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Full-Text Articles in Social and Behavioral Sciences
Dynamic Revenue Maximization: A Continuous Time Approach, Dirk Bergemann, Philipp Strack
Dynamic Revenue Maximization: A Continuous Time Approach, Dirk Bergemann, Philipp Strack
Cowles Foundation Discussion Papers
We characterize the revenue-maximizing mechanism for time separable allocation problems in continuous time. The valuation of each agent is private information and changes over time. At the time of contracting every agent privately observes his initial type which influences the evolution of his valuation process. The leading example is the repeated sales of a good or a service. We derive the optimal dynamic mechanism, analyze its qualitative structure and frequently derive its closed form solution. This enables us to compare the distortion in various settings. In particular, we discuss the cases where the type of each agent follows an arithmetic …
Dynamic Revenue Maximization: A Continuous Time Approach, Dirk Bergemann, Philipp Strack
Dynamic Revenue Maximization: A Continuous Time Approach, Dirk Bergemann, Philipp Strack
Cowles Foundation Discussion Papers
We characterize the profit-maximizing mechanism for repeatedly selling a non-durable good in continuous time. The valuation of each agent is private information and changes over time. At the time of contracting every agent privately observes his initial type which influences the evolution of his valuation process. In the profit-maximizing mechanism the allocation is distorted in favor of agents with high initial types. We derive the optimal mechanism in closed form, which enables us to compare the distortion in various examples. The case where the valuation of the agents follows an arithmetic/geometric Brownian motion, Ornstein-Uhlenbeck process, or is derived from a …
Dynamic Revenue Maximization: A Continuous Time Approach, Dirk Bergemann, Philipp Strack
Dynamic Revenue Maximization: A Continuous Time Approach, Dirk Bergemann, Philipp Strack
Cowles Foundation Discussion Papers
We characterize the revenue-maximizing mechanism for time separable allocation problems in continuous time. The willingness-to-pay of each agent is private information and changes over time. We derive the dynamic revenue-maximizing mechanism, analyze its qualitative structure and frequently derive its closed form solution. In the leading example of repeat sales of a good or service, we establish that commonly observed contract features such as at rates, free consumption units and two-part tariffs emerge as part of the optimal contract. We investigate in detail the environments in which the type of each agent follows an arithmetic or geometric Brownian motion or a …
Dynamic Revenue Maximization: A Continuous Time Approach, Dirk Bergemann, Philipp Strack
Dynamic Revenue Maximization: A Continuous Time Approach, Dirk Bergemann, Philipp Strack
Cowles Foundation Discussion Papers
We characterize the profit-maximizing mechanism for repeatedly selling a non-durable good in continuous time. The valuation of each agent is private information and changes over time. At the time of contracting every agent privately observes his initial type which influences the evolution of his valuation process. In the profit-maximizing mechanism the allocation is distorted in favor of agents with high initial types. We derive the optimal mechanism in closed form, which enables us to compare the distortion in various examples. The case where the valuation of the agents follows an arithmetic/geometric Brownian motion, Ornstein-Uhlenbeck process, or is derived from a …
Games With Money And Status: How Best To Incentivize Work, Pradeep Dubey, John Geanakoplos
Games With Money And Status: How Best To Incentivize Work, Pradeep Dubey, John Geanakoplos
Cowles Foundation Discussion Papers
Status is greatly valued in the real world, yet it has not received much attention from economic theorists. We examine how the owner of a firm can best combine money and status together to get his employees to work hard for the least total cost. We find that he should motivate workers of low skill mostly by status and high skill mostly by money. Moreover, he should do so by using a small number of titles and wage levels. This often results in star wages to the elite performers.
Money And Status: How Best To Incentivize Work, Pradeep Dubey, John Geanakoplos
Money And Status: How Best To Incentivize Work, Pradeep Dubey, John Geanakoplos
Cowles Foundation Discussion Papers
Status is greatly valued in the real world, yet it has not received much attention from economic theorists. We examine how the owner of a firm can best combine money and status to get her employees to work hard for the least total cost. We find that she should motivate workers of low skill mostly by status and high skill mostly by money. Moreover, she should do so by using a small number of titles and wage levels. This often results in star wages to the elite performers and, more generally, in wage jumps for small increases in productivity. By …
Selling Experiments: Menu Pricing Of Information, Dirk Bergemann, Alessandro Bonatti, Alex Smolin
Selling Experiments: Menu Pricing Of Information, Dirk Bergemann, Alessandro Bonatti, Alex Smolin
Cowles Foundation Discussion Papers
A monopolist sells informative experiments to heterogeneous buyers. Buyers differ in their prior information, and hence in their willingness to pay for additional signals. The monopolist can profitably offer a menu of experiments. We show that, even under costless information acquisition and free degrading of information, the optimal menu is quite coarse. The seller offers at most two experiments, and we derive conditions under which at vs. discriminatory pricing is optimal.
