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- Mechanism design (33)
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Articles 1441 - 1470 of 2768
Full-Text Articles in Social and Behavioral Sciences
Monotone Preferences Over Information, Juan Dubra, Federico Echenique
Monotone Preferences Over Information, Juan Dubra, Federico Echenique
Cowles Foundation Discussion Papers
We consider preference relations over information that are monotone: more information is preferred to less. We prove that, if a preference relation on information about an uncountable set of states of nature is monotone, then it is not representable by a utility function.
Valuation Ratios And The Long-Run Stock Market Outlook: An Update, John Y. Campbell, Robert J. Shiller
Valuation Ratios And The Long-Run Stock Market Outlook: An Update, John Y. Campbell, Robert J. Shiller
Cowles Foundation Discussion Papers
The use of price–earnings ratios and dividend-price ratios as forecasting variables for the stock market is examined using aggregate annual US data 1871 to 2000 and aggregate quarterly data for twelve countries since 1970. Various simple efficient-markets models of financial markets imply that these ratios should be useful in forecasting future dividend growth, future earnings growth, or future productivity growth. We conclude that, overall, the ratios do poorly in forecasting any of these. Rather, the ratios appear to be useful primarily in forecasting future stock price changes, contrary to the simple efficient-markets models. This paper is an update of our …
Local Polynomial Whittle Estimation, Donald W.K. Andrews, Yixiao Sun
Local Polynomial Whittle Estimation, Donald W.K. Andrews, Yixiao Sun
Cowles Foundation Discussion Papers
The local Whittle (or Gaussian semiparametric) estimator of long range dependence, proposed by Künsch (1987) and analyzed by Robinson (1995a), has a relatively slow rate of convergence and a finite sample bias that can be large. In this paper, we generalize the local Whittle estimator to circumvent those problems. Instead of approximating the short-run component of the spectrum, φ(λ), by a constant in a shrinking neighborhood of frequency zero, we approximate its logarithm by a polynomial. This leads to a “local polynomial Whittle” (LPW) estimator. Following the work of Robinson (1995a), we establish the asymptotic bias, variance, mean-squared error (MSE), …
Electoral Rules And The Emergence Of New Issue Dimensions, Estelle Cantillon
Electoral Rules And The Emergence Of New Issue Dimensions, Estelle Cantillon
Cowles Foundation Discussion Papers
Different electoral rules provide different incentives for parties competing for votes to adopt emerging issues. As a result, new societal issues will be integrated at different speeds into the political arena, and ultimately, into policy. In order to study this question formally, I propose an extension of the standard spatial model of political competition that allows for issue adoption and more generally, issue prioritizing at the platform level. The paper then compares the outcome of party competition under proportional and plurality rule. Entry is allowed and incumbent parties act as Stackelberg leaders vis-à-vis potential entrants. The analysis highlights the interaction …
Multifractal Products Of Cylindrical Pulses, Julien Barral, Benoit Mandelbrot
Multifractal Products Of Cylindrical Pulses, Julien Barral, Benoit Mandelbrot
Cowles Foundation Discussion Papers
A new class of random multiplicative and statistically self-similar measures is defned on IR. It is the limit of measure-valued martingales constructed by multiplying random functions attached to the points of a statistically self-similar Poisson point process in a strip of the plane. Several fundamental problems are solved, including the non-degeneracy and the distribution of the limit measure, mu; the finiteness of the (positive and negative) moments of the total mass of mu restricted to bounded intervals. Compared to the familiar canonical multifractals generated by multiplicative cascades, the new measures and their multifractal analysis exhibit strikingly novel features which are …
Weighted Minimum Mean-Square Distance From Independence Estimation, Donald J. Brown, Marten H. Wegkamp
Weighted Minimum Mean-Square Distance From Independence Estimation, Donald J. Brown, Marten H. Wegkamp
Cowles Foundation Discussion Papers
In this paper we introduce a family of semi-parametric estimators, suggested by Manski’s minimum mean-square distance from independence estimator. We establish the strong consistency, asymptotic normality and consistency of bootstrap estimates of the sampling distribution and the asymptotic variance of these estimators.
