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Articles 1861 - 1890 of 3476
Full-Text Articles in Economics
Understanding Overbidding In Second Price Auctions: An Experimental Study, David J. Cooper, Hanming Fang
Understanding Overbidding In Second Price Auctions: An Experimental Study, David J. Cooper, Hanming Fang
Cowles Foundation Discussion Papers
This paper presents results from a series of second price private value auction (SPA) experiments in which bidders are either given for free, or are allowed to purchase, noisy signals about their opponents’ value. Even though theoretically such information about opponents’ value has no strategic use in the SPA, it provides us with a convenient instrument to change bidders’ perception about the “strength” (i.e., the value) of their opponent. We argue that the empirical relationship between the incidence and magnitude of overbidding and bidders’ perception of the strength of their opponent provides the key to understand whether overbidding in second …
Caller Number Five: Timing Games That Morph From One Form To Another, Andreas Park, Lones Smith
Caller Number Five: Timing Games That Morph From One Form To Another, Andreas Park, Lones Smith
Cowles Foundation Discussion Papers
There are two varieties of timing games in economics: In a war of attrition, more predecessors helps; in a pre-emption game, more predecessors hurts. In this paper, we introduce and explore a spanning class with rank-order payoffs that subsumes both as special cases. In this environment with unobserved actions and complete information, there are endogenously-timed phase transition moments. We identify equilibria with a rich enough structure to capture a wide array of economic and social timing phenomena — shifting between phases of smooth and explosive entry. We introduce a tractable general theory of this class of timing games based on …
Assortative Matching And Repubation, Axel Anderson, Lones Smith
Assortative Matching And Repubation, Axel Anderson, Lones Smith
Cowles Foundation Discussion Papers
Consider Becker’s classic 1963 matching model, with unobserved fixed types and stochastic publicly observed output. If types are complementary, then matching is assortative in the known Bayesian posteriors (the ‘reputations’). We discover a robust failure of Becker’s result in the simplest dynamic two type version of this world. Assortative matching is generally neither efficient nor an equilibrium for high discount factors. In a labor theoretic rationale, we show that assortative matching fails around the highest (lowest) reputation agents for ‘low-skill (high-skill) concealing’ technologies. We then find that as the number of production outcomes grows, almost all technologies are of either …
Limit Theorems For Functionals Of Sums That Converge To Fractional Stable Motions, P. Jeganathan
Limit Theorems For Functionals Of Sums That Converge To Fractional Stable Motions, P. Jeganathan
Cowles Foundation Discussion Papers
No abstract provided.
Indirect Inference For Dynamic Panel Models, Christian Gouriéroux, Peter C.B. Phillips, Jun Yu
Indirect Inference For Dynamic Panel Models, Christian Gouriéroux, Peter C.B. Phillips, Jun Yu
Cowles Foundation Discussion Papers
It is well-known that maximum likelihood (ML) estimation of the autoregressive parameter of a dynamic panel data model with fixed effects is inconsistent under fixed time series sample size ( T ) and large cross section sample size ( N ) asymptotics. The estimation bias is particularly relevant in practical applications when T is small and the autoregressive parameter is close to unity. The present paper proposes a general, computationally inexpensive method of bias reduction that is based on indirect inference (Gouriéroux et al., 1993), shows unbiasedness and analyzes efficiency. The method is implemented in a simple linear dynamic panel …
Sequential Equilibria In Bayesian Games With Communication, Dino Gerardi, Roger B. Myerson
Sequential Equilibria In Bayesian Games With Communication, Dino Gerardi, Roger B. Myerson
Cowles Foundation Discussion Papers
We study the effects of communication in Bayesian games when the players are sequentially rational but some combinations of types have zero probability. Not all communication equilibria can be implemented as sequential equilibria. We define the set of strong sequential equilibria (SSCE) and characterize it. SSCE differs from the concept of sequential communication equilibrium (SCE) defined by Myerson (1986) in that SCE allows the possibility of trembles by the mediator. We show that these two concepts coincide when there are three or more players, but the set of SSCE may be strictly smaller than the set of SCE for two-player …
Grading In Games Of Status: Marking Exams And Setting Wages, Pradeep Dubey, John Geanakoplos
Grading In Games Of Status: Marking Exams And Setting Wages, Pradeep Dubey, John Geanakoplos
Cowles Foundation Discussion Papers
