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Articles 2011 - 2040 of 3476
Full-Text Articles in Economics
Strategic Freedom, Constraint And Symmetry In One-Period Markets With Cash And Credit Payment, Martin Shubik, Eric Smith
Strategic Freedom, Constraint And Symmetry In One-Period Markets With Cash And Credit Payment, Martin Shubik, Eric Smith
Cowles Foundation Discussion Papers
In order to explain in a systematic way why certain combinations of market, financial, and legal structures may be intrinsic to certain capabilities to exchange real goods, we introduce criteria for abstracting the qualitative functions of markets. The criteria involve the number of strategic freedoms the combined institutions, considered as formalized strategic games, present to traders, the constraints they impose, and the symmetry with which those constraints are applied to the traders. We pay particular attention to what is required to make these “strategic market games” well-defined, and to make various solutions computable by the agents within the bounds on …
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, with more higher order uncertainty. We study the “ex post equivalence” question: when is interim implementation on all possible type spaces equivalent to requiring ex post implementation on the space of payoff types? We show that ex post equivalence holds when the social choice correspondence is a function and in simple quasi-linear environments. When ex post equivalence holds, we identify how large the type space must be to obtain the equivalence. We …
Moral Hazard, Hanming Fang, Giuseppe Moscarini
Moral Hazard, Hanming Fang, Giuseppe Moscarini
Cowles Foundation Discussion Papers
We interpret workers’ confidence in their own skills as their morale, and investigate the implication of worker overconfidence on the firm’s optimal wage-setting policies. In our model, wage contracts both provide incentives and affect worker morale, by revealing private information of the firm about worker skills. We provide conditions for the non-differentiation wage policy to be profit-maximizing. In numerical examples, worker overconfidence is a necessary condition for the firm to prefer no wage differentiation, so as to preserve some workers’ morale; the non-differentiation wage policy itself breeds more worker overconfidence; finally, wage compression is more likely when aggregate productivity is …
Multidimensional Private Value Auctions, Hanming Fang, Stephen Morris
Multidimensional Private Value Auctions, Hanming Fang, Stephen Morris
Cowles Foundation Discussion Papers
We consider parametric examples of two-bidder private value auctions in which each bidder observes her own private valuation as well as noisy signals about her opponent’s private valuation. In such multidimensional private value auction environments, we show that the revenue equivalence between the first and second price auctions breaks down and there is no definite revenue ranking; while the second price auction is always efficient allocatively, the first price auction may be inefficient and the inefficiency may increase as the signal becomes more informative; equilibria may fail to exist for the first price auction. We also show that auction mechanisms …
Fundamental R&D Spillovers And The Internationalization Of A Firm's Research Activities, Bernard Franck, Robert Owen
Fundamental R&D Spillovers And The Internationalization Of A Firm's Research Activities, Bernard Franck, Robert Owen
Cowles Foundation Discussion Papers
A conceptual framework is proposed for analyzing how differences in national R&D stocks can impact on a firm’s decision to internationalize its R&D activities. A central finding is that the integration of product markets can generate an added incentive to undertake R&D abroad. A three-stage analysis of a non-cooperative game is proposed, which entails cost-reducing process innovation in an international model of duopoly. Each firm’s technological efficiency depends not only on its investment in applied R&D, but also on its absorption of domestic and foreign fundamental R&D, as well as the extent to which the latter are substitutes or complements. …
Dynamic Price Competition, Dirk Bergemann, Juuso Välimäki
Dynamic Price Competition, Dirk Bergemann, Juuso Välimäki
Cowles Foundation Discussion Papers
We consider the model of price competition for a single buyer among many sellers in a dynamic environment. The surplus from each trade is allowed to depend on the path of previous purchases, and as a result, the model captures phenomena such as learning by doing and habit formation in consumption characterize Markovian equilibria for finite and infinite horizon versions of the model and show that the stationary infinite horizon version of the model possesses an equilibrium where all the sellers receive an equilibrium payoff equal to their marginal contribution to the social welfare.
Market Bubbles And Wasteful Avoidance: Tax And Regulatory Constraints On Short Sales, Michael R. Powers, David M. Schizer, Martin Shubik
Market Bubbles And Wasteful Avoidance: Tax And Regulatory Constraints On Short Sales, Michael R. Powers, David M. Schizer, Martin Shubik
Cowles Foundation Discussion Papers
Although short sales make an important contribution to financial markets, this transaction faces legal constraints that do not govern long positions. In evaluating these constraints, other commentators, who are virtually all economists, have not focused rigorously enough on the precise contours of current law. Some short sale constraints are mischaracterized, while others are omitted entirely. Likewise, the existing literature neglects many strategies in which well advised investors circumvent these constraints; this avoidance may reduce the impact of short sale constraints on market prices, but may contribute to social waste in other ways. To fill these gaps in the literature, this …
On Local And Network Games, Thomas Quint, Martin Shubik
On Local And Network Games, Thomas Quint, Martin Shubik
Cowles Foundation Discussion Papers
The knowledge constraints and transactions costs imposed by geographical distance, network connections and time conspire to justify local behavior as a good approximation for global rationality. We consider a class of games to illustrate this relationship and raise some questions as to what constitutes a satisfactory solution concept.