The Uses Of Teaching Games In Game Theory Classes And Some Experimental Games, Martin Shubik
The Uses Of Teaching Games In Game Theory Classes And Some Experimental Games, Martin Shubik
Cowles Foundation Discussion Papers
The results are presented from several experiments. They include the selection of points in the core, interpersonal comparisons of utility, and the reconsideration of Stone results on prominence in contrast with symmetry.
The Financing Of Innovation: Learning And Stopping, Dirk Bergemann, Ulrich Hege
The Financing Of Innovation: Learning And Stopping, Dirk Bergemann, Ulrich Hege
Cowles Foundation Discussion Papers
This paper considers the financing of a research project under uncertainty about the time of completion and the probability of eventual success. The uncertainty about future success gradually diminishes with the arrival of addtional funding. The entrepreneur controls the funds and can divert them. We distinguish between relationship financing, meaning that the entrepreneur’s allocation of the funds is observable, and arm’s length financing, where it is unobservable. We find that equilibrium funding stops altogether too early relative to the efficient stopping time in both financing modes. We characterize the optimal contracts and equilibrium funding decisions. The financial constraints will typically …
The Financing Of Innovation: Learning And Stopping, Dirk Bergemann, Ulrich Hege
The Financing Of Innovation: Learning And Stopping, Dirk Bergemann, Ulrich Hege
Cowles Foundation Discussion Papers
This paper considers the financing of a research project under uncertainty about the time of completion and the probability of eventual success. We distinguish between two financing modes, namely relationship financing, where the allocation decision of the entrepreneur is observable, and arm’s length financing, where it is unobservable. We find that equilibrium funding stops altogether too early relative to the efficient stopping time in both financing modes. The rate at which funding is released becomes tighter over time under relationship financing, and looser under arm’s length financing. The trade-off in the choice of financing modes is between lack of commitment …
A Computational Analysis Of The Core Of A Trading Economy With Three Competitive Equilibria And A Finite Number Of Traders, Alok Kumar, Martin Shubik
A Computational Analysis Of The Core Of A Trading Economy With Three Competitive Equilibria And A Finite Number Of Traders, Alok Kumar, Martin Shubik
Cowles Foundation Discussion Papers
In this paper we examine the structure of the core of a trading economy with three competitive equilibria as the number of traders ( N ) is varied. We also examine the sensitivity of the multiplicity of equilibria and of the core to variations in individual initial endowments. Computational results show that the core first splits into two pieces at N = 5 and then splits a second time into three pieces at N = 12. Both of these splits occur not at a point but as a contiguous gap. As N is increased further, the core shrinks by N …
Expected Utility Theory Without The Completeness Axiom, Juan Dubra, Fabio Maccheroni, Efe A. Ok
Expected Utility Theory Without The Completeness Axiom, Juan Dubra, Fabio Maccheroni, Efe A. Ok
Cowles Foundation Discussion Papers
We study axiomatically the problem of obtaining an expected utility representation for a potentially incomplete preference relation over lotteries by means of a set of von Neumann-Morgenstern utility functions. It is shown that, when the prize space is a compact metric space, a preference relation admits such a multi-utility representation provided that it satisfies the standard axioms of expected utility theory. Moreover, the representing set of utilities is unique in a well-defined sense.
