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Articles 1891 - 1920 of 3476
Full-Text Articles in Economics
A Simple Approach To The Parametric Estimation Of Potentially Nonstationary Diffusions, Federico M. Bandi, Peter C.B. Phillips
A Simple Approach To The Parametric Estimation Of Potentially Nonstationary Diffusions, Federico M. Bandi, Peter C.B. Phillips
Cowles Foundation Discussion Papers
A simple and robust approach is proposed for the parametric estimation of scalar homogeneous stochastic differential equations. We specify a parametric class of diffusions and estimate the parameters of interest by minimizing criteria based on the integrated squared difference between kernel estimates of the drift and diffusion functions and their parametric counterparts. The procedure does not require simulations or approximations to the true transition density and has the simplicity of standard nonlinear least-squares methods in discrete-time. A complete asymptotic theory for the parametric estimates is developed. The limit theory relies on infill and long span asymptotics and is robust to …
Robust Implementation: The Role Of Large Type Spaces, Dirk Bergemann, Stephen Morris
Robust Implementation: The Role Of Large Type Spaces, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
A social choice function is robustly implemented if every equilibrium on every type space achieves outcomes consistent with a social choice function. We identify a robust monotonicity condition that is necessary and (with mild extra assumptions) sufficient for robust implementation. Robust monotonicity is strictly stronger than both Maskin monotonicity (necessary and almost sufficient for complete information implementation) and ex post monotonicity (necessary and almost sufficient for ex post implementation). It is equivalent to Bayesian monotonicity on all type spaces. It requires that there not be too much interdependence of types. We characterize robust monotonicity for some interesting economic environments. We …
Nonstationary Discrete Choice: A Corrigendum And Addendum, Peter C.B. Phillips, Sainan Jin, Ling Hu
Nonstationary Discrete Choice: A Corrigendum And Addendum, Peter C.B. Phillips, Sainan Jin, Ling Hu
Cowles Foundation Discussion Papers
We correct the limit theory presented in an earlier paper by Hu and Phillips (Journal of Econometrics, 2004) for nonstationary time series discrete choice models with multiple choices and thresholds. The new limit theory shows that, in contrast to the binary choice model with nonstationary regressors and a zero threshold where there are dual rates of convergence ( n 1 /4 and n 3 /4 ), all parameters including the thresholds converge at the rate n 3 /4 . The presence of non-zero thresholds therefore materially affects rates of convergence. Dual rates of convergence reappear when stationary variables are present …
Economics: The Next Physical Science?, J. Doyne Farmer, Martin Shubik, Eric Smith
Economics: The Next Physical Science?, J. Doyne Farmer, Martin Shubik, Eric Smith
Cowles Foundation Discussion Papers
We review an emerging body of work by physicists addressing questions of economic organization and function. We suggest that, beyond simply employing models familiar from physics to economic observables, remarkable regularities in economic data may suggest parts of social order that can usefully be incorporated into, and in turn can broaden, the conceptual structure of physics.
Limit Theory For Moderate Deviations From A Unit Root Under Weak Dependence, Peter C.B. Phillips, Tassos Magdalinos
Limit Theory For Moderate Deviations From A Unit Root Under Weak Dependence, Peter C.B. Phillips, Tassos Magdalinos
Cowles Foundation Discussion Papers
An asymptotic theory is given for autoregressive time series with weakly dependent innovations and a root of the form ρ n = 1 + c / n α , involving moderate deviations from unity when α in (0,1) and c in R are constant parameters. The limit theory combines a functional law to a diffusion on D[0,∞) and a central limit theorem. For c > 0, the limit theory of the first-order serial correlation coefficient is Cauchy and is invariant to both the distribution and the dependence structure of the innovations. To our knowledge, this is the first invariance principle of …
Natural Concepts In Macroeconomics, Ray C. Fair
Natural Concepts In Macroeconomics, Ray C. Fair
Cowles Foundation Discussion Papers
Ragnar Frisch proposed in 1936 a procedure for estimating natural variable values by modifying what are now called structural macroeconometric models. This paper shows that Frisch’s procedure can be used to illuminate natural concepts using today’s models. The procedure also forces one to be precise regarding the assumptions used in moving from a short-run model to a medium-run or long-run model.
Randomized Sign Test For Dependent Observations On Discrete Choice Under Risk, Anat Bracha, Jeremy Gray, Rustam Ibragimov, Boaz Nadler, Dmitry Shapiro, Glena Ames, Donald J. Brown
Randomized Sign Test For Dependent Observations On Discrete Choice Under Risk, Anat Bracha, Jeremy Gray, Rustam Ibragimov, Boaz Nadler, Dmitry Shapiro, Glena Ames, Donald J. Brown
Cowles Foundation Discussion Papers
This paper proposes nonparametric statistical procedures for analyzing discrete choice models of affective decision making. We make two contributions to the literature on behavioral economics. Namely, we propose a procedure for eliciting the existence of a Nash equilibrium in an intrapersonal, potential game as well as randomized sign tests for dependent observations on game-theoretic models of affective decision making. This methodology is illustrated in the context of a hypothetical experiment — the Casino Game.
Economic Transition And Growth, Peter C.B. Phillips, Donggyu Sul
Economic Transition And Growth, Peter C.B. Phillips, Donggyu Sul
Cowles Foundation Discussion Papers
Some extensions of neoclassical growth models are discussed that allow for cross section heterogeneity among economies and evolution in rates of technological progress over time. The models offer a spectrum of transitional behavior among economies that includes convergence to a common steady state path as well as various forms of transitional divergence and convergence. Mechanisms for modeling such transitions and measuring them econometrically are developed in the paper. A new regression test of convergence is proposed, its asymptotic properties are derived and some simulations of its finite sample properties are reported. Transition curves for individual economies and subgroups of economies …
Gmm With Many Moment Conditions, Chirok Han, Peter C.B. Phillips
Gmm With Many Moment Conditions, Chirok Han, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper provides a first order asymptotic theory for generalized method of moments (GMM) estimators when the number of moment conditions is allowed to increase with the sample size and the moment conditions may be weak. Examples in which these asymptotics are relevant include instrumental variable (IV) estimation with many (possibly weak or uninformed) instruments and some panel data models covering moderate time spans and with correspondingly large numbers of instruments. Under certain regularity conditions, the GMM estimators are shown to converge in probability but not necessarily to the true parameter, and conditions for consistent GMM estimation are given. A …
A Note On A ‘Square-Root Rule’ For Reinsurance, Michael R. Powers, Martin Shubik
A Note On A ‘Square-Root Rule’ For Reinsurance, Michael R. Powers, Martin Shubik
Cowles Foundation Discussion Papers
In previous work, the current authors derived a mathematical expression for the optimal (or “saturation”) number of reinsurers for a given number of primary insurers (see Powers and Shubik, 2001). In the current paper, we show analytically that, for large numbers of primary insurers, this mathematical expression provides a “square-root rule”; i.e., the optimal number of reinsurers in a market is given asymptotically by the square root of the total number of primary insurers. We note further that an analogous “fourth-root rule” applies to markets for retrocession (the reinsurance of reinsurance).
Sign Tests For Dependent Observations And Bounds For Path-Dependent Options, Rustam Ibragimov, Donald J. Brown
Sign Tests For Dependent Observations And Bounds For Path-Dependent Options, Rustam Ibragimov, Donald J. Brown
Cowles Foundation Discussion Papers
The present paper introduces new sign tests for testing for conditionally symmetric martingale-difference assumptions as well as for testing that conditional distributions of two (arbitrary) martingale-difference sequences are the same. Our analysis is based on the results that demonstrate that randomization over zero values of three-valued random variables in a conditionally symmetric martingale-difference sequence produces a stream of i.i.d. symmetric Bernoulli random variables and thus reduces the problem of estimating the critical values of the tests to computing the quantiles or moments of Binomial or normal distributions. The same is the case for randomization over ties in sign tests for …
Overcoming Participation Constraints, Hanming Fang, Peter Norman
Overcoming Participation Constraints, Hanming Fang, Peter Norman
Cowles Foundation Discussion Papers
In incomplete information environments with transferable utility, efficient outcomes are generally implementable unless interim or ex post participation constraints are imposed on the problem. In this paper we show that linking a sufficiently large number of independent but possibly unrelated social decisions, a slightly perturbed Groves mechanism can implement an efficient outcome with probability arbitrarily close to one, while respecting all participation, incentive and balanced budget constraints.
