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- Mechanism design (33)
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Articles 1291 - 1320 of 2768
Full-Text Articles in Social and Behavioral Sciences
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.
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.
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.
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 …
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.
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 …
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 …
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.
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 …
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 …
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 …
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, …
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. …
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.
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.
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.
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 …
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 …
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 …
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 …
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.
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 .
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 …
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.