided (or two-sided) alternative hypothesis. The test statistics are based on L 1 -type functionals of uniformly consistent nonparametric kernel estimators of conditional …
On A Markov Game With One-Sided Incomplete Information, Johannes Hörner, Dinah Rosenberg, Eilon Solan, Nicolas Vieille
On A Markov Game With One-Sided Incomplete Information, Johannes Hörner, Dinah Rosenberg, Eilon Solan, Nicolas Vieille
Cowles Foundation Discussion Papers
We apply the average cost optimality equation to zero-sum Markov games, by considering a simple game with one-sided incomplete information that generalizes an example of Aumann and Maschler (1995). We determine the value and identify the optimal strategies for a range of parameters.
Biased Social Learning, Helios Herrera, Johannes Hörner
Biased Social Learning, Helios Herrera, Johannes Hörner
Cowles Foundation Discussion Papers
This paper examines social learning when only one of the two types of decisions is observable. Because agents arrive randomly over time, and only those who invest are observed, later agents face a more complicated inference problem than in the standard model, as the absence of investment might reflect either a choice not to invest, or a lack of arrivals. We show that, as in the standard model, learning is complete if and only if signals are unbounded. If signals are bounded, cascades may occur, and whether they are more or less likely than in the standard model depends on …
Uniform Topologies On Types, Yi-Chun Chen, Alfredo Di Tillio, Eduardo Faingold, Siyang Xiong
Uniform Topologies On Types, Yi-Chun Chen, Alfredo Di Tillio, Eduardo Faingold, Siyang Xiong
Cowles Foundation Discussion Papers
We study the robustness of interim correlated rationalizability to perturbations of higher-order beliefs. We introduce a new metric topology on the universal type space, called uniform weak topology, under which two types are close if they have similar first-order beliefs, attach similar probabilities to other players having similar first-order beliefs, and so on, where the degree of similarity is uniform over the levels of the belief hierarchy. This topology generalizes the now classic notion of proximity to common knowledge based on common p-beliefs (Monderer and Samet (1989)). We show that convergence in the uniform weak topology implies convergence in the …
Strategic Supply Function Competition With Private Information, Xavier Vives
Strategic Supply Function Competition With Private Information, Xavier Vives
Cowles Foundation Discussion Papers
A finite number of sellers ( n ) compete in schedules to supply an elastic demand. The costs of the sellers have uncertain common and private value components and there is no exogenous noise in the system. A Bayesian supply function equilibrium is characterized; the equilibrium is privately revealing and the incentives to acquire information are preserved. Price-cost margins and bid shading are affected by the parameters of the information structure: supply functions are steeper with more noise in the private signals or more correlation among the costs parameters. In fact, for large values of noise or correlation supply functions …
El Farol Revisited: A Note On Emergence, Game Theory And Society, Martin Shubik
El Farol Revisited: A Note On Emergence, Game Theory And Society, Martin Shubik
Cowles Foundation Discussion Papers
The El Farol Bar problem with coordination is reconsidered in terms and extended with consideration of further context.
Default Penalty As A Disciplinary And Selection Mechanism In Presence Of Multiple Equilibria, Juergen Huber, Martin Shubik, Shyam Sunder
Default Penalty As A Disciplinary And Selection Mechanism In Presence Of Multiple Equilibria, Juergen Huber, Martin Shubik, Shyam Sunder
Cowles Foundation Discussion Papers
Closed exchange and production-and-exchange economies may have multiple equilibria, a fact that is usually ignored in macroeconomic models. Our basic argument is that default and bankruptcy laws are required to prevent strategic default, and these laws can also serve to provide the conditions for uniqueness. In this paper we report experimental evidence on the effectiveness of this approach to resolving multiplicity: society can assign default penalties on fiat money so the economy selects one of the equilibria. Our data show that the choice of default penalty takes the economy to the neighborhood of the chosen equilibrium. The theory and evidence …
Default Penalty As A Selection Mechanism Among Multiple Equilibria, Juergen Huber, Martin Shubik, Shyam Sunder
Default Penalty As A Selection Mechanism Among Multiple Equilibria, Juergen Huber, Martin Shubik, Shyam Sunder
Cowles Foundation Discussion Papers
Closed exchange and production-and-exchange economies may have multiple equilibria, a fact that is usually ignored in macroeconomic models. Our basic argument is that default and bankruptcy laws are required to prevent strategic default, and these laws can also serve to provide the conditions for uniqueness. In this paper, we report experimental evidence on the effectiveness of this approach to resolving multiplicity: a society can assign default penalties on fiat money so that the economy selects one of the equilibria. Our data show that the choice of default penalty takes the economy close to the chosen equilibrium. The theory and evidence …
Default Penalty As A Selection Mechanism Among Multiple Equilibria, Juergen Huber, Martin Shubik, Shyam Sunder
Default Penalty As A Selection Mechanism Among Multiple Equilibria, Juergen Huber, Martin Shubik, Shyam Sunder
Cowles Foundation Discussion Papers
The possibility of the presence of multiple equilibria in closed exchange and production-and-exchange economies is usually ignored in macroeconomic models even though they are important in real economies. We argue that default and bankruptcy laws serve to provide the conditions for uniqueness of an equilibrium. In this paper, we report experimental evidence on the effectiveness of this approach to resolving multiplicity: a society can assign default penalties on fiat money so that the economy selects one of the equilibria. The laboratory data show that the choice of default penalty takes the economy near the chosen equilibrium. The theory and evidence …
Semiparametric Efficiency Bound For Models Of Sequential Moment Restrictions Containing Unknown Functions, Chunrong Ai, Xiaohong Chen
Semiparametric Efficiency Bound For Models Of Sequential Moment Restrictions Containing Unknown Functions, Chunrong Ai, Xiaohong Chen
Cowles Foundation Discussion Papers
