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Articles 1501 - 1530 of 2768
Full-Text Articles in Social and Behavioral Sciences
Political Correctness, Stephen Morris
Political Correctness, Stephen Morris
Cowles Foundation Discussion Papers
An informed advisor wishes to convey her valuable information to an uninformed decision maker with identical preferences. Thus she has a current incentive to truthfully reveal her information. But if the decision maker thinks the advisor might be biased in favor of one decision, and the advisor does not wish to be thought to be biased, the advisor has a reputational incentive to lie. If the advisor is sufficiently concerned about her reputation, no information is conveyed in equilibrium. In a repeated version of this game, the advisor will care.
Strategic Buyers And Privately Observed Prices, Dirk Bergemann, Juuso Välimäki
Strategic Buyers And Privately Observed Prices, Dirk Bergemann, Juuso Välimäki
Cowles Foundation Discussion Papers
A model of repeated price competition with large buyers is analyzed. The sellers are allowed to offer different prices to different buyers and the buyers act strategically. The set of subgame perfect Equilibria is investigated under public and private monitoring. With public monitoring the equilibrium set with large buyers expands relative to the standard model where each buyer is small and behaves myopically. With private monitoring, where prices are not observable to the competing sellers, the set of equilibrium payoffs shrinks . In the finitely repeated game with private monitoring, all sales are made by the efficient seller. In the …
Repeated Games With Almost-Public Monitoring, George J. Mailath, Stephen Morris
Repeated Games With Almost-Public Monitoring, George J. Mailath, Stephen Morris
Cowles Foundation Discussion Papers
In repeated games with imperfect public monitoring, players can use public signals to coordinate their behavior perfectly, and thus support cooperative outcomes with the threat of punishments. But with even a small amount of private monitoring, players’ private histories may lead them to have sufficiently different views of the world that such coordination on punishments is no longer possible (we describe a simple strategy profile that is a perfect public equilibrium of a repeated prisoner’s dilemma with imperfect public monitoring, and yet is not an equilibrium for arbitrarily close games with private monitoring). If a perfect public equilibrium has players’ …
Survey Of Multifractality In Finance, Benoit Mandelbrot
Survey Of Multifractality In Finance, Benoit Mandelbrot
Cowles Foundation Discussion Papers
No abstract provided.
World Income Components: Measuring And Exploiting Risk-Sharing Opportunities, Stefano G. Athanasoulis, Robert J. Shiller
World Income Components: Measuring And Exploiting Risk-Sharing Opportunities, Stefano G. Athanasoulis, Robert J. Shiller
Cowles Foundation Discussion Papers
We provide a method for decomposing the variance of changes in incomes in the world into components, world income components (WICs), in such a way as to indicate the most important risk-sharing opportunities among people of the world. We develop a constant absolute risk premium model, an intertemporal general equilibrium model of the world that facilitates consideration of optimal contract design. We show that for a contract designer maximizing a social welfare function, the optimal risk-management contracts maximize the equilibrium world real interest rate. That is the contract designer achieves the risk-optimal interest rate. We show that these WIC securities …
Stationary Multi Choice Bandit Problems, Dirk Bergemann, Juuso Välimäki
Stationary Multi Choice Bandit Problems, Dirk Bergemann, Juuso Välimäki
Cowles Foundation Discussion Papers
This note shows that the optimal choice of k simultaneous experiments in a stationary multi-armed bandit problem can be characterized in terms of the Gittins index of each arm. The index characterization remains equally valid after the introduction of switching costs.
Contractual Intermediaries, Garey Ramey, Joel Watson
Contractual Intermediaries, Garey Ramey, Joel Watson
Cowles Foundation Discussion Papers
This paper analyzes the role of third party intermediaries, such as courts and arbitrators, in contract enforcement. In our model, intermediaries compel contracted transfers and resolve disputes when requested to do so by the contracting agents. When the verifiability of information is limited, successful enforcement requires that dispute resolution costs be sufficiently great. Optimal enforcement systems economize on dispute resolution and information costs, and may involve establishment of specific systems tailored to particular groups. We show further that the “holdup problem” may be resolved via an appropriately designed dispute resolution system.