We introduce grading into games of status. Each player chooses effort, producing a stochastic output or score. Utilities depend on the ranking of all the scores. By clustering scores into grades, the ranking is coarsened, and the incentives to work are changed. We first apply games of status to grading exams. Our main conclusion is that if students care primarily about their status (relative rank) in class, they are often best motivated to work not by revealing their exact numerical exam scores (100,99,…,1), but instead by clumping them into coarse categories ( A,B,C ). When student abilities are disparate, the …
A Remark On Bimodality And Weak Instrumentation In Structural Equation Estimation, Peter C.B. Phillips
A Remark On Bimodality And Weak Instrumentation In Structural Equation Estimation, Peter C.B. Phillips
Cowles Foundation Discussion Papers
In a simple model composed of a structural equation and identity, the finite sample distribution of the IV/LIML estimator is always bimodal and this is most apparent when the concentration parameter is small. Weak instrumentation is the energy that feeds the secondary mode and the coefficient in the structural identity provides a point of compression in the density that gives rise to it. The IV limit distribution can be normal, bimodal, or inverse normal depending on the behavior of the concentration parameter and the weakness of the instruments. The limit distribution of the OLS estimator is normal in all cases …
The Response Of Prices, Sales, And Output To Temporary Changes In Demand, Adam Copeland, George J. Hall
The Response Of Prices, Sales, And Output To Temporary Changes In Demand, Adam Copeland, George J. Hall
Cowles Foundation Discussion Papers
We determine empirically how the Big Three automakers accommodate shocks to demand. They have the capability to change prices, alter labor inputs through temporary layoffs and overtime, or adjust inventories. These adjustments are interrelated, non-convex, and dynamic in nature. Combining weekly plant-level data on production schedules and output with monthly data on sales and transaction prices, we estimate a dynamic profit-maximization model of the firm. Using impulse response functions, we demonstrate that when an automaker is hit with a demand shock sales respond immediately, prices respond gradually, and production responds only after a delay. The size of the immediate sales …
Testing Linearity In Cointegrating Relations With An Application To Purchasing Power Parity, Seung Hyun Hong, Peter C.B. Phillips
Testing Linearity In Cointegrating Relations With An Application To Purchasing Power Parity, Seung Hyun Hong, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper develops a linearity test that can be applied to cointegrating relations. We consider the widely used RESET specification test and show that when this test is applied to nonstationary time series its asymptotic distribution involves a mixture of noncentral chi-squared distributions, which leads to severe size distortions in conventional testing based on the central chi-squared. Nonstationarity is shown to introduce two bias terms in the limit distribution, which are the source of the size distortion in testing. Appropriate corrections for this asymptotic bias leads to a modified version of the RESET test which has a central chi-squared limit …
Grading In Games Of Status: Marking Exams And Setting Wages, Pradeep Dubey, John Geanakoplos
Grading In Games Of Status: Marking Exams And Setting Wages, Pradeep Dubey, John Geanakoplos
Cowles Foundation Discussion Papers
We introduce grading into games of status. Each player chooses effort, producing a stochastic output or score. Utilities depend on the ranking of all the scores. By clustering scores into grades, the ranking is coarsened, and the incentives to work are changed. We first apply games of status to grading exams. Our main conclusion is that if students care primarily about their status (relative rank) in class, they are often best motivated to work not by revealing their exact numerical exam scores (100,99,…,1), but instead by clumping them into coarse categories ( A,B,C ). When student abilities are disparate, the …
A Credit Mechanism For Selecting A Unique Competitive Equilibrium, Cheng-Zhong Qin, Martin Shubik
A Credit Mechanism For Selecting A Unique Competitive Equilibrium, Cheng-Zhong Qin, Martin Shubik
Cowles Foundation Discussion Papers
The enlargement of the general-equilibrium structure to allow default subject to penalties to appririate credit limits and default penalties results in a construction of a simple mechanism for a credit using society. We show that there generically exists a price-normalizing bundle that determines a credit money along with appropriate credit limmits and default penalties for a credit mechanism to select a unique competitive equilibrium (CE). With some additional conditions, a common credit money can be applied such that any CE can be a unique selection by the credit mechanism with appropriate credit limits default penalties for the traders. This will …
Prizes Versus Wages With Envy And Pride, Pradeep Dubey, John Geanakoplos, Ori Haimanko
Prizes Versus Wages With Envy And Pride, Pradeep Dubey, John Geanakoplos, Ori Haimanko
Cowles Foundation Discussion Papers
We show that if agents are risk neutral, prizes outperform wages when there is sufficient pride and envy relative to the noisiness of performance. If agents are risk averse, prizes are a necessary supplement to wages (as bonuses).
A New Approach To Robust Inference In Cointegration, Sainan Jin, Peter C.B. Phillips, Yixiao Sun
A New Approach To Robust Inference In Cointegration, Sainan Jin, Peter C.B. Phillips, Yixiao Sun
Cowles Foundation Discussion Papers
A new approach to robust testing in cointegrated systems is proposed using nonparametric HAC estimators without truncation. While such HAC estimates are inconsistent, they still produce asymptotically pivotal tests and, as in conventional regression settings, can improve testing and inference. The present contribution makes use of steep origin kernels which are obtained by exponentiating traditional quadratic kernels. Simulations indicate that tests based on these methods have improved size properties relative to conventional tests and better power properties than other tests that use Bartlett or other traditional kernels with no truncation.
Estimated Age Effects In Baseball, Ray C. Fair
Estimated Age Effects In Baseball, Ray C. Fair
Cowles Foundation Discussion Papers
Age effects in baseball are estimated in this paper using a nonlinear fixed-effects regression. The sample consists of all players who have played 10 or more “full-time” ’ years in the major leagues between 1921 and 2004. Quadratic improvement is assumed up to a peak-performance age, which is estimated, and then quadratic decline after that, where the two quadratics need not be the same. Each player has his own constant term. The results show that aging effects are larger for pitchers than for batters and larger for baseball than for track and field, running, and swimming events and for chess. …
Continuous Versus Discrete Market Games, Alexandre Marino, Bernard De Meyer
Continuous Versus Discrete Market Games, Alexandre Marino, Bernard De Meyer
Cowles Foundation Discussion Papers
De Meyer and Moussa Saley [4] provide an endogenous justification for the appearance of Brownian Motion in Finance by modeling the strategic interaction between two asymmetrically informed market makers with a zero-sum repeated game with one-sided information. The crucial point of this justification is the appearance of the normal distribution in the asymptotic behavior of V n ( P )// n . In De Meyer and Moussa Saley’s model [4], agents can fix a price in a continuous space. In the real world however, the market compels the agents to post prices in a discrete set. The previous remark raises …
Testing For Non-Nested Conditional Moment Restrictions Via Conditional Empirical Likelihood, Taisuke Otsu, Yoon-Jae Whang
Testing For Non-Nested Conditional Moment Restrictions Via Conditional Empirical Likelihood, Taisuke Otsu, Yoon-Jae Whang
Cowles Foundation Discussion Papers
We propose non-nested tests for competing conditional moment restriction models using a method of empirical likelihood. Our tests are based on the method of conditional empirical likelihood developed by Kitamura, Tripathi and Ahn (2004) and Zhang and Gijbels (2003). By using the conditional implied probabilities, we develop three non-nested tests: the moment encompassing, Cox-type, and efficient score encompassing tests. Compared to the existing non-nested tests which mainly focus on testing unconditional moment restrictions, our approach directly tests conditional moment restrictions which imply the infinite number of unconditional moment restrictions. We derive the null distributions and power properties of the proposed …
Perfect Competition In A Bilateral Monopoly (In Honor Of Martin Shubik), Pradeep Dubey, Dieter Sondermann
Perfect Competition In A Bilateral Monopoly (In Honor Of Martin Shubik), Pradeep Dubey, Dieter Sondermann
Cowles Foundation Discussion Papers
We show that if limit orders are required to vary smoothly, then strategic (Nash) equilibria of the double auction mechanism yield competitive (Walras) allocations. It is not necessary to have competitors on any side of any market: smooth trading is a substitute for price wars. In particular, Nash equilibria are Walrasian even in a bilateral monopoly.
Making Statements And Approval Voting, Enriqueta Aragones, Itzhak Gilboa, Andrew Weiss
Making Statements And Approval Voting, Enriqueta Aragones, Itzhak Gilboa, Andrew Weiss
Cowles Foundation Discussion Papers
We assume that people have a need to make statements, and construct a model in which this need is the sole determinant of voting behavior. In this model, an individual selects a ballot that makes as close a statement as possible to her ideal point, where abstaining from voting is a possible (null) statement. We show that in such a model, a political system that adopts approval voting may be expected to enjoy a significantly higher rate of participation in elections than a comparable system with plurality rule.
Information In Mechanism Design, Dirk Bergemann, Juuso Välimäki
Information In Mechanism Design, Dirk Bergemann, Juuso Välimäki
Cowles Foundation Discussion Papers
We survey the recent literature on the role of information in mechanism design. First, we discuss an emerging literature on the role of endogenous payoff and strategic information for the design and the efficiency of the mechanism. We specifically consider information management in the form of acquisition of new information or disclosure of existing information. Second, we argue that in the presence of endogenous information, the robustness of the mechanism to the type space and higher order beliefs becomes a natural desideratum. We discuss recent approaches to robust mechanism design and robust implementation.
Inference With Weak Instruments, Donald W.K. Andrews, James H. Stock
Inference With Weak Instruments, Donald W.K. Andrews, James H. Stock
Cowles Foundation Discussion Papers
This paper reviews recent developments in methods for dealing with weak instruments (IVs) in IV regression models. The focus is more on tests (and confidence intervals derived from tests) than estimators. The paper also presents new testing results under “many weak IV asymptotics,” which are relevant when the number of IVs is large and the coefficients on the IVs are relatively small. Asymptotic power envelopes for invariant tests are established. Power comparisons of the conditional likelihood ratio (CLR), Anderson-Rubin, and Lagrange multiplier tests are made. Numerical results show that the CLR test is on the asymptotic power envelope. This holds …
Information In Mechanism Design, Dirk Bergemann, Juuso Välimäki
Information In Mechanism Design, Dirk Bergemann, Juuso Välimäki
Cowles Foundation Discussion Papers
We survey the recent literature on the role of information for mechanism design. We specifically consider the role of endogeneity of and robustness to private information in mechanism design. We view information acquisition of and robustness to private information as two distinct but related aspects of information management important in many design settings. We review the existing literature and point out directions for additional future work.
Robust Monopoly Pricing, Dirk Bergemann, Karl Schlag
Robust Monopoly Pricing, Dirk Bergemann, Karl Schlag
Cowles Foundation Discussion Papers
We consider a robust version of the classic problem of optimal monopoly pricing with incomplete information. In the robust version of the problem the seller only knows that demand will be in a neighborhood of a given model distribution. We characterize the optimal pricing policy under two distinct, but related, decision criteria with multiple priors: (i) maximin expected utility and (ii) minimax expected regret. While the classic monopoly policy and the maximin criterion yield a single deterministic price, minimax regret always prescribes a random pricing policy, or equivalently, a multi-item menu policy. The resulting optimal pricing policy under either criterion …
Competition, Consumer Welfare, And The Social Cost Of Monopoly, Yoon-Ho Alex Lee, Donald J. Brown
Competition, Consumer Welfare, And The Social Cost Of Monopoly, Yoon-Ho Alex Lee, Donald J. Brown
Cowles Foundation Discussion Papers
Conventional deadweight loss measures of the social cost of monopoly ignore, among other things, the social cost of inducing competition and thus cannot accurately capture the loss in social welfare. In this Article, we suggest an alternative method of measuring the social cost of monopoly. Using elements of general equilibrium theory, we propose a social cost metric where the benchmark is the Pareto optimal state of the economy that uses the least amount of resources, consistent with consumers’ utility levels in the monopolized state. If the primary goal of antitrust policy is the enhancement of consumer welfare, then the proper …
Branch Rickey’S Equation Fifty Years Later, Ray C. Fair, Danielle Catambay
Branch Rickey’S Equation Fifty Years Later, Ray C. Fair, Danielle Catambay
Cowles Foundation Discussion Papers
This paper analyzes Branch Rickey’s 1954 equation in a regression context. The results for 1934–1953 are consistent with Rickey’s conclusions, and the equation holds up well when extended 51 years. Two of the main conclusions are that on-base percentage dominates batting average and that offense and defense are equally important. Perhaps Rickey was as good as he thought he was?