Productivity Growth And The New Economy, William D. Nordhaus
Productivity Growth And The New Economy, William D. Nordhaus
Cowles Foundation Discussion Papers
The present study is the third in a series of three papers devoted to issues in the measurement of productivity and productivity growth. The major findings are as follows. First, this study shows that the new data set used here, which develops data on total output, business sector output, and “well-measured” output, and relying on income-side data, provides a useful supplement to existing data sets. Second, there has clearly been a rebound in labor-productivity growth in recent years. All three sectoral definitions show a major acceleration in labor productivity in the last three years of the period (1996-98) relative to …
New Data And Output Concepts For Understanding Productivity Trends, William D. Nordhaus
New Data And Output Concepts For Understanding Productivity Trends, William D. Nordhaus
Cowles Foundation Discussion Papers
The present study is the second is a series of three papers devoted to issues in the measurement of productivity and productivity growth. The contributions of the present paper are three. First, it introduces a new approach to measuring industrial productivity based on income-side data that are published by the Bureau of Economic Analysis (BEA). The data are internally consistent in that both inputs and outputs are income-side measures of value added, whereas the usual productivity measures combine expenditure-side output measures with income-side input measures. Second, because of interest in the “new economy,” we have also constructed a set of …
Structural Change In Tail Behavior And The Asian Financial Crisis, Carmela E. Quintos, Zhenhong Fan, Peter C.B. Phillips
Structural Change In Tail Behavior And The Asian Financial Crisis, Carmela E. Quintos, Zhenhong Fan, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper explores tests of the hypothesis that the tail thickness of a distribution is constant over time. Using Hill’s conditional maximum likelihood estimator for the tail index of a distribution, tests of tail shape constancy are constructed that allow for an unknown breakpoint. The recursive test is shown to be inconsistent in one direction, and only a one-sided test is recommended. Specifically, the test can be used when the alternative hypothesis is that the tail index decreases over time. A rolling and sequential version of the test is consistent in both directions. The methods are illustrated on recent stock …
Unilateral Deviations With Perfect Information, Pradeep Dubey, Ori Haimanko
Unilateral Deviations With Perfect Information, Pradeep Dubey, Ori Haimanko
Cowles Foundation Discussion Papers
For extensive form games with perfect information, consider a learning process in which, at any iteration, each player unilaterally deviates to a best response to his current conjectures of others’ strategies; and then updates his conjectures in accordance with the induced play of the game. We show that, for generic payoffs, the outcome of the game becomes stationary in finite time, and is consistent with Nash equilibrium. In general, if payoffs have ties or if players observe more of each others’ strategies than is revealed by plays of the game, the same result holds provided a rationality constraint is imposed …
A Graphical Analysis Of Some Basic Results In Social Choice, Estelle Cantillon, Antonio Rangel
A Graphical Analysis Of Some Basic Results In Social Choice, Estelle Cantillon, Antonio Rangel
Cowles Foundation Discussion Papers
We use a simple graphical approach to represent Social Welfare Functions that satisfy Independence of Irrelevant Alternatives and Anonymity. This approach allows us to provide simple and illustrative proofs of May’s Theorem, of variants of classic impossibility results, and of a recent result on the robustness of Majority Rule due to Maskin (1995). In each case, geometry provides new insights on the working and interplay of the axioms, and suggests new results including a new characterization of the entire class of Majority Rule SWFs, a strengthening of May’s Theorem, and a new version of Maskin’s Theorem.
Does Democracy Engender Equality?, John E. Roemer
Does Democracy Engender Equality?, John E. Roemer
Cowles Foundation Discussion Papers
Many suppose that democracy is an ethos which includes, inter alia, a degree of economic equality among citizens. In contrast, we conceive of democracy as ruthless political competition between groups of citizens, organized into parties. We inquire whether such competition, which we assume to be concerned with distributive matters, will engender economic equality in the long run. The society consists of an infinite sequence of generations, each comprised of adults and their children. Adults care about household consumption, and the future wages of their children, which are determined by educational policy. A given generation is characterized by the distribution of …
Alternative Methods For Measuring Productivity Growth, William D. Nordhaus
Alternative Methods For Measuring Productivity Growth, William D. Nordhaus
Cowles Foundation Discussion Papers
The present study is a contribution to the theory of the measurement of productivity growth. First, it examines the welfare-theoretic basis for measuring productivity growth and shows that the ideal welfare-theoretic measure is a chain index of productivity growth rates of different sectors which uses current output weights. Second, it lays out a technique for decomposing productivity growth which separates aggregate productivity growth into three factors — the pure productivity effect, the effect of changing shares, and the effect of different productivity levels. Finally, it shows how to apply the theoretically correct measure of productivity growth and indicates which of …
Entry And Vertical Differentiation, Dirk Bergemann, Juuso Välimäki
Entry And Vertical Differentiation, Dirk Bergemann, Juuso Välimäki
Cowles Foundation Discussion Papers
This paper analyzes the entry of new products into vertically differentiated markets where an entrant and an incumbent compete in quantities. The value of the new product is initially uncertain and new information is generated through purchases in the market. We derive the (unique) Markov perfect equilibrium of the infinite horizon game under the strong long run average payoff criterion. The qualitative features of the optimal entry strategy are shown to depend exclusively on the relative ranking of established and new products based on current beliefs. Superior products are launched relatively slowly and at high initial prices whereas substitutes for …
Forecasting New Zealand's Real Gdp, Aaron F. Schiff, Peter C.B. Phillips
Forecasting New Zealand's Real Gdp, Aaron F. Schiff, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Recent time series methods are applied to the problem of forecasting New Zealand’s real GDP. Model selection is conducted within autoregressive (AR) and vector autoregressive (VAR) classes, allowing for evolution in the form of the models over time. The selections are performed using the Schwarz (1978) BIC and the Phillips-Ploberger (1996) PIC criteria. The forecasts generated by the data-determined AR models and an international VAR model are found to be competitive with forecasts from fixed format models and forecasts produced by the NZIER. Two illustrations of the methodology in conditional forecasting settings are performed with the VAR models. The first …
The Effect Of Bidders’ Asymmetries On Expected Revenue In Auctions, Estelle Cantillon
The Effect Of Bidders’ Asymmetries On Expected Revenue In Auctions, Estelle Cantillon
Cowles Foundation Discussion Papers
Bidders’ asymmetries are widespread in auction markets. Yet, their impact on behavior and, ultimately, revenue and profits is still not well understood. In this paper, I define a natural benchmark auction environment to which to compare any private value auction with asymmetrically distributed valuations. I show that the expected revenue from the benchmark auction always dominates that from the asymmetric auction, both in the first price auction and the second price auction. These results formalize and make transparent the idea that competition is reduced by bidders’ asymmetries. The paper also contributes to a better understanding of competition and the nature …
Global Games: Theory And Applications, Stephen Morris, Hyun Song Shin
Global Games: Theory And Applications, Stephen Morris, Hyun Song Shin
Cowles Foundation Discussion Papers
Global games are games of incomplete information whose type space is determined by the players each observing a noisy signal of the underlying state. With strategic complementarities, global games often have a unique, dominance solvable equilibrium, allowing analysis of a number of economic models of coordination failure. For symmetric binary action global games, equilibrium strategies in the limit (as noise becomes negligible) are simple to characterize in terms of ‘diffuse’ beliefs over the actions of others. We describe a number of economic applications that fall in this category. We also explore the distinctive roles of public and private information in …
Global Games: Theory And Applications, Stephen Morris, Hyun Song Shin
Global Games: Theory And Applications, Stephen Morris, Hyun Song Shin
Cowles Foundation Discussion Papers
Global games are games of incomplete information whose type space is determined by the players each observing a noisy signal of the underlying state. With strategic complementarities, global games often have a unique, dominance solvable equilibrium, allowing analysis of a number of economic models of coordination failure. For symmetric binary action global games, equilibrium strategies in the limit (as noise becomes negligible) are simple to characterize in terms of ‘diffuse’ beliefs over the actions of others. We describe a number of economic applications that fall in this category. We also explore the distinctive roles of public and private information in …
Investment Incentives In Procurement Auctions, Leandro Arozamena, Estelle Cantillon
Investment Incentives In Procurement Auctions, Leandro Arozamena, Estelle Cantillon
Cowles Foundation Discussion Papers
We investigate firms’ incentives for cost reduction in the first price sealed bid auction, a format largely used for procurement. A central feature of the model is that we allow firms to be heterogeneous. Though private value first price auctions are not games with monotonic best responses, we find that for comparative statics purposes they behave like these games. In particular, firms will tend to underinvest in cost reduction because they anticipate fiercer head-on competition. Using the second price auction as a benchmark, we also find that the first price auction will elicit less investment from market participants. Moreover, both …
Faulty Communication, Stephen Morris
Faulty Communication, Stephen Morris
Cowles Foundation Discussion Papers
The electronic mail game of Rubinstein (1989) showed that a lack of common knowledge generated by faulty communication can make coordinated action impossible. This paper shows how this conclusion is robust to having a more realistic timing structure of messages, more than two players who meet publicly but not as a plenary group, and strategic decisions about whether to communicate.
Optimal Inventory Policies When Sales Are Discretionary, Herbert E. Scarf
Optimal Inventory Policies When Sales Are Discretionary, Herbert E. Scarf
Cowles Foundation Discussion Papers
Inventory models customarily assume that demand is fully satisfied if sufficient stock is available. We analyze the form of the optimal inventory policy if the inventory manager can choose to meet a fraction of the demand. Under classical conditions we show that the optimal policy is again of the ( S,s ) form. The analysis makes use of a novel property of K-concave functions.
Faulty Communication, Stephen Morris
Faulty Communication, Stephen Morris
Cowles Foundation Discussion Papers
The electronic mail game of Rubinstein (1989) showed that a lack of common knowledge generated by faulty communication can make coordinated action impossible. This paper shows how this conclusion is robust to having a more realistic timing structure of messages, more than two players who meet publicly but not as a plenary group, and strategic decisions about whether to communicate.
How To Compute Equilibrium Prices In 1891, William C. Brainard, Herbert E. Scarf
How To Compute Equilibrium Prices In 1891, William C. Brainard, Herbert E. Scarf
Cowles Foundation Discussion Papers
Irving Fisher’s Ph.D. thesis, submitted to Yale University in 1891, contains a fully articulated general equilibrium model presented with the broad scope and formal mathematical clarity associated with Walras and his successors. In addition, Fisher presents a remarkable hydraulic apparatus for calculating equilibrium prices and the resulting distribution of society’s endowments among the agents in the economy. In this paper we provide an analytical description of Fisher’s apparatus, and report the results of simulating the mechanical/hydraulic “machine,” illustrating the ability of the apparatus to “compute” equilibrium prices and also to find multiple equilibria.
Does One Soros Make A Difference? A Theory Of Currency Crises With Large And Small Traders, Giancarlo Corsetti, Partha Dasgupta, Stephen Morris, Hyun Song Shin
Does One Soros Make A Difference? A Theory Of Currency Crises With Large And Small Traders, Giancarlo Corsetti, Partha Dasgupta, Stephen Morris, Hyun Song Shin
Cowles Foundation Discussion Papers
Do large investors increase the vulnerability of a country to speculative attacks in the foreign exchange markets? To address this issue, we build a model of currency crises where a single large investor and a continuum of small investors independently decide whether to attack a currency based on their private information about fundamentals. Even abstracting from signalling, the presence of the large investor does make all other traders more aggressive in their selling. Relative to the case in which there is no large investors, small investors attack the currency when fundamentals are stronger. Yet, the difference can be small, or …
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. The two moment conditions studied 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 with infinite numbers of nuisance parameters (Waterman and Lindsay, 1998). Assuming that the localizing parameter makes a nonpositive value, we establish consistency of the GMM estimator …