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- Mechanism design (33)
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Articles 1171 - 1200 of 2768
Full-Text Articles in Social and Behavioral Sciences
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 …
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 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.
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 …
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 …
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: 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, …
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 …
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 …
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 …
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 …
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 …
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 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 …
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.
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 …
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.
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 …
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).
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 …
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.
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 …
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 …
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 …
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 …
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 …