This paper computes the semiparametric efficiency bound for finite dimensional parameters identified by models of sequential moment restrictions containing unknown functions. Our results extend those of Chamberlain (1992b) and Ai and Chen (2003) for semiparametric conditional moment restriction models with identical information sets to the case of nested information sets, and those of Chamberlain (1992a) and Brown and Newey (1998) for models of sequential moment restrictions without unknown functions to cases with unknown functions of possibly endogenous variables. Our bound results are applicable to semiparametric panel data models and semiparametric two stage plug-in problems. As an example, we compute the …
Identification Of A Heterogeneous Generalized Regression Model With Group Effects, Steven T. Berry, Philip A. Haile
Identification Of A Heterogeneous Generalized Regression Model With Group Effects, Steven T. Berry, Philip A. Haile
Cowles Foundation Discussion Papers
We consider identification in a “generalized regression model” (Han, 1987) for panel settings in which each observation can be associated with a “group” whose members are subject to a common unobserved shock. Common examples of groups include markets, schools or cities. The model is fully nonparametric and allows for the endogeneity of group-specific observables, which might include prices, policies, and/or treatments. The model features heterogeneous responses to observables and unobservables, and arbitrary heteroskedasticity. We provide sufficient conditions for full identification of the model, as well as weaker conditions sufficient for identification of the latent group effects and the distribution of …
Breach, Remedies And Dispute Settlement In Trade Agreements, Giovanni Maggi, Robert W. Staiger
Breach, Remedies And Dispute Settlement In Trade Agreements, Giovanni Maggi, Robert W. Staiger
Cowles Foundation Discussion Papers
We provide a simple but novel model of trade agreements that highlights the role of transaction costs, renegotiation and dispute settlement. The model allows us to characterize the appropriate remedy for breach and whether the agreement should be structured as a system of “property rights” or “liability rules.” We then study how the optimal rules depend on the underlying economic and contracting environment. Our model also delivers predictions about the outcome of trade disputes, and in particular about the propensity of countries to settle early versus “fighting it out.”
Marshallian Money, Welfare, And Side-Payments, Cheng-Zhong Qin, Lloyd S. Shapley, Martin Shubik
Marshallian Money, Welfare, And Side-Payments, Cheng-Zhong Qin, Lloyd S. Shapley, Martin Shubik
Cowles Foundation Discussion Papers
A link between a no-side-payment (NSP) market game and a side-payment (SP) market game can be established by introducing a sufficient amount of an ideal utility-money of constant marginal utility to all agents. At some point when there is “enough money” in the system, if it is “well distributed” the new game will be a SP game. This game can also be related to a pure NSP game where a set of default parameters have been introduced. These parameters play a role similar to the parameters specifying the interpersonal comparisons in the side-payment game. We study this game for the …
Incentives For Experimenting Agents, Johannes Hörner, Larry Samuelson
Incentives For Experimenting Agents, Johannes Hörner, Larry Samuelson
Cowles Foundation Discussion Papers
We examine a repeated interaction between an agent, who undertakes experiments, and a principal who provides the requisite funding for these experiments. The repeated interaction gives rise to a dynamic agency cost — the more lucrative is the agent’s stream of future rents following a failure, the more costly are current incentives for the agent, giving the principal an incentive to reduce the continuation value of the project. We characterize the set of recursive Markov equilibria. We also find that there are non-Markov equilibria that make the principal better off than the recursive Markov equilibrium, and that may make both …
Incentives For Experimenting Agents, Johannes Hörner, Larry Samuelson
Incentives For Experimenting Agents, Johannes Hörner, Larry Samuelson
Cowles Foundation Discussion Papers
We examine a repeated interaction between an agent, who undertakes experiments, and a principal who provides the requisite funding for these experiments. The agent’s actions are hidden, and the principal, who makes the offers, cannot commit to future actions. We identify the unique Markovian equilibrium (whose structure depends on the parameters) and characterize the set of all equilibrium payoffs, uncovering a collection of non-Markovian equilibria that can Pareto dominate and reverse the qualitative properties of the Markovian equilibrium. The prospect of lucrative continuation payoffs makes it more expensive for the principal to incentivize the agent, giving rise to a dynamic …
Incentives For Experimenting Agents, Johannes Hörner, Larry Samuelson
Incentives For Experimenting Agents, Johannes Hörner, Larry Samuelson
Cowles Foundation Discussion Papers
We examine a repeated interaction between an agent, who undertakes experiments, and a principal who provides the requisite funding for these experiments. The agent’s actions are hidden, and the principal, who makes the offers, cannot commit to future actions. We identify the unique Markovian equilibrium (whose structure depends on the parameters) and characterize the set of all equilibrium payoffs, uncovering a collection of non-Markovian equilibria that can Pareto dominate and reverse the qualitative properties of the Markovian equilibrium. The prospect of lucrative continuation payoffs makes it more expensive for the principal to incentivize the agent, giving rise to a dynamic …
Incentives For Experimenting Agents, Johannes Hörner, Larry Samuelson
Incentives For Experimenting Agents, Johannes Hörner, Larry Samuelson
Cowles Foundation Discussion Papers
We examine a repeated interaction between an agent, who undertakes experiments, and a principal who provides the requisite funding for these experiments. The repeated interaction gives rise to a dynamic agency cost — the more lucrative is the agent’s stream of future rents following a failure, the more costly are current incentives for the agent, giving the principal an incentive to reduce the continuation value of the project. We characterize the set of recursive Markov equilibria. We show that there are non-Markov equilibria that make the principal better off than the recursive Markov equilibrium, and that may make both players …