Changing Times, Changing Values: A Historical Analysis Of Sectors Within The Us Stock Market 1872-2013, Oliver D. Bunn, Robert J. Shiller
Changing Times, Changing Values: A Historical Analysis Of Sectors Within The Us Stock Market 1872-2013, Oliver D. Bunn, Robert J. Shiller
Cowles Foundation Discussion Papers
We construct a price, dividend, and earnings series for the Industrials sector, the Utilities sector, and the Railroads sector from the beginning of the 1870s until the beginning of the year 2013 from primary sources. To infer about mispricings in the sector markets over more than a century, we investigate the forecasting power of the Cyclically Adjusted Price-Earnings (CAPE) ratio1 for these sectors. With regard to the CAPE ratio, which has originally been devised and employed by Campbell and Shiller (1988, 1998, 2001) as well as Shiller (2005), we define a methodological improvement to this ratio to not only be …
Simecs, Ithaca Hours, Berkshares, Bitcoins And Walmarts, Martin Shubik
Simecs, Ithaca Hours, Berkshares, Bitcoins And Walmarts, Martin Shubik
Cowles Foundation Discussion Papers
The practical and theoretical meaning of the rise and fall of new local and virtual currencies suggest that two basic theories of money both have their validity and reasons for coexistence. The drive for increasing efficiency in the payment mechanisms is in full swing and still presents many opportunities for improvement.
Intrahousehold Inequality, Costas Meghir
Intrahousehold Inequality, Costas Meghir
Cowles Foundation Discussion Papers
Studies of inequality often ignore resource allocation within the household. In doing so they miss an important element of the distribution of welfare that can vary dramatically depending on overall environmental and economic factors. Thus, measures of inequality that ignore intra household allocations are both incomplete and misleading. We discuss determinants of intra household allocation of resources and welfare. We show how the sharing rule, which characterizes the within household allocations, can be identified from data on household consumption and labor supply. We also argue that a measure based on estimates of the sharing rule is inadequate as an approach …
Intra-Household Welfare, Costas Meghir
Intra-Household Welfare, Costas Meghir
Cowles Foundation Discussion Papers
In this paper we develop an approach to measuring inequality and poverty that recognizes the fact that individuals within households may have both different preferences and differential access to resources. We argue that a measure based on estimates of the sharing rule is inadequate as an approach that seeks to understand how welfare is distributed in the population because it ignores public good and the allocation of time to market work, leisure and household production. We develop a money metric measure of welfare that accounts for public goods (by using personalized prices) household production and for the allocation of time.
Investment And Competitive Matching, Georg Nöldeke, Larry Samuelson
Investment And Competitive Matching, Georg Nöldeke, Larry Samuelson
Cowles Foundation Discussion Papers
We study markets in which agents first make investments and are then matched into potentially productive partnerships. Equilibrium investments and the equilibrium matching will be efficient if agents can simultaneously negotiate investments and matches, but we focus on markets in which agents must first sink their investments before matching. Additional equilibria may arise in this sunk-investment setting, even though our matching market is competitive. These equilibria exhibit inefficiencies that we can interpret as coordination failures. All allocations satisfying a constrained efficiency property are equilibria, and the converse holds if preferences satisfy a separability condition. We identify sufficient conditions (most notably, …
Minimally Complex Exchange Mechanisms: Emergence Of Prices, Markets, And Money, Pradeep Dubey, Siddhartha Sahi, Martin Shubik
Minimally Complex Exchange Mechanisms: Emergence Of Prices, Markets, And Money, Pradeep Dubey, Siddhartha Sahi, Martin Shubik
Cowles Foundation Discussion Papers
We consider abstract exchange mechanisms wherein individuals submit “diversified” offers in m commodities, which are then redistributed to them. Our first result is that if the mechanism satisfies certain natural conditions embodying “fairness” and “convenience” then it admits unique prices, in the sense of consistent exchange-rates across commodity pairs ij that equalize the valuation of offers and returns for each individual. We next define certain integers τ ij , π ij , and k i which represent the “time” required to exchange i for j , the “difficulty” in determining the exchange ratio, and the “dimension” of the offer space …
Do Sympathy Biases Induce Charitable Giving? The Effects Of Advertising Content, K. Sudhir, Subroto Roy, Mathew Cherian
Do Sympathy Biases Induce Charitable Giving? The Effects Of Advertising Content, K. Sudhir, Subroto Roy, Mathew Cherian
Cowles Foundation Discussion Papers
We randomize advertising content motivated by the psychology literature on sympathy generation and framing effects in mailings to about 185,000 prospective new donors in India. We find significant impact on the number of donors and amounts donated consistent with sympathy biases such as the “identifiable victim,” “in-group” and “reference dependence.” A monthly reframing of the ask amount increases donors and amount donated relative to daily reframing. A second field experiment targeted to past donors, finds that the effect of sympathy bias on giving is smaller in percentage terms but statistically and economically highly significant in terms of the magnitude of …
Price Search Across Stores And Across Time, Navid Mojir, K. Sudhir
Price Search Across Stores And Across Time, Navid Mojir, K. Sudhir
Cowles Foundation Discussion Papers
In response to price dispersion across stores and price promotions over time, consumers search across both stores (spatial) and time (temporal), in many retail settings. Yet there is no search model in extant research that jointly endogenizes search in both dimensions. We develop a model of spatiotemporal search that nests a finite horizon model of spatial search across stores within an infinite horizon model of inter-temporal search. The model is estimated using an iterative procedure that formulates it as a mathematical program with equilibrium constraints (MPEC) embedded within an E-M algorithm to allow estimation of latent class heterogeneity. The empirical …
How Might A Central Bank Report Uncertainty?, Ray C. Fair
How Might A Central Bank Report Uncertainty?, Ray C. Fair
Cowles Foundation Discussion Papers
An important question for central banks is how they should report the uncertainty of their forecasts. This paper discusses a way in which a central bank could report the uncertainty of its forecasts in a world in which it used a single macroeconometric model to make its forecasts and guide its policies. Suggestions are then made as to what might be feasible for a central bank to report given that it is unlikely to be willing to commit to a single model. A particular model is used as an illustration.
Price Search Across Time And Across Stores, Navid Mojir, K. Sudhir
Price Search Across Time And Across Stores, Navid Mojir, K. Sudhir
Cowles Foundation Discussion Papers
In response to price dispersion across stores and price promotions over time, consumers search across both stores and time, in many retail settings. Yet there is no search model in extant research that jointly endogenizes search in both dimensions. We develop a model of search across stores and across time that nests a nite horizon model of search across stores within an in nite horizon model of inter-temporal search. The model is estimated using an iterative procedure that formulates it as a mathematical program with equilibrium constraints (MPEC) embedded within an E-M algorithm to allow estimation of latent class heterogeneity. …
Specification Tests For Nonlinear Dynamic Models, Igor Kheifets
Specification Tests For Nonlinear Dynamic Models, Igor Kheifets
Cowles Foundation Discussion Papers
We propose a new adequacy test and a graphical evaluation tool for nonlinear dynamic models. The proposed techniques can be applied in any setup where parametric conditional distribution of the data is specified, in particular to models involving conditional volatility, conditional higher moments, conditional quantiles, asymmetry, Value at Risk models, duration models, diffusion models, etc. Compared to other tests, the new test properly controls the nonlinear dynamic behavior in conditional distribution and does not rely on smoothing techniques which require a choice of several tuning parameters. The test is based on a new kind of multivariate empirical process of contemporaneous …
Computational Complexity Of The Walrasian Equilibrium Inequalities, Donald J. Brown
Computational Complexity Of The Walrasian Equilibrium Inequalities, Donald J. Brown
Cowles Foundation Discussion Papers
Recently Cherchye et al. (2011) reformulated the Walrasian equilibrium inequalities, introduced by Brown and Matzkin (1996), as an integer programming problem and proved that solving the Walrasian equilibrium inequalities is NP-hard. Following Brown and Shannon (2000), we reformulate the Walrasian equilibrium inequalities as the Hicksian equilibrium inequalities. Brown and Shannon proved that the Walrasian equilibrium inequalities are solvable iff the Hicksian equilibrium inequalities are solvable. We show that solving the Hicksian equilibrium inequalities is equivalent to solving an NP-hard minimization problem. Approximation theorems are polynomial time algorithms for computing approximate solutions of NP-hard minimization problems. The contribution of this paper …
Exploiting The Choice-Consumption Mismatch: A New Approach To Disentangle State Dependence And Heterogeneity, K. Sudhir, Nathan Yang
Exploiting The Choice-Consumption Mismatch: A New Approach To Disentangle State Dependence And Heterogeneity, K. Sudhir, Nathan Yang
Cowles Foundation Discussion Papers
This paper offers a new identification strategy for disentangling structural state dependence from unobserved heterogeneity in preferences. