Econometrics Commons^™

On The Robustness Of Higher Order Risk Preferences, Cary Deck, Harris Schlesinger

ESI Working Papers

Economists have begun to recognize the role that higher order risk preferences play in a variety of settings. As such, several experiments have documented the degree of prudence, temperance, and to a lesser extent, edginess and bentness that laboratory subjects exhibit. More recently, researchers have argued that higher order risk preferences generally conform to mixed risk averse and mixed risk loving patterns that arise from a preference for disaggregating or aggregating harms, respectively. This paper examines the robustness of this pattern in three ways. First, it attempts to directly replicate previous results with compound lotteries over monetary outcomes. Second, it …

Dual Process Utility Theory: A Model Of Decisions Under Risk And Over Time, Mark Schneider

ESI Working Papers

The Discounted Expected Utility model has been a major workhorse for analyzing individual behavior for over half a century. However, it cannot account for evidence that risk interacts with time preference, that time interacts with risk preference, that many people are averse to timing risk and do not discount the future exponentially, that discounting depends on the magnitude of outcomes, that risk preferences are not time preferences, and that risk and time preferences are correlated with cognitive ability. Here we address these issues in a decision model based on the interaction of an affective and a reflective valuation process. The …

Multi-Battle Contests: An Experimental Study, Shakun D. Mago, Roman M. Sheremeta

ESI Working Papers

We examine behavior of subjects in simultaneous and sequential multi-battle contests, where each individual battle is modeled as an all-pay auction with complete information. In simultaneous best-of-three contests, subjects are predicted to make positive bids in all three battles, but we find that subjects often make positive bids in only two battles. In sequential contests, theory predicts sizable bids in the first battle and no bids in the subsequent battles. Contrary to this prediction, subjects significantly underbid in the first battle and overbid in subsequent battles. Consequently, instead of always ending in the second battle, contests often proceeds to the …

Impulsive Behavior In Competition: Testing Theories Of Overbidding In Rent-Seeking Contests, Roman M. Sheremeta

ESI Working Papers

Researchers have proposed various theories to explain overbidding in rent-seeking contents, including mistakes, systematic biases, the utility of winning, and relative payoff maximization. Through an eight-part experiment, we test and find significant support for the existing theories. Also, we discover some new explanations based on cognitive ability and impulsive behavior. Out of all explanations examined, we find that impulsivity is the most important factor explaining overbidding in contests.

Rhode Island Current Conditions Index -- September 2016, Leonard Lardaro

The Rhode Island Current Conditions Index

No abstract provided.

Can Noncompliant Behavior Explain Racial/Ethnic Disparities In The Use Of Force By The Nypd? An Econometric Analysis Of New York's Stop-And-Frisk, Omari-Khalid Rahman

Theses and Dissertations

This paper seeks to analyze spatiotemporal variations in NYPD policing patterns in an attempt to identify the causal mechanism(s) driving the observed racial/ethnic disparities; specifically, it addresses questions of how changing neighborhood demographics influence the decision-making of NYPD officers/precincts as it relates to their controversial Stop-and-Frisk policy.

Asset Pricing With Financial Bubble Risk, Ji Hyung Lee, Peter C. B. Phillips

Research Collection School Of Economics

This paper characterizes systematic risk stemming from the possible occurrence of price bubbles and measures the impact of this additional risk factor on asset prices. Historical stock market behavior and recent empirical experience have led economists and policy makers to acknowledge that price bubbles in financial markets do occur and need to be accounted for in risk analysis. New econometric tools for analyzing mildly explosive behavior (Phillips and Magdalinos, 2007; Phillips et al., 2011) have made it possible to detect the presence of bubbles in data and to date stamp their origination and collapse, providing empirical confirmation of such episodes …

Modeling Speculative Bubbles With Diverse Investor Expectations, Peter C. B. Phillips

Research Collection School Of Economics

We construct a model of asset market exuberance, collapse and recovery using subjective investor-based rational expectations about the impact of fundamentals on the market price. Investors are assumed to have heterogeneous market sentiments, allowing them to be exuberant, cautious, or fundamentalist via boundary conditions that describe their respective views of the market impact of the same economic fundamentals. Equilibrium solution paths of the model take varying forms, depending on the parameter settings that reflect the importance of each type of market participant. This rational expectations model of asset pricing is shown to be consistent with a simple explosive continuous time …

Residential Electricity Demand In El Paso: 1977-2014, Thomas M. Fullerton Jr., David R. Macias, Adam G. Walke

Border Region Modeling Project

This study analyzes the demand for residential electricity in El Paso, Texas, USA. Annual data are provided by El Paso Electric Company covering the period from 1977 to 2014. This study reports a negative long-run income elasticity for residential electricity demand. Per customer residential electricity usage declines by 0.68 percent for every 1-percent increase in real per capita income over the long run, indicating that electricity is treated as an inferior good by households in this metropolitan economy. That result runs counter to many earlier studies, but corroborates recent empirical evidence for Seattle, Washington and other regions of the United …

Asymptotic Theory For Estimating The Persistent Parameter In The Fractional Vasicek Model, Weilin Xiao, Jun Yu

Research Collection School Of Economics

This paper develops the asymptotic theory for the least squares (LS) estimator of the persistent parameter in the fractional Vasicek model when a continuous record of observations is available. The fractional Vasicek model is assumed to be driven by the fractional Brownian motion with a known Hurst parameter greater than or equal to one half. It is shown that the asymptotic properties depend on the sign of the persistent parameter, corresponding to the stationary case, the explosive case and the null recurrent case. The strong consistency and the asymptotic distribution are obtained in all three cases.

Testing Of Non-Inferiority And Superiority For Three-Arm Clinincal Studies With Multiple Experimental Treatments, Junjiang Zhong, Koon Shing Kwong, Siu Hung Cheung

Research Collection School Of Economics

The purpose of a non-inferiority trial is to assert the efficacy of an experimental treatment compared with a reference treatment by showing that the experimental treatment retains a substantial proportion of the efficacy of the reference treatment. Statistical methods have been developed to test multiple experimental treatments in three-arm non-inferiority trials. In this paper, we report the development of procedures that simultaneously test the non-inferiority and the superiority of experimental treatments after the assay sensitivity has been established. The advantage of the proposed test procedures is the additional ability to identify superior treatments while retaining an non-inferiority testing power comparable …

Asset Pricing With Financial Bubble Risk, Ji Hyung Lee, Peter C. B. Phillips

Research Collection School Of Economics

This paper characterizes systematic risk stemming from the possible occurrence of price bubbles and measures the impact of this additional risk factor on asset prices. Historical stock market behavior and recent empirical experience have led economists and policy makers to acknowledge that price bubbles in financial markets do occur and need to be accounted for in risk analysis. New econometric tools for analyzing mildly explosive behavior (Phillips and Magdalinos, 2007; Phillips et al., 2011) have made it possible to detect the presence of bubbles in data and to date stamp their origination and collapse, providing empirical confirmation of such episodes …

Endogenous Market Formation And Monetary Trade: An Experiment, Gabriele Camera, Dror Goldberg, Avi Weiss

ESI Working Papers

The theory of money assumes decentralized bilateral exchange and excludes centralized multilateral exchange. However, endogenizing the exchange process is critical for understanding the conditions that support the use of money. We develop a “travelling game” to study the spontaneous emergence of decentralized and centralized exchange, theoretically and experimentally. Players located on separate “islands” can either trade locally, or pay a cost to trade elsewhere, so decentralized and centralized markets can both emerge in equilibrium. The latter maximize trade meetings and are socially efficient; the former minimize trade costs through the use of money. In the laboratory, centralized exchange more frequently …

Do Economic Inequalities Affect Long-Run Cooperation?, Gabriele Camera, Cary Deck, David Porter

ESI Working Papers

Does inequality affect a group’s cohesion and ability to prosper? Participants in laboratory economies played an indefinite sequence of helping games in random, anonymous pairs. A coin flip determined donor and recipient roles in each pair. This random shock ensured equality of opportunity but not of results, because earnings depended on realized shocks. We manipulated the ability to condition choices on this uncontrollable inequality source. In all treatments, uncertain ending supports multiple Pareto-ranked equilibria, including full cooperation. Theoretically, inequalities do not alter the incentives’ structure. Empirically, inequality disclosures altered conduct, weakened norms of mutual support and reduced efficiency.

Focality And Asymmetry In Multi-Battle Contests, Subhashish M. Chowdhury, Dan Kovenock, David Rojo Arjona, Nathaniel Wilcox

ESI Working Papers

This article examines behavior in two-person constant-sum Colonel Blotto games in which each player maximizes the expected total value of the battlefields won. A lottery contest success function is employed in each battlefield. Recent experimental research on such games provides only partial support for Nash equilibrium behavior. We hypothesize that the salience of battlefields affects strategic behavior (the salient target hypothesis). We present a controlled test of this hypothesis – against Nash predictions – when the sources of salience come from certain asymmetries in either battlefield values or labels (as in Schelling (1960)). In both cases, subjects over-allocate the resource …

Rhode Island Current Conditions Index -- August 2016, Leonard Lardaro

The Rhode Island Current Conditions Index

No abstract provided.

The Influence Of The Electric Supply Industry On Economic Growth In Less Developed Countries, Edward Richard Bee

Dissertations

This study measures the impact that electrical outages have on manufacturing production in 135 less developed countries using stochastic frontier analysis and data from World Bank’s Investment Climate surveys. Outages of electricity, for firms with and without backup power sources, are the most frequently cited constraint on manufacturing growth in these surveys.

Outages are shown to reduce output below the production frontier by almost five percent in Africa and by a lower percentage in South Asia, Southeast Asia and the Middle East and North Africa. Production response to outages is quadratic in form. Outages also increase labor cost, reduce exports …

Rhode Island Current Conditions Index -- July 2016, Leonard Lardaro

The Rhode Island Current Conditions Index

No abstract provided.

Worker Cooperatives As An Innovative Strategy To Address Income Inequality?, Bryan Titzler

Student Research – Stevenson Center

This project explores the relation between the magnitude of the cooperative sector and the degree of income inequality in a country. After a somewhat selective consideration of the possible linkages between the size of the cooperative sector and income inequality, and using Gini as the primary measure for income inequality and two proxies for the size of the cooperative sector, an empirical exploration is done in three ways. First, simple plots are used to judge the gross relation between Gini and each of the two proxies for the size of the cooperative sector. Both plots show a perceptible negative relation. …

Generalized Method Of Integrated Moments For High-Frequency Data, Jia Li, Dacheng Xiu

Research Collection School Of Economics

We propose a semiparametric two‐step inference procedure for a finite‐dimensional parameter based on moment conditions constructed from high‐frequency data. The population moment conditions take the form of temporally integrated functionals of state‐variable processes that include the latent stochastic volatility process of an asset. In the first step, we nonparametrically recover the volatility path from high‐frequency asset returns. The nonparametric volatility estimator is then used to form sample moment functions in the second‐step GMM estimation, which requires the correction of a high‐order nonlinearity bias from the first step. We show that the proposed estimator is consistent and asymptotically mixed Gaussian and …

Testing For Monotonicity In Unobservables Under Unconfoundedness, Stefan Hoderlein, Liangjun Su, Halbert White, Thomas Tao Yang

Research Collection School Of Economics

Monotonicity in a scalar unobservable is a common assumption when modeling heterogeneity in structural models. Among other things, it allows one to recover the underlying structural function from certain conditional quantiles of observables. Nevertheless, monotonicity is a strong assumption and in some economic applications unlikely to hold, e.g., random coefficient models. Its failure can have substantive adverse consequences, in particular inconsistency of any estimator that is based on it. Having a test for this hypothesis is hence desirable. This paper provides such a test for cross-section data. We show how to exploit an exclusion restriction together With a conditional independence …

Double Asymptotics For Explosive Continuous Time Models, Xiaohu Wang, Jun Yu

Research Collection School Of Economics

This paper establishes a double asymptotic theory for explosive continuous time Levy-driven processes and the corresponding exact discrete time models. The double asymptotic theory assumes the sample size diverges because the sampling interval (h) shrinks to zero and the time span (N) diverges. Both the simultaneous and sequential double asymptotic distributions are derived. In contrast to the long-time span asymptotics (N -> infinity with fixed h) where no invariance principle applies, the double asymptotic distribution is derived without assuming Gaussian errors, so an invariance principle applies, as the asymptotic theory for the mildly explosive process developed by Phillips and Magdalinos …

Empirical Study Of Online Horse Race Bettors Betting Behavior In Finland, Tuomo Kainulainen

International Conference on Gambling & Risk Taking

This presentation produces an overview of online horse race bettors’ betting behavior in the Finnish betting market. The following studies have utilized individual-level online betting data LaPlante et al. (2006), LaBrie et al. (2007), LaBrie et al. (2008), LaPlante et al. (2009), Xuan & Shaffer (2009), Braveman & Shaffer (2010), Dragicevic et al. (2011), Fiedler (2013) and Gainsbury & Russell (2013). These studies focus on sports betting, poker and casino games. As an addition to the betting behavioural literature, this study focuses on horse race betting by utilizing betting data provided by Fintoto Ltd which has a legal monopoly for …

The Effects Of Globalization On An Emerging Economy: The Case Of South Africa, Oluwasheyi S. Oladipo

Dissertations, Theses, and Capstone Projects

This dissertation examines how globalization influences selected aspects of an emerging economy, using South Africa as a case study. The dissertation consists of three chapters: two microeconomic studies and one macroeconomic paper on the effects of globalization on some of the factors affecting economic growth. One micro paper explores the impacts of openness on inequality (Chapter 1), another investigates the impacts of trade liberalization on manufacturing sector wages (Chapter 2), and the macro study, which is the final chapter, examines the effects of inflation targeting on exchange rate pass through to domestic prices (Chapter 3).

In 1994, apartheid ended in …

A Dynamic Stochastic General Equilibrium (Dsge) Model Of Exchange Rate Pass-Through To Domestic Prices In Nigeria, M. A. Adebiyi Dr, C. N. Mordi Dr

CBN Occasional Papers

This paper employed a Bayesian framework of DSGE model to estimate the pass-through effect of exchange rate to domestic inflation in Nigeria, using quarterly data for the period 1990 to 2011. The response of inflation rate to exchange rate shocks was found to be positive and statistically significant in the short-run. The pass-through was small and incomplete with almost zero in quarter 1 (0.09), rose to 0.18 in quarter 2 and declined to 0.07 and 0.01 in quarters 3 and 4, respectively. These findings were lower than those obtained elsewhere by other authors. The low pass-through reported in this study …

Rhode Island Current Conditions Index -- June 2016, Leonard Lardaro

The Rhode Island Current Conditions Index

No abstract provided.

Robust Econometric Inference With Mixed Integrated And Mildly Explosive Regressors, Peter C. B. Phillips, Ji Hyung Lee

Research Collection School Of Economics

This paper explores in several prototypical models a convenient inference procedure for nonstationary variable regression that enables robust chi-square testing for a wide class of persistent and endogenous regressors. The approach uses the mechanism of self-generated instruments called IVX instrumentation developed by Magdalinos and Phillips (2009b). We first show that these methods remain valid for regressors with local unit roots in the explosive direction and mildly explosive roots, where the roots are further from unity in the explosive direction than 0 (n(-1)). It is also shown that Wald testing procedures remain robust for multivariate regressors with certain forms of mixed …

Endogeneity In Ceo Power: A Survey And Experiment, Zhichuan Li

Business Publications

The endogeneity problem has always been one, if not the only, obstacle to understanding the true relationship between different aspects of empirical corporate finance. Variables are typically endogenous, instruments are scarce, and causality relations are complicated. As the first attempt to summarize different econometric methods that are commonly used to address endogeneity concerns in the context of corporate governance, we explore the relation between CEO power and firm performance, as an experiment, to illustrate how these methods can be used to mitigate the endogeneity problem and by how much. After carefully dealing with the endogeneity issues, we find strong evidence …

Behavioral Determinants Of Biofortified Food Acceptance: The Case Of Orange-Fleshed Sweet Potato In Ghana, Chinonso E. Etumnu

Master's Theses

Biofortified foods are being introduced in sub-Saharan Africa as an important strategy to help address micronutrient malnutrition. However, there has been little research on factors that could play decisive roles in their successful introduction. This paper investigates the determinants of consumer acceptance of biofortified orange-fleshed sweet potato (OFSP) using data from a choice experiment conducted in Ghana. I find that OFSP is preferred to traditional white-fleshed and yellow-fleshed sweet potatoes as indicated by consumers' marginal willingness to pay for the three varieties. I also find that respondents' socio-economic characteristics do not have a significant effect on consumer acceptance of OFSP. …

Air Pollution And Fetal Loss In The Global Tropics, Shuqiao Cheng

Master's Theses

Abstract: Recent work has shown that in-utero air pollution has negative effects on both contemporaneous birth outcomes and long-term human capital outcomes. However, only a few studies explore the effects of in-utero exposure to air pollution on fetal loss, and none of the studies has been done in developing countries. In this study, we examine the impact of naturally caused CO and PM 2.5 on reproductive outcomes in 40 developing countries from 1997 to 2009. We present childbirths and birth gender as measures for potential fetal losses. The richest model identified using variation in pollution between pregnancies with controlling for …