Robust Monopoly Pricing, Dirk Bergemann, Karl Schlag
Robust Monopoly Pricing, Dirk Bergemann, Karl Schlag
Cowles Foundation Discussion Papers
We consider a robust version of the classic problem of optimal monopoly pricing with incomplete information. In the robust version, the seller faces model uncertainty and only knows that the true demand distribution is in the neighborhood of a given model distribution. We characterize the optimal pricing policy under two distinct, but related, decision criteria with multiple priors: (i) maximin expected utility and (ii) minimax expected regret. The resulting optimal pricing policy under either criterion yields a robust policy to the model uncertainty. While the classic monopoly policy and the maximin criterion yield a single deterministic price, minimax regret always …
Robust Monopoly Pricing: The Case Of Regret, Dirk Bergemann, Karl Schlag
Robust Monopoly Pricing: The Case Of Regret, Dirk Bergemann, Karl Schlag
Cowles Foundation Discussion Papers
We consider a robust version of the classic problem of optimal monopoly pricing with incomplete information. The robust version of the problem is distinct in two aspects: (i) the seller minimizes regret rather than maximizes revenue, and (ii) the seller only knows that the true distribution of the valuations is in a neighborhood of a given model distribution. We characterize the robust pricing policy as the solution to a minimax problem for small and large neighborhoods. In contrast to the classic monopoly policy, which is a single deterministic price, the robust policy is always a random pricing policy, or equivalently, …
Improved Har Inference Using Power Kernels Without Truncation, Peter C.B. Phillips, Yixiao Sun, Sainan Jin
Improved Har Inference Using Power Kernels Without Truncation, Peter C.B. Phillips, Yixiao Sun, Sainan Jin
Cowles Foundation Discussion Papers
Employing power kernels suggested in earlier work by the authors (2003), this paper shows how to refine methods of robust inference on the mean in a time series that rely on families of untruncated kernel estimates of the long-run parameters. The new methods improve the size properties of heteroskedastic and autocorrelation robust (HAR) tests in comparison with conventional methods that employ consistent HAC estimates, and they raise test power in comparison with other tests that are based on untruncated kernel estimates. Large power parameter (ρ) asymptotic expansions of the nonstandard limit theory are developed in terms of the usual limiting …
The Evolution Of Our Preferences: Evidence From Capuchin-Monkey Trading Behavior, Keith M. Chen, Venkat Lakshminarayanan, Laurie Santos
The Evolution Of Our Preferences: Evidence From Capuchin-Monkey Trading Behavior, Keith M. Chen, Venkat Lakshminarayanan, Laurie Santos
Cowles Foundation Discussion Papers
Behavioral economics has demonstrated systematic decision-making biases in both lab and field data. But are these biases learned or innate? We investigate this question using experiments on a novel set of subjects — capuchin monkeys. By introducing a fiat currency and trade to a capuchin colony, we are able to recover their preferences over a wide range of goods and risky choices. We show that standard price theory does a remarkably good job of describing capuchin purchasing behavior; capuchin monkeys react rationally to both price and wealth shocks. However, when capuchins are faced with more complex choices including risky gambles, …
A Two-Stage Realized Volatility Approach To The Estimation For Diffusion Processes From Discrete Observations, Peter C.B. Phillips, Jun Yu
A Two-Stage Realized Volatility Approach To The Estimation For Diffusion Processes From Discrete Observations, Peter C.B. Phillips, Jun Yu
Cowles Foundation Discussion Papers
This paper motivates and introduces a two-stage method for estimating diffusion processes based on discretely sampled observations. In the first stage we make use of the feasible central limit theory for realized volatility, as recently developed in Barndorff-Nielsen and Shephard (2002), to provide a regression model for estimating the parameters in the diffusion function. In the second stage the in-fill likelihood function is derived by means of the Girsanov theorem and then used to estimate the parameters in the drift function. Consistency and asymptotic distribution theory for these estimates are established in various contexts. The finite sample performance of the …