Communication And Monetary Policy, Jeffrey Amato, Stephen Morris, Hyun Song Shin
Communication And Monetary Policy, Jeffrey Amato, Stephen Morris, Hyun Song Shin
Cowles Foundation Discussion Papers
One role of monetary policy is to coordinate expectations in the economy and greater transparency of monetary policy may lead to greater coordination. But if transparent monetary policy helps coordinate expectations, then it must also magnify mistakes.
Beauty Contests, Bubbles And Iterated Expectations In Asset Markets, Franklin Allen, Stephen Morris, Hyun Song Shin
Beauty Contests, Bubbles And Iterated Expectations In Asset Markets, Franklin Allen, Stephen Morris, Hyun Song Shin
Cowles Foundation Discussion Papers
In a financial market where traders are risk averse and short lived, and prices are noisy, asset prices today depend on the average expectation today of tomorrow’s price. Thus (iterating this relationship) the date 1 price equals the date 1 average expectation of the date 2 average expectation of the date 3 price. This will not in general equal the date 1 average expectation of the date 3 price. We show how this failure of the law of iterated expectations for average belief can help understand the role of higher order beliefs in a fully rational asset pricing model and …
Eclectic Distributional Ethics, John E. Roemer
Eclectic Distributional Ethics, John E. Roemer
Cowles Foundation Discussion Papers
Utilitarians, egalitarians, prioritarians, and sufficientarians each provide examples of situations demonstrating, often compellingly, that a sensible ethical observer must adopt their view and reject the others. We argue, to the contrary, that an attractive ethic is eclectic, in the sense of coinciding with these apparently different views in different regions of the space of social states.
Information Acquisition In Committees, Dino Gerardi, Leeat Yariv
Information Acquisition In Committees, Dino Gerardi, Leeat Yariv
Cowles Foundation Discussion Papers
The goal of this paper is to illustrate the significance of information acquisition in mechanism design. We provide a stark example of a mechanism design problem in a collective choice environment with information acquisition. We concentrate on committees that are comprised of agents sharing a common goal and having a joint task. Members of the committee decide whether to acquire costly information or not at the outset and are then asked to report their private information. The designer can choose the size of the committee, as well as the procedure by which it selects the collective choice, i.e., the correspondence …
Consistent Hac Estimation And Robust Regression Testing Using Sharp Origin Kernels With No Truncation, Peter C.B. Phillips, Yixiao Sun, Sainan Jin
Consistent Hac Estimation And Robust Regression Testing Using Sharp Origin Kernels With No Truncation, Peter C.B. Phillips, Yixiao Sun, Sainan Jin
Cowles Foundation Discussion Papers
A new family of kernels is suggested for use in heteroskedasticity and autocorrelation consistent (HAC) and long run variance (LRV) estimation and robust regression testing. The kernels are constructed by taking powers of the Bartlett kernel and are intended to be used with no truncation (or bandwidth) parameter. As the power parameter (ρ) increases, the kernels become very sharp at the origin and increasingly downweight values away from the origin, thereby achieving effects similar to a bandwidth parameter. Sharp origin kernels can be used in regression testing in much the same way as conventional kernels with no truncation, as suggested …
Political Equilibrium With Private Or/And Public Campaign Finance: A Comparison Of Institutions, John E. Roemer
Political Equilibrium With Private Or/And Public Campaign Finance: A Comparison Of Institutions, John E. Roemer
Cowles Foundation Discussion Papers
We propose a theory of party competition (two parties, single-issue) where citizens acquire party membership by contributing money to a party, and where a member’s influence on the policy taken by her party is proportional to her campaign contribution. The polity consists of informed and uninformed voters: only informed voters join parties, and the party campaign chest, the sum of its received contributions, is used to advertise and reach uninformed voters. Parties compete with each other strategically with respect to policy choice and advertising. We propose a definition of political equilibrium, in which party membership, citizen contributions, and parties’ policies …
Indeterminacy Of Citizen-Candidate Equilibrium, John E. Roemer
Indeterminacy Of Citizen-Candidate Equilibrium, John E. Roemer
Cowles Foundation Discussion Papers
In a citizen candidate equilibrium, there are n candidates each of whom announces a policy in a policy space of dimension d. Thus the policy equilibrium lives in a space of dimension nd . We show, in a canonical example, that the equilibrium manifold is generically of dimension nd . In particular, the set of equilibria contains an open set in T n .
Committee Design In The Presence Of Communication, Dino Gerardi, Leeat Yariv
Committee Design In The Presence Of Communication, Dino Gerardi, Leeat Yariv
Cowles Foundation Discussion Papers
The goal of this paper is to introduce communication in a collective choice environment with information acquisition. We concentrate on decision panels that are comprised of agents sharing a common goal and having a joint task. Members of the panel decide whether to acquire costly information or not, preceding the communication stage. We take a mechanism design approach and consider a designer who can choose the size of the decision panel, the procedure by which it selects the collective choice, and the communication protocol by which its members abide prior to casting their individual action choices. We characterize the solution …
End-Of-Sample Cointegration Breakdown Tests, Donald W.K. Andrews, Jae-Young Kim
End-Of-Sample Cointegration Breakdown Tests, Donald W.K. Andrews, Jae-Young Kim
Cowles Foundation Discussion Papers
This paper introduces tests for cointegration breakdown that may occur over a relatively short time period, such as at the end of the sample. The breakdown may be due to a shift in the cointegrating vector or due to a shift in the errors from being I (0) to being I (1). Tests are introduced based on the post-breakdown sum of squared residuals and the post-breakdown sum of squared reverse partial sums of residuals. Critical values are provided using a parametric subsampling method. The regressors in the model are taken to be arbitrary linear combinations of deterministic, stationary, and integrated …
The Strong Law Of Demand, Donald J. Brown, Caterina Calsamiglia
The Strong Law Of Demand, Donald J. Brown, Caterina Calsamiglia
Cowles Foundation Discussion Papers
We show that a demand function is derived from maximizing a quasilinear utility function subject to a budget constraint if and only if the demand function is cyclically monotone. On finite data sets consisting of pairs of market prices and consumption vectors, this result is equivalent to a solution of the Afriat inequalities where all the marginal utilities of income are equal. We explore the implications of these results for maximization of a random quasilinear utility function subject to a budget constraint and for representative agent general equilibrium models. The duality theory for cyclically monotone demand is developed using the …
Laws And Limits Of Econometrics, Peter C.B. Phillips
Laws And Limits Of Econometrics, Peter C.B. Phillips
Cowles Foundation Discussion Papers
We start by discussing some general weaknesses and limitations of the econometric approach. A template from sociology is used to formulate six laws that characterize mainstream activities of econometrics and the scientific limits of those activities., we discuss some proximity theorems that quantify by means of explicit bounds how close we can get to the generating mechanism of the data and the optimal forecasts of next period observations using a finite number of observations. The magnitude of the bound depends on the characteristics of the model and the trajectory of the observed data. The results show that trends are more …
Catalytic Finance: When Does It Work?, Stephen Morris, Hyun Song Shin
Catalytic Finance: When Does It Work?, Stephen Morris, Hyun Song Shin
Cowles Foundation Discussion Papers
In a simple model of currency crises caused by creditor coordination failure, we show that bailouts that reduce ex post inefficiency will sometimes create ex ante moral hazard but will sometimes enhance the incentives for governments to take preventative actions. This model helps us understand a debate about the role of the IMF in catalyzing lending to developing countries.
Heterogeneity And Uniqueness In Interaction Games, Stephen Morris, Hyun Song Shin
Heterogeneity And Uniqueness In Interaction Games, Stephen Morris, Hyun Song Shin
Cowles Foundation Discussion Papers
Incomplete information games, local interaction games and random matching games are all special cases of a general class of interaction games (Morris (1997)). In this paper, we use this equivalence to present a unified treatment of arguments generating uniqueness in games with strategic complementarities by introducing heterogeneity in these different settings. We also report on the relation between local and global heterogeneity, on the role of strategic multipliers and on purification in the three types of interaction game.
Bonds Or Loans? The Effect Of Macroeconomic Fundamentals, Galina Hale
Bonds Or Loans? The Effect Of Macroeconomic Fundamentals, Galina Hale
Cowles Foundation Discussion Papers
The costs of debt crises are not invariant to the foreign debt instrument composition: bank loans or bonds. The lending boom of the 1990s witnessed considerable variation over time and across countries in the debt instrument used by emerging market (EM) borrowers. This paper tests how macroeconomic fundamentals affect the composition of international debt instruments used by EM borrowers. Analysis of micro-level data using ordered probability model shows that macroeconomic fundamentals explain a significant share of variation in the ratio of bonds to loans for private borrowers, but not for the sovereigns.
Rationalizing And Curve-Fitting Demand Data With Quasilinear Utilities, Donald J. Brown, Caterina Calsamiglia
Rationalizing And Curve-Fitting Demand Data With Quasilinear Utilities, Donald J. Brown, Caterina Calsamiglia
Cowles Foundation Discussion Papers
In the empirical and theoretical literature a consumer’s utility function is often assumed to be quasilinear. In this paper we provide necessary and sufficient conditions for testing if the consumer acts as if she is maximizing a quasilinear utility function over her budget set. If the consumer’s choices are inconsistent with maximizing a quasilinear utility function over her budget set, then we compute the “best” quasilinear rationalization of her choices.
The Elusive Empirical Shadow Of Growth Convergence, Peter C.B. Phillips, Donggyu Sul
The Elusive Empirical Shadow Of Growth Convergence, Peter C.B. Phillips, Donggyu Sul
Cowles Foundation Discussion Papers
Two groups of applied econometricians have figured prominently in empirical studies of growth convergence. In terms of a popular caricature, one group believes it has found a black hat of convergence (evidence for growth convergence) in the dark room of economic growth, even though the hat may not exist (the task may be futile). A second group believes it has found a black coat of divergence (evidence against growth convergence) even though this object also may not exist (empirical reality, including the nature of growth divergence, is ever more complex than the models used to characterize it). The present paper …
Coordination, Communication And Common Knowledge: A Retrospective On The Electronic Mail Game, Stephen Morris
Coordination, Communication And Common Knowledge: A Retrospective On The Electronic Mail Game, Stephen Morris
Cowles Foundation Discussion Papers
Common knowledge plays an important role in coordination problems and coordination problems are central to many areas of economic policy. In this paper, I review some common knowledge puzzles culminating in the electronic mail game. These puzzles may seem distant from practical concerns. However, I then argue why insights derived from this literature are useful in interpreting empirical evidence of how people coordinate under uncertainty and in understanding the role of communication in coordinating behaviour.
Generalized Potentials And Robust Sets Of Equilibria, Stephen Morris, Takashi Ui
Generalized Potentials And Robust Sets Of Equilibria, Stephen Morris, Takashi Ui
Cowles Foundation Discussion Papers
This paper introduces generalized potential functions of complete information games and studies the robustness of sets of equilibria to incomplete information. A set of equilibria of a complete information game is robust if every incomplete information game where payoffs are almost always given by the complete information game has an equilibrium which generates behavior close to some equilibrium in the set. This paper provides sufficient conditions for the robustness of sets of equilibria in terms of argmax sets of generalized potential functions and shows that the sufficient conditions generalize the existing sufficient conditions for the robustness of equilibria.
Tests Of Independence In Separable Econometric Models, Donald J. Brown, Marten H. Wegkamp
Tests Of Independence In Separable Econometric Models, Donald J. Brown, Marten H. Wegkamp
Cowles Foundation Discussion Papers
A common stochastic restriction in econometric models separable in the latent variablesis the assumption of stochastic independence between the unobserved and observed exogenous variables. Both simple and composite tests of this assumption are derived from properties of independence empirical processes and the consistency of these tests is established
Who Refers To Whom: A Study Of Research References And The Relationship Between Research Reports And Final Publication, Samuel Mccarthy, Martin Shubik, Jianfeng Yu
Who Refers To Whom: A Study Of Research References And The Relationship Between Research Reports And Final Publication, Samuel Mccarthy, Martin Shubik, Jianfeng Yu
Cowles Foundation Discussion Papers
The size and style of referencing for a large sample of 60 years of publications of the Cowles Foundation are examined. The influence of computerization is considered. Self-referencing is noted and some observations are made on the costs and distribution of research papers.
Tests Of Independence In Separable Econometric Models: Theory And Application, Donald J. Brown, Rahul Deb, Marten H. Wegkamp
Tests Of Independence In Separable Econometric Models: Theory And Application, Donald J. Brown, Rahul Deb, Marten H. Wegkamp
Cowles Foundation Discussion Papers
A common stochastic restriction in econometric models separable in the latent variables is the assumption of stochastic independence between the unobserved and observed exogenous variables. Both simple and composite tests of this assumption are derived from properties of independence empirical processes and the consistency of these tests is established. As an application, we simulate estimation of a random quasilinear utility function, where we apply our tests of independence.
Gmm Estimation Of Autoregressive Roots Near Unity With Panel Data, Hyungsik Roger Moon, Peter C.B. Phillips
Gmm Estimation Of Autoregressive Roots Near Unity With Panel Data, Hyungsik Roger Moon, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper investigates a generalized method of moments (GMM) approach to the estimation of autoregressive roots near unity with panel data and incidental deterministic trends. Such models arise in empirical econometric studies of firm size and in dynamic panel data modeling with weak instruments. The two moment conditions in the GMM approach are obtained by constructing bias corrections to the score functions under OLS and GLS detrending, respectively. It is shown that the moment condition under GLS detrending corresponds to taking the projected score on the Bhattacharya basis, linking the approach to recent work on projected score methods for models …