Overcoming Participation Constraints, Hanming Fang, Peter Norman
Overcoming Participation Constraints, Hanming Fang, Peter Norman
Cowles Foundation Discussion Papers
This paper shows that linking a sufficiently large number of independent but unrelated social decisions can achieve approximate efficiency. We provide regularity conditions under which a Groves mechanism amended with a veto game implements an efficient outcome with probability arbitrarily close to one, and satisfies interim participation, incentive and resource constraints.
Intergenerational Justice And Sustainability Under The Leximin Ethic, John E. Roemer
Intergenerational Justice And Sustainability Under The Leximin Ethic, John E. Roemer
Cowles Foundation Discussion Papers
We model an intergenerational society, with a representative agent at each date, who must deplete a renewable resource, from which he derives utility, to produce consumption goods. We adopt the intergenerational lexicographic minimum as the social welfare function. Initially, technological progress is assumed to exist exogenously. We study the technological requirements for the leximin solution to support non-decreasing welfare over time, and a non-decreasing level of the natural resource. Three utility functions are studied. With a CES utility function, possessing less substitutability than the Cobb-Douglas, the leximin solution involves increasing utilities over time and an increasing size of the natural …
Ex Post Implementation, Dirk Bergemann, Stephen Morris
Ex Post Implementation, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
We analyze the problem of fully implementing a social choice set in ex post equilibrium. We identify an ex post monotonicity condition that is necessary and — in economic environments — sufficient for full implementation in ex post equilibrium. We also identify an ex post monotonicity no veto condition that is sufficient. Ex post monotonicity is satisfied in all single crossing environments with strict ex post incentive constraints. In many economically significant environments, ex post implementation can be achieved in the direct mechanism. We show by means of two classic examples that ex post monotonicity does not imply nor is …
Flexibility As An Instrument In Digital Rights Management, Dirk Bergemann, Thomas Eisenbach, Joan Feigenbaum, Scott Shenker
Flexibility As An Instrument In Digital Rights Management, Dirk Bergemann, Thomas Eisenbach, Joan Feigenbaum, Scott Shenker
Cowles Foundation Discussion Papers
We consider the optimal design of flexible use in a digital-rights-management policy. The basic model considers a single distributor of digital goods and a continuum of consumers. Each consumer can acquire the digital good either as a licensed product or an unlicensed copy. The availability of (or access to) unlicensed copies is increasing both in the number of licensed copies and in the flexibility accorded to licensed copies. We thus analyze the optimal design of flexibility in the presence of unlicensed distribution channels (the “greynet”). We augment the basic model by introducing a “secure platform” that is required to use …
Aggregation Of Expert Opinions, Dino Gerardi, Richard P. Mclean, Andrew Postlewaite
Aggregation Of Expert Opinions, Dino Gerardi, Richard P. Mclean, Andrew Postlewaite
Cowles Foundation Discussion Papers
Conflicts of interest arise between a decision maker and agents who have information pertinent to the problem because of differences in their preferences over outcomes. We show how the decision maker can extract the information by distorting the decisions that will be taken, and show that only slight distortions will be necessary when agents are “informationally small”. We further show that as the number of informed agents becomes large the necessary distortion goes to zero. We argue that the particular mechanisms analyzed are substantially less demanding informationally than those typically employed in implementation and virtual implementation. In particular, the equilibria …
Commodity Money And The Valuation Of Trade, Eric Smith, Martin Shubik
Commodity Money And The Valuation Of Trade, Eric Smith, Martin Shubik
Cowles Foundation Discussion Papers
In a previous essay we modeled the enforcement of contract, and through it the provision of money and markets, as a production function within the society, the scale of which is optimized endogenously by labor allocation away from primary production of goods. Government and a central bank provided fiat money and enforced repayment of loans, giving fiat a predictable value in trade, and also rationalizing the allocation of labor to government service, in return for a fiat salary. Here, for comparison, we consider the same trade problem without government or fiat money, using instead a durable good (gold) as a …
Courage To Capital? A Model Of The Effects Of Rating Agencies On Sovereign Debt Roll-Over, Mark A. Carlson, Galina Hale
Courage To Capital? A Model Of The Effects Of Rating Agencies On Sovereign Debt Roll-Over, Mark A. Carlson, Galina Hale
Cowles Foundation Discussion Papers
We propose a model of rating agencies that is an application of global game theory in which heterogeneous investors act strategically. The model allows us to explore the impact of the introduction of a rating agency on financial markets. Our model suggests that the addition of the rating agency affects the probability of default and the magnitude of the response of capital flows to changes in fundamentals in a non–trivial way, and that introducing a rating agency can bring multiple equilibria to a market that otherwise would have the unique equilibrium.
The Life-Cycle Personal Accounts Proposal For Social Security: An Evaluation, Robert J. Shiller
The Life-Cycle Personal Accounts Proposal For Social Security: An Evaluation, Robert J. Shiller
Cowles Foundation Discussion Papers
The life-cycle accounts proposal for Social Security reform has been justified by its proponents using a number of different arguments, but these arguments generally involve the assumption of a high likelihood of good returns on the accounts. A simulation is undertaken to estimate the probability distribution of returns in the accounts based on long-term historical experience. U.S. stock market, bond market and money market data 1871-2004 are used for the analysis. Assuming that future returns behave like historical data, it is found that a baseline personal account portfolio after offset will be negative 32% of the time on the retirement …
The Nonparametric Approach To Applied Welfare Analysis, Donald J. Brown, Caterina Calsamiglia
The Nonparametric Approach To Applied Welfare Analysis, Donald J. Brown, Caterina Calsamiglia
Cowles Foundation Discussion Papers
Changes in total surplus and deadweight loss are traditional measures of economic welfare. We propose necessary and sufficient conditions for rationalizing consumer demand data with a quasilinear utility function. Under these conditions, consumer surplus is a valid measure of consumer welfare. For nonmarketed goods, we propose necessary and sufficient conditions on market data for efficient production , i.e., production at minimum cost. Under these conditions we derive a cost function for the nonmarketed good, where producer surplus is the area above the marginal cost curve.
Decision Methods For Solving Systems Of Walrasian Inequalities, Donald J. Brown, Ravi Kannan
Decision Methods For Solving Systems Of Walrasian Inequalities, Donald J. Brown, Ravi Kannan
Cowles Foundation Discussion Papers
We propose two algorithms for deciding if systems of Walrasian inequalities are solvable. These algorithms may serve as nonparametric tests for multiple calibration of applied general equilibrium models or they can be used to compute counterfactual equilibria in applied general equilibrium models defined by systems of Walrasian inequalities.
Two Algorithms For Solving The Walrasian Equilibrium Inequalities, Donald J. Brown, Ravi Kannan
Two Algorithms For Solving The Walrasian Equilibrium Inequalities, Donald J. Brown, Ravi Kannan
Cowles Foundation Discussion Papers
We propose two algorithms for deciding if the Walrasian equilibrium inequalities are solvable. These algorithms may serve as nonparametric tests for multiple calibration of applied general equilibrium models or they can be used to compute counterfactual equilibria in applied general equilibrium models defined by the Walrasian equilibrium inequalities.
Fiat Money And The Natural Scale Of Government, Martin Shubik, Eric Smith
Fiat Money And The Natural Scale Of Government, Martin Shubik, Eric Smith
Cowles Foundation Discussion Papers
The competitive market structure of a decentralized economy is converted into a self-policing system treating the bureaucracy and enforcement of the legal system endogenously. In particular we consider money systems as constructs to make agents’ economic strategies predictable from knowledge of their preferences and endowments, and thus to support coordinated resource production and distribution from independent decision making. Diverse rule systems can accomplish this, and we construct minimal strategic market games representing government-issued fiat money and ideal commodity money as two cases. We endogenize the provision of money and rules for its use as productive activities within the society, and …
Exactly Distribution-Free Inference In Instrumental Variables Regression With Possibly Weak Instruments, Donald W.K. Andrews, Vadim Marmer
Exactly Distribution-Free Inference In Instrumental Variables Regression With Possibly Weak Instruments, Donald W.K. Andrews, Vadim Marmer
Cowles Foundation Discussion Papers
This paper introduces a rank-based test for the instrumental variables regression model that dominates the Anderson-Rubin test in terms of finite sample size and asymptotic power in certain circumstances. The test has correct size for any distribution of the errors with weak or strong instruments. The test has noticeably higher power than the Anderson-Rubin test when the error distribution has thick tails and comparable power otherwise. Like the Anderson-Rubin test, the rank tests considered here perform best, relative to other available tests, in exactly-identified models.
Sparse Estimators And The Oracle Property, Or The Return Of Hodges’ Estimator, Hannes Leeb, Benedikt M. Pötscher
Sparse Estimators And The Oracle Property, Or The Return Of Hodges’ Estimator, Hannes Leeb, Benedikt M. Pötscher
Cowles Foundation Discussion Papers
We point out some pitfalls related to the concept of an oracle property as used in Fan and Li (2001, 2002, 2004) which are reminiscent of the well-known pitfalls related to Hodges’ estimator. The oracle property is often a consequence of sparsity of an estimator. We show that any estimator satisfying a sparsity property has maximal risk that converges to the supremum of the loss function; in particular, the maximal risk diverges to infinity when ever the loss function is unbounded. For ease of presentation the result is set in the framework of a linear regression model, but generalizes far …
Behavioral Economics And Institutional Innovation, Robert J. Shiller
Behavioral Economics And Institutional Innovation, Robert J. Shiller
Cowles Foundation Discussion Papers
Behavioral economics has played a fundamental role historically in innovation in economic institutions, even long before behavioral economics was recognized as a discipline. Examples from history, notably that of the invention of workers’ compensation, illustrate this point. Though scholarly discussion develops over decades, actual innovation tends to occur episodically, particularly at times of economic crisis. Fortunately, some of the major professional societies, the Verein für Sozialpolitik, the American Economic Association and their successors, have managed to keep a broad discourse going, involving a variety of research methods including some that may be described today as behavioral economics, thereby maintaining an …
Policy Effects In The Post Boom U.S. Economy, Ray C. Fair
Policy Effects In The Post Boom U.S. Economy, Ray C. Fair
Cowles Foundation Discussion Papers
The paper analyzes the question why the U.S. economy in the 2000:4-2004:3 period was sluggish in light of the large expansionary fiscal and monetary policies that took place. The answer does not appear to be that there were large structural changes in the economy or systematic bad shocks. This paper tests for such changes and shocks, and the results are generally negative. Instead, the main culprits seem to be large negative effects from declines in the stock market and exports. Although not tested in this paper, some of the decline in exports may be the result of the stock market …
The Demand For Information: More Heat Than Light, Jussi Keppo, Giuseppe Moscarini, Lones Smith
The Demand For Information: More Heat Than Light, Jussi Keppo, Giuseppe Moscarini, Lones Smith
Cowles Foundation Discussion Papers
This paper produces a comprehensive theory of the value of Bayesian information and its static demand. Our key insight is to assume ‘natural units’ corresponding to the sample size of conditionally i.i.d. signals – focusing on the smooth nearby model of the precision of an observation of a Brownian motion with uncertain drift. In a two state world, this produces the heat equation from physics, and leads to a tractable theory. We derive explicit formulas that harmonize the known small and large sample properties of information, and reveal some fundamental properties of demand: (a) Value ‘non-concavity’: The marginal value of …
Predicting Electoral College Victory Probabilities From State Probability Data, Ray C. Fair
Predicting Electoral College Victory Probabilities From State Probability Data, Ray C. Fair
Cowles Foundation Discussion Papers
A method is proposed in this paper for predicting Electoral College victory probabilities from state probability data. A “ranking” assumption about dependencies across states is made that greatly simplifies the analysis. The method issued to analyze state probability data from the Intrade political betting market. The Intrade prices of various contracts are quite close to what would be expected under the ranking assumption. Under the joint hypothesis that the Intrade price ranking is correct and the ranking assumption is correct, President Bush should not have won any state ranked below a state that he lost. He did not win any …