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Articles 1981 - 2010 of 3476
Full-Text Articles in Economics
The Edgeworth, Cournot And Walrasian Cores Of An Economy, Martin Shubik
The Edgeworth, Cournot And Walrasian Cores Of An Economy, Martin Shubik
Cowles Foundation Discussion Papers
Three variations of the core of a market game representing an exchange economy are considered and compared. The possibility for utilizing the Walrasian core to reflect certain monetary phenomena is noted.
An Efficiency Rationale For Bundling Of Public Goods, Hanming Fang, Peter Norman
An Efficiency Rationale For Bundling Of Public Goods, Hanming Fang, Peter Norman
Cowles Foundation Discussion Papers
This paper studies the role of bundling in the efficient provision of excludable public goods. We show that bundling in the provision of unrelated public goods can enhance social welfare. With a large number of goods and agents, first best can be approximated with pure bundling. For a parametric class of problems with binary valuations, we characterize the optimal mechanism, and show that bundling alleviates the free riding problem in large economies and decreases the extent of use exclusions. Both results are related to the idea that bundling makes it possible to reduce the incidence of exclusions because the variance …
The Invention Of Inflation-Indexed Bonds In Early America, Robert J. Shiller
The Invention Of Inflation-Indexed Bonds In Early America, Robert J. Shiller
Cowles Foundation Discussion Papers
The world’s first known inflation-indexed bonds were issued by the Commonwealth of Massachusetts in 1780 during the Revolutionary War. These bonds were invented to deal with severe wartime inflation and with angry discontent among soldiers in the U.S. Army with the decline in purchasing power of their pay. Although the bonds were successful, the concept of indexed bonds was abandoned after the immediate extreme inflationary environment passed, and largely forgotten until the twentieth century. In 1780, the bonds were viewed as at best only an irregular expedient, since there was no formulated economic theory to justify indexation.
Optimal Provision Of Multiple Excludable Public Goods, Hanming Fang, Peter Norman
Optimal Provision Of Multiple Excludable Public Goods, Hanming Fang, Peter Norman
Cowles Foundation Discussion Papers
This paper studies the optimal provision mechanism for multiple excludable public goods when agents’ valuations are private information. For a parametric class of problems with binary valuations, we characterize the optimal mechanism, and show that it involves bundling. Bundling alleviates the free riding problem in large economies in two ways: first, it can increase the asymptotic provision probability of socially efficient public goods from zero to one; second, it decreases the extent of use exclusions.
A Double Auction Market: Teaching, Experiment And Theory, Martin Shubik
A Double Auction Market: Teaching, Experiment And Theory, Martin Shubik
Cowles Foundation Discussion Papers
A simultaneous double auction market with bid and offer cards was utilized in classes on the theory and history of money and financial institutions and occasionally in classes on the theory of games. The prime purpose in using this game was to teach the students how to construct process models of economic phenomena. The second purpose was to consider the properties of the double auction market. The third purpose was to interpret the experimental results an link them to theory.
Risk And Wealth In A Model Of Self-Fulfilling Currency Attacks, Bernardo Guimarães, Stephen Morris
Risk And Wealth In A Model Of Self-Fulfilling Currency Attacks, Bernardo Guimarães, Stephen Morris
Cowles Foundation Discussion Papers
We analyze the effect of risk aversion, wealth and portfolios on the behavior of investors in a global game model of currency crises with continuous action choices. The model generates a rich set of striking theoretical predictions. For example, risk aversion makes currency crises significantly less likely; increased wealth makes crises more likely; and foreign direct investment (illiquid investments in the target currency) make crises more likely. Our results extend linearly to a heterogeneous agent population.
Liquidity Black Holes, Stephen Morris, Hyun Song Shin
Liquidity Black Holes, Stephen Morris, Hyun Song Shin
Cowles Foundation Discussion Papers
Traders with short horizons and privately known trading limits interact in a market for a risky asset. Risk-averse, long horizon traders supply a downward sloping residual demand curve that face the short-horizon traders. When the price falls close to the trading limits of the short horizon traders, selling of the risky asset by any trader increases the incentives for others to sell. Sales become mutually reinforcing among the short term traders, and payoffs analogous to a bank run are generated. A “liquidity black hole” is the analogue of the run outcome in a bank run model. Short horizon traders sell …
Prewhitening Bias In Hac Estimation, Donggyu Sul, Peter C.B. Phillips, Chi-Young Choi
Prewhitening Bias In Hac Estimation, Donggyu Sul, Peter C.B. Phillips, Chi-Young Choi
Cowles Foundation Discussion Papers
HAC estimation commonly involves the use of prewhitening filters based on simple autoregressive models. In such applications, small sample bias in the estimation of autoregressive coefficients is transmitted to the recoloring filter, leading to HAC variance estimates that can be badly biased. The present paper provides an analysis of these issues using asymptotic expansions and simulations. The approach we recommend involves the use of recursive demeaning procedures that mitigate the effects of small sample autoregressive bias. Moreover, a commonly-used restriction rule on the prewhitening estimates (that first order autoregressive coefficient estimates, or largest eigenvalues, greater than 0.97 be replaced by …
Long Run Variance Estimation Using Steep Origin Kernels Without Truncation, Peter C.B. Phillips, Yixiao Sun, Sainan Jin
Long Run Variance Estimation Using Steep Origin Kernels Without Truncation, Peter C.B. Phillips, Yixiao Sun, Sainan Jin
Cowles Foundation Discussion Papers
A new class of kernel estimates is proposed for long run variance (LRV) and heteroskedastic autocorrelation consistent (HAC) estimation. The kernels are called steep origin kernels and are related to a class of sharp origin kernels explored by the authors (2003) in other work. They are constructed by exponentiating a mother kernel (a conventional lag kernel that is smooth at the origin) and they can be used without truncation or bandwidth parameters. When the exponent is passed to infinity with the sample size, these kernels produce consistent LRV/HAC estimates. The new estimates are shown to have limit normal distributions, and …
On The Empirical Content Of Quantal Response Equilibrium, Philip A. Haile, Ali Hortaçsu, Grigory Kosenok
On The Empirical Content Of Quantal Response Equilibrium, Philip A. Haile, Ali Hortaçsu, Grigory Kosenok
Cowles Foundation Discussion Papers
The quantal response equilibrium (QRE) notion of McKelvey and Palfrey (1995) has recently attracted considerable attention, due largely to its widely documented ability to rationalize observed behavior in games played by experimental subjects. We show that this ability to fit the data, as typically measured in this literature, is uninformative. Without a priori distributional assumptions, a QRE can match any distribution of behavior by each player in any normal form game. We discuss approaches that might be taken to provide valid empirical evaluation of the QRE and discuss its potential value as an approximating empirical structure.
Risk And Wealth In A Model Of Self-Fulfilling Currency Attacks, Bernardo Guimarães, Stephen Morris
Risk And Wealth In A Model Of Self-Fulfilling Currency Attacks, Bernardo Guimarães, Stephen Morris
Cowles Foundation Discussion Papers
Market participants’ risk attitudes, wealth and portfolio composition influence their positions in a pegged foreign currency and, therefore, may have important effects on the sustainability of currency pegs. We analyze such effects in a global game model of currency crises with continuous action choices. The model, solved in closed form, generates a rich set of theoretical predictions consistent with many popular and academic (unmodelled) speculations about the onset and timing of currency crises. The results extend linearly to a heterogeneous agent population.
Incidental Trends And The Power Of Panel Unit Root Tests, Hyungsik Roger Moon, Benoit Perron, Peter C.B. Phillips
Incidental Trends And The Power Of Panel Unit Root Tests, Hyungsik Roger Moon, Benoit Perron, Peter C.B. Phillips
Cowles Foundation Discussion Papers
The asymptotic local powers of various panel unit root tests are investigated. The power envelope is obtained under homogeneous and heterogeneous alternatives. It is compared with asymptotic power functions of the pooled t -test, the Ploberger–Phillips (2002) test, and a point optimal test in neighborhoods of unity that are of order n –1/ 4 T –1 and n –1/ 2 T –1 , depending on whether or not incidental trends are extracted from the panel data. In the latter case, when the alternative hypothesis is homogeneous across individuals, it is shown that the point optimal test and Ploberger–Phillips test both …
Bias In Dynamic Panel Estimation With Fixed Effects, Incidental Trends And Cross Section Dependence, Peter C.B. Phillips, Donggyu Sul
Bias In Dynamic Panel Estimation With Fixed Effects, Incidental Trends And Cross Section Dependence, Peter C.B. Phillips, Donggyu Sul
Cowles Foundation Discussion Papers
Explicit asymptotic bias formulae are given for dynamic panel regression estimators as the cross section sample size N → ∞. The results extend earlier work by Nickell (1981) and later authors in several directions that are relevant for practical work, including models with unit roots, deterministic trends, predetermined and exogenous regressors, and errors that may be cross sectionally dependent. The asymptotic bias is found to be so large when incidental linear trends are fitted and the time series sample size is small that it changes the sign of the autoregressive coefficient. Another finding of interest is that, when there is …
On The Empirical Content Of Quantal Response Equilibrium, Philip A. Haile, Ali Hortaçsu, Grigory Kosenok
On The Empirical Content Of Quantal Response Equilibrium, Philip A. Haile, Ali Hortaçsu, Grigory Kosenok
Cowles Foundation Discussion Papers
The quantal response equilibrium (QRE) notion of McKelvey and Palfrey (1995) has recently attracted considerable attention, due in part to its widely documented ability to rationalize observed behavior in games played by experimental subjects. However, even with strong a priori restrictions on unobservables, QRE imposes no falsifiable restrictions: it can rationalize any distribution of behavior in any normal form game. After demonstrating this, we discuss several approaches to testing QRE under additional maintained assumptions.
Missing Aggregate Dynamics: On The Slow Convergence Of Lumpy Adjustment Models, Ricardo J. Caballero, Eduardo Engel
Missing Aggregate Dynamics: On The Slow Convergence Of Lumpy Adjustment Models, Ricardo J. Caballero, Eduardo Engel
Cowles Foundation Discussion Papers
The dynamic response of aggregate variables to shocks is one of the central concerns of applied macroeconomics. The main measurement procedure for these dynamics consists of estimating an ARMA or VAR (VARs, for short). In non- or semi-structural approaches, the characterization of dynamics stops there. In other, more structural approaches, researcher try to uncover underlying adjustment cost parameters from the estimated VARs. Yet, in others, such as in RBC models, these estimates are used as the benchmark over which the success of the calibration exercise, and the need for further theorizing, is assessed. The main point of this paper is …
Uniqueness Of Equilibrium In The Multi-Country Ricardo Model, Herbert E. Scarf, Charles A. Wilson
Uniqueness Of Equilibrium In The Multi-Country Ricardo Model, Herbert E. Scarf, Charles A. Wilson
Cowles Foundation Discussion Papers
We present two arguments, one based on index theory, demonstrating that the multi-country Ricardo model has a unique competitive equilibrium if the aggregate demand functions exhibit gross substitutability. The result is somewhat surprising because the assumption of gross substitutability is sufficient for uniqueness in a model of exchange but not, in general, when production is included in the model.
The Ideal Inflation Indexed Bond And Irving Fisher's Impatience Theory Of Interest In An Overlapping Generations World, John Geanakoplos
The Ideal Inflation Indexed Bond And Irving Fisher's Impatience Theory Of Interest In An Overlapping Generations World, John Geanakoplos
Cowles Foundation Discussion Papers
Irving Fisher long advocated inflation indexed bonds. I prove in the context of a multicommodity CAPM world that the best welfare improving bond pays the minimum money needed to achieve the same utility, and not the minimum needed to buy an ideal commodity bundle. Irving Fisher also developed and advocated the impatience theory of interest. But in OLG economies, the rate of interest is determined by population growth, not impatience. I reconcile this contradiction by proving that in stationary OLG economies with land, the interest rate at the unique steady state does depend on impatience. Indeed, the proposition that greater …
The Inflationary Bias Of Real Uncertainty And The Harmonic Fisher Equation, Ioannis Karatzas, Martin Shubik, William D. Sudderth, John Geanakoplos
The Inflationary Bias Of Real Uncertainty And The Harmonic Fisher Equation, Ioannis Karatzas, Martin Shubik, William D. Sudderth, John Geanakoplos
Cowles Foundation Discussion Papers
Arrow’s original proof of his impossibility theorem proceeded in two steps: showing the existence of a decisive voter, and then showing that a decisive voter is a dictator. Barbera replaced the decisive voter with the weaker notion of a pivotal voter, thereby shortening the first step, but complicating the second step. I give three brief proofs, all of which turn on replacing the decisive/pivotal voter with an extremely pivotal voter (a voter who by unilaterally changing his vote can move some alternative from the bottom of the social ranking to the top), thereby simplifying both steps in Arrow’s proof. My …
The Computation Of Counterfactual Equilibria In Homothetic Walrasian Economies, Donald J. Brown, Ravi Kannan
The Computation Of Counterfactual Equilibria In Homothetic Walrasian Economies, Donald J. Brown, Ravi Kannan
Cowles Foundation Discussion Papers
We propose a nonparametric test for multiple calibration of numerical general equilibrium models, and we present an effective algorithm for computing counterfactual equilibria in homothetic Walrasian economies, where counterfactual equilibria are solutions to the Walrasian inequalities.
The Harmonic Fisher Equation And The Inflationary Bias Of Real Uncertainty, Ioannis Karatzas, Martin Shubik, William D. Sudderth, John Geanakoplos
The Harmonic Fisher Equation And The Inflationary Bias Of Real Uncertainty, Ioannis Karatzas, Martin Shubik, William D. Sudderth, John Geanakoplos
Cowles Foundation Discussion Papers
The classical Fisher equation asserts that in a nonstochastic economy, the inflation rate must equal the difference between the nominal and real interest rates. We extend this equation to a representative agent economy with real uncertainty in which the central bank sets the nominal rate of interest. The Fisher equation still holds, but with the rate of inflation replaced by the harmonic mean of the growth rate of money. Except for logarithmic utility, we show that on almost every path the long-run rate of inflation is strictly higher than it would be in the nonstochastic world obtained by replacing output …
Indeterminacy, Nonparametric Calibration And Counterfactual Equilibria, Donald J. Brown, Ravi Kannan
Indeterminacy, Nonparametric Calibration And Counterfactual Equilibria, Donald J. Brown, Ravi Kannan
Cowles Foundation Discussion Papers
We propose a nonparametric approach to multiple calibration of numerical general equilibrium models, where counterfactual equilibria are solutions to the Walrasian inequalities. We present efficient approximation schemes for deciding the solvability of Walrasian inequalities.
Real Determinacy With Nominal Assets, Pradeep Dubey, John Geanakoplos
Real Determinacy With Nominal Assets, Pradeep Dubey, John Geanakoplos
Cowles Foundation Discussion Papers
We build a finite horizon model with inside and outside money, in which interest rates, price levels and commodity allocations are determinate, even though asset markets are incomplete and asset deliveries are purely nominal.
Determinacy With Nominal Assets And Outside Money, Pradeep Dubey, John Geanakoplos
Determinacy With Nominal Assets And Outside Money, Pradeep Dubey, John Geanakoplos
Cowles Foundation Discussion Papers
We build a finite horizon model with inside and outside money, in which interest rates, price levels and commodity allocations are determinate, even though asset markets are incomplete and asset deliveries are purely nominal.
Cross-Section Regression With Common Shocks, Donald W.K. Andrews
Cross-Section Regression With Common Shocks, Donald W.K. Andrews
Cowles Foundation Discussion Papers
This paper considers regression models for cross-section data that exhibit cross-section dependence due to common shocks, such as macroeconomic shocks. The paper analyzes the properties of least squares (LS) and instrumental variables (IV) estimators in this context. The results of the paper allow for any form of cross-section dependence and heterogeneity across population units. The probability limits of the LS and IV estimators are determined and necessary and sufficient conditions are given for consistency. The asymptotic distributions of the estimators are found to be mixed normal after re-centering and scaling. t , Wald, and F statistics are found to have …
Two New Proofs Of Afriat's Theorem, Ana Fostel, Herbert E. Scarf, Michael J. Todd
Two New Proofs Of Afriat's Theorem, Ana Fostel, Herbert E. Scarf, Michael J. Todd
Cowles Foundation Discussion Papers
We provide two new, simple proofs of Afriat’s celebrated theorem stating that a finite set of price-quantity observations is consistent with utility maximization if, and only if, the observations satisfy a variation of the Strong Axiom of Revealed Preference known as the Generalized Axiom of Revealed Preference.
Robust Mechanism Design, Dirk Bergemann, Stephen Morris
Robust Mechanism Design, Dirk Bergemann, Stephen Morris
Cowles Foundation Discussion Papers
The mechanism design literature assumes too much common knowledge of the environment among the players and planner. We relax this assumption by studying implementation on richer type spaces. We ask when ex post implementation is equivalent to interim (or Bayesian) implementation for all possible type spaces. The equivalence holds in the case of separable environments; examples of separable environments arise (1) when the planner is implementing a social choice function (not correspondence); and (2) in a quasilinear environment with no restrictions on transfers. The equivalence fails in general, including in some quasilinear environments with budget balance. In private value environments, …
On Houseswapping, The Strict Core, Segmentation, And Linear Programming, Thomas Quint, Jun Wako
On Houseswapping, The Strict Core, Segmentation, And Linear Programming, Thomas Quint, Jun Wako
Cowles Foundation Discussion Papers
We consider the n-player houseswapping game of Shapley-Scarf (1974), with indifferences in preferences allowed. It is well-known that the strict core of such a game may be empty, single-valued, or multivalued. We define a condition on such games called “segmentability”, which means that the set of players can be partitioned into a “top trading segmentation.” It generalizes Gale’s well-known idea of the partition of players into “top trading cycles” (which is used to find the unique strict core allocation in the model with no indifference). We prove that a game has a nonempty strict core if and only if it …
Consistent Estimation With A Large Number Of Weak Instruments, John C. Chao, Norman R. Swanson
Consistent Estimation With A Large Number Of Weak Instruments, John C. Chao, Norman R. Swanson
Cowles Foundation Discussion Papers
This paper conducts a general analysis of the conditions under which consistent estimation can be achieved in instrumental variables regression when the available instruments are weak in the local-to-zero sense. More precisely, the approach adopted in this paper combines key features of the local-to-zero framework of Staiger and Stock (1997) and the many-instrument framework of Morimune (1983) and Bekker (1994) and generalizes both of these frameworks in the following ways. First, we consider a general local-to-zero framework which allows for an arbitrary degree of instrument weakness by modeling the first-stage coefficients as shrinking toward zero at an unspecified rate, say …
Alternative Approximations Of The Bias And Mse Of The Iv Estimator Under Weak Identification With An Application To Bias Correction, John C. Chao, Norman R. Swanson
Alternative Approximations Of The Bias And Mse Of The Iv Estimator Under Weak Identification With An Application To Bias Correction, John C. Chao, Norman R. Swanson
Cowles Foundation Discussion Papers
We provide analytical formulae for the asymptotic bias (ABIAS) and mean squared error (AMSE) of the IV estimator, and obtain approximations thereof based on an asymptotic scheme which essentially requires the expectation of the first stage F -statistic to converge to a finite (possibly small) positive limit as the number of instruments approaches infinity. The approximations so obtained are shown, via regression analysis, to yield good approximations for ABIAS and AMSE functions, and the AMSE approximation is shown to perform well relative to the approximation of Donald and Newey (2001). Additionally, the manner in which our framework generalizes that of …
Structure, Clearinghouses And Symmetry, Martin Shubik, Eric Smith
Structure, Clearinghouses And Symmetry, Martin Shubik, Eric Smith
Cowles Foundation Discussion Papers
We introduce and justify a taxonomy for the structure of markets and minimal institutions which appear in constructing minimally complex trading structures to perform the functions of price formation, settlement and payments. Each structure is presented as a playable strategic market game and is examined for its efficiency, the number of degrees of freedom and the symmetry properties of the structure.