On Minsky's Agenda For Reform, James Tobin
On Minsky's Agenda For Reform, James Tobin
Cowles Foundation Discussion Papers
No abstract provided.
Consistent Model And Moment Selection Criteria For Gmm Estimation With Application To Dynamic Panel Data Models, Donald W.K. Andrews, Biao Lu
Consistent Model And Moment Selection Criteria For Gmm Estimation With Application To Dynamic Panel Data Models, Donald W.K. Andrews, Biao Lu
Cowles Foundation Discussion Papers
This paper develops consistent model and moment selection criteria for GMM estimation. The criteria select the correct model specification and all correct moment conditions asymptotically. The selection criteria resemble the widely used likelihood-based selection criteria BIC, HQIC, and AIC. (The latter is not consistent.) The GMM selection criteria are based on the J statistic for testing over-identifying restrictions. Bonus terms reward the use of fewer parameters for a given number of moment conditions and the use of more moment conditions for a given number of parameters. The paper applies the model and moment selection criteria to dynamic panel data models …
Testing When A Parameter Is On The Boundary Of The Maintained Hypothesis, Donald W.K. Andrews
Testing When A Parameter Is On The Boundary Of The Maintained Hypothesis, Donald W.K. Andrews
Cowles Foundation Discussion Papers
This paper considers testing problems where several of the standard regularity conditions fail to hold. We consider the case where (i) parameter vectors in the null hypothesis may lie on the boundary of the maintained hypothesis and (ii) there may be a nuisance parameter that appears under the alternative hypothesis, but not under the null. The paper establishes the asymptotic null and local alternative distributions of quasi-likelihood ratio, rescaled quasi-likelihood ratio, Wald, and score tests in this case. The results apply to tests based on a wide variety of extremum estimators and apply to a wide variety of models. Examples …
Higher-Order Improvements Of A Computationally Attractive K-Step Bootstrap For Extremum Estimators, Donald W.K. Andrews
Higher-Order Improvements Of A Computationally Attractive K-Step Bootstrap For Extremum Estimators, Donald W.K. Andrews
Cowles Foundation Discussion Papers
This paper establishes the higher-order equivalence of the k -step bootstrap, introduced recently by Davidson and MacKinnon (1999a), and the standard bootstrap. The k -step bootstrap is a very attractive alternative computationally to the standard bootstrap for statistics based on nonlinear extremum estimators, such as generalized method of moment and maximum likelihood estimators. The paper also extends results of Hall and Horowitz (1996) to provide new results regarding the higher-order improvements of the standard bootstrap and the k -step bootstrap for extremum estimators (compared to procedures based on first-order asymptotics). The results of the paper apply to Newton-Raphson (NR), default …
Higher-Order Improvements Of A Computationally Attractive K-Step Bootstrap For Extremum Estimators, Donald W.K. Andrews
Higher-Order Improvements Of A Computationally Attractive K-Step Bootstrap For Extremum Estimators, Donald W.K. Andrews
Cowles Foundation Discussion Papers
This paper establishes the higher-order equivalence of the k -step bootstrap, introduced recently by Davidson and MacKinnon (1999a), and the standard bootstrap. The k -step bootstrap is a very attractive alternative computationally to the standard bootstrap for statistics based on nonlinear extremum estimators, such as generalized method of moment and maximum likelihood estimators. The paper also extends results of Hall and Horowitz (1996) to provide new results regarding the higher-order improvements of the standard bootstrap and the k -step bootstrap for extremum estimators (compared to procedures based on first-order asymptotics). The results of the paper apply to Newton-Raphson (NR), default …
Vertical Integration, Networks, And Markets], Rachel E. Kranton, Deborah F. Minehart
Vertical Integration, Networks, And Markets], Rachel E. Kranton, Deborah F. Minehart
Cowles Foundation Discussion Papers
The organization of supply relations varies across industries. This paper builds a theoretical framework to compare three alternative supply structures: vertical integration, networks, and markets. The analysis considers the relationship between uncertainty in demand for specific inputs, investment costs, and industrial structure. It shows that network structures are more likely when productive assets are expensive and firms experience large idiosyncratic shocks in demand. The analysis is supported by existing evidence and provides empirical predictions as to the shape of different industries.
Vertical Integration, Networks, And Markets, Rachel E. Kranton, Deborah F. Minehart
Vertical Integration, Networks, And Markets, Rachel E. Kranton, Deborah F. Minehart
Cowles Foundation Discussion Papers
The organization of supply relations varies across industries. This paper builds a theoretical framework to compare three alternative supply structures: vertical integration, networks, and markets. The analysis considers the relationship between uncertainty in demand for specific inputs, investment costs, and industrial structure. It shows that network structures are more likely when productive assets are expensive and firms experience large idiosyncratic shocks in demand. The analysis is supported by existing evidence and provides empirical predictions as to the shape of different industries.
Estimation Of Autoregressive Roots Near Unity Using Panel Data, Hyungsik Roger Moon, Peter C.B. Phillips
Estimation Of Autoregressive Roots Near Unity Using Panel Data, Hyungsik Roger Moon, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Time series data are often well modelled by using the device of an autoregressive root that is local to unity. Unfortunately, the localizing parameter (c) is not consistently estimable using existing time series econometric techniques and the lack of a consistent estimator complicates inference. This paper develops procedures for the estimation of a common localizing parameter using panel data. Pooling information across individuals in a panel aids the identification and estimation of the localising parameter and leads to consistent estimation in simple panel models. However, in the important case of models with concomitant deterministic trends, it is shown that pooled …
Toward A Theory Of Reinsurance And Retrocession, Michael R. Powers, Martin Shubik
Toward A Theory Of Reinsurance And Retrocession, Michael R. Powers, Martin Shubik
Cowles Foundation Discussion Papers
There is a natural tradeoff between the benefits of increasing the number of competitors in an insurance market and the drawback to the weakening of the law of large numbers due to the diminishing of average reserves. In this investigation we consider the possibility for optimal layers of reinsurance and retrocession in the design of the insurance industry. A general question which may be asked of all financial institutions is what factors limit the number of layers of paper which can be constructed?
An Empirical Model Of Inventory Investment By Durable Commodity Intermediaries, George J. Hall, John Rust
An Empirical Model Of Inventory Investment By Durable Commodity Intermediaries, George J. Hall, John Rust
Cowles Foundation Discussion Papers
This paper introduces a new detailed data set of high-frequency observations on inventory investment by a U.S. steel wholesaler. Our analysis of these data leads to six main conclusions: orders and sales are made infrequently; orders are more volatile than sales; order sizes vary considerably; there is substantial high-frequency variation in the firm’s sales prices; inventory/sales ratios are unstable; and there are occasional stockouts. We model the firm generically as a durable commodity intermediary that engages in commodity price speculation. We demonstrate that the firm’s inventory investment behavior at the product level is well approximated by an optimal trading strategy …
Linear Regression Limit Theory For Nonstationary Panel Data, Peter C.B. Phillips, Hyungsik Roger Moon
Linear Regression Limit Theory For Nonstationary Panel Data, Peter C.B. Phillips, Hyungsik Roger Moon
Cowles Foundation Discussion Papers
This paper develops a regression limit theory for nonstationary panel data with large numbers of cross section ( n ) and time series ( T ) observations. The limit theory allows for both sequential limits, wherein T → ∞ followed by n → ∞, and joint limits where T,n → ∞ simultaneously; and the relationship between these multidimensional limits is explored. The panel structures considered allow for no time series cointegration, heterogeneous cointegration, homogeneous cointegration, and near-homogeneous cointegration. The paper explores the existence of long-run average relations between integrated panel vectors when there is no individual time series cointegration and …
Nonstationary Binary Choice, Joon Y. Park, Peter C.B. Phillips
Nonstationary Binary Choice, Joon Y. Park, Peter C.B. Phillips
Cowles Foundation Discussion Papers
This paper develops an asymptotic theory for time series binary choice models with nonstationary explanatory variables generated as integrated processes. Both logit and probit models are covered. The maximum likelihood (ML) estimator is consistent but a new phenomenon arises in its limit distribution theory. The estimator consists of a mixture of two components, one of which is parallel to and the other orthogonal to the direction of the true parameter vector, with the latter being the principal component. The ML estimator is shown to converge at a rate of n 3 /4 along its principal component but has the slower …
Nonstationary Panel Data Analysis: An Overview Of Some Recent Developments, Peter C.B. Phillips, Hyungsik Roger Moon
Nonstationary Panel Data Analysis: An Overview Of Some Recent Developments, Peter C.B. Phillips, Hyungsik Roger Moon
Cowles Foundation Discussion Papers
This paper overviews some recent developments in panel data asymptotics, concentrating on the nonstationary panel case and gives a new result for models with individual effects. Underlying recent theory are asymptotics for multi-indexed processes in which both indexes may pass to infinity. We review some of the new limit theory that has been developed, show how it can be applied and give a new interpretation of individual effects in nonstationary panel data. Fundamental to the interpretation of much of the asymptotics is the concept of a panel regression coefficient which measures the long run average relation across a section of …
Descriptive Econometrics For Nonstationary Time Series With Empirical Illustrations, Peter C.B. Phillips
Descriptive Econometrics For Nonstationary Time Series With Empirical Illustrations, Peter C.B. Phillips
Cowles Foundation Discussion Papers
Recent work by the author on methods of spatial density analysis for time series data with stochastic trends is reviewed and extended. The methods are illustrated in some empirical applications and simulations. The empirical applications include macroeconomic data on inflation, financial data on exchange rates and political opinion poll data. It is shown how the methods can be used to measure empirical hazard rates for inflation and deflation. Empirical estimates based on historical US data over the last 60 years indicate that the predominant inflation risks are at low levels (2–6%) and low two-digit levels (10–12%), and that there is …
Entry And Innovation In Vertically Differentiated Markets, Dirk Bergemann, Juuso Välimäki
Entry And Innovation In Vertically Differentiated Markets, Dirk Bergemann, Juuso Välimäki
Cowles Foundation Discussion Papers
This paper analyzes the optimal entry into experience goods markets with vertically differentiated buyers. We consider the case where the value of the new product is imperfectly known, but common to all buyers (common values) as well as the case where the quality is different across buyers (private values). We distinguish between new products that are improvements to existing products and new products that are substitutes. Different types of products have qualitatively distinct diffusion paths. Improvements are introduced slowly relative to the full information case, while substitutes are introduced more aggressively. The slow entry strategy is associated with increasing supply …
Starting Small And Commitment, Joel Watson
Starting Small And Commitment, Joel Watson
Cowles Foundation Discussion Papers
I study a model of a long-term partnership with two-sided incomplete information. The partners jointly determine the stakes of their relationship and individually decide whether to cooperate with or betray each other over time. I characterize the extremal — interim incentive efficient — equilibria. In these equilibria, the partners generally “start small,” with the level of interaction growing over time. The types of players separate quickly. Further, cooperation between “good” types is viable regardless of how pessimistic the players are about each other initially. The quick nature of separation in an extremal equilibrium contrasts with the outcome selected by a …
Starting Small In An Unfamiliar Environment, James Rauch, Joel Watson
Starting Small In An Unfamiliar Environment, James Rauch, Joel Watson
Cowles Foundation Discussion Papers
Motivated by a characteristic way in which firms in developed countries make their decisions regarding cooperation with potential partners from less developed countries, we design a simple model of a DC firm’s search for an LDC partner/supplier and the subsequent relationship between the two parties. Matched firms can “start small” with a trial order or pilot project of variable size in order to gain information about the ability of the LDC firm to successfully carry out a large project. We derive results relating whether and how the parties start small to the characteristics of the large project and to the …
Conditioning Institutions And Renegotiation, Garey Ramey, Joel Watson
Conditioning Institutions And Renegotiation, Garey Ramey, Joel Watson
Cowles Foundation Discussion Papers
We propose a theory of contracting in long-term relationships, emphasizing the role of social institutions in conditioning players’ joint selection of Equilibria. Players adopt a social conditioning system in order to place boundaries on their recurrent negotiation and thereby sustain a desirable joint selection of equilibrium. Social conventions have value because players cannot freely reinterpret the labels attached to histories, in contrast to labels that the players might assign internally. We present examples of social conventions that are useful for sustaining cooperative interaction. Our model combines an explicit bargaining technology with a renegotiation concept, coherent equilibrium , that builds on …
Experimentation In Markets, Dirk Bergemann, Juuso Välimäki
Experimentation In Markets, Dirk Bergemann, Juuso Välimäki
Cowles Foundation Discussion Papers
We present a model of entry and exit with Bayesian learning and price competition. A new product of initially unknown quality is introduced in the market, and purchases of the product yield information on its true quality. We assume that the performance of the new product is publicly observable. As agents learn from the experiments of others, informational externalities arise. We determine the Markov Perfect Equilibrium prices and allocations. In a single market, the combination of the informational externalities among the buyers and the strategic pricing by the sellers results in excessive experimentation. If the new product is launched in …
Liquidity Flows And Fragility Of Business Enterprises, Wouter J. Den Haan, Garey Ramey, Joel Watson
Liquidity Flows And Fragility Of Business Enterprises, Wouter J. Den Haan, Garey Ramey, Joel Watson
Cowles Foundation Discussion Papers
This paper considers the efficiency of financial intermediation and the propagation of business cycle shocks in a model of long-term relationships between entrepreneurs and lenders, where lenders may be constrained in their short-run access to liquidity. When liquidity is low, relationships are subject to breakups that lead to loss of joint surplus. Liquidity outflows cause damage to financial structure by breaking up relationships, and damage persists due to frictions in the formation of new relationships. Feedbacks between aggregate investment and the structure of intermediation greatly magnify the effects of shocks. For large shocks, financial collapse may become inescapable in the …
Rationalizable Trade, Stephen Morris, Costis Skiadas
Rationalizable Trade, Stephen Morris, Costis Skiadas
Cowles Foundation Discussion Papers
We formulate necessary and sufficient conditions for interim rationalizable trade between two players.
Measuring Bubble Expectations And Investor Confidence, Robert J. Shiller
Measuring Bubble Expectations And Investor Confidence, Robert J. Shiller
Cowles Foundation Discussion Papers
This paper presents evidence on attitude changes among investors in the US stock market. Two basic attitudes are explored: bubble expectations and investor confidence. Semiannual time-series indicators of these attitudes are presented for US stock market institutional investors based on questionnaire survey results 1989–1998, from surveys that I have derived in collaboration with Fumiko Kon-Ya and Yoshiro Tsutsui. Five different time-series indicators whether there is among investors an expectation of a speculative bubble, an unstable situation with expectations for increase in the short run only, are produced. Four different time-series indicators whether there is an expectation of a negative speculative …
The Hierarchical Approach To Modeling Knowledge And Common Knowledge, Ronald Fagin, John Geanakoplos, Joseph Y. Halpern, Moshe Y. Vardi
The Hierarchical Approach To Modeling Knowledge And Common Knowledge, Ronald Fagin, John Geanakoplos, Joseph Y. Halpern, Moshe Y. Vardi
Cowles Foundation Discussion Papers
One approach to representing knowledge or belief of agents, used by economists and computer scientists, involves an infinite hierarchy of beliefs. Such a hierarchy consists of an agent’s beliefs about the state of the world, his beliefs about other agents’ beliefs about the world, his beliefs about other agents’ beliefs about other agents’ beliefs about the world, and so on. (Economists have typically modeled belief in terms of a probability distribution on the uncertainty space. In contrast, computer scientists have modeled belief in terms of a set of worlds, intuitively, the ones the agent considers possible.) We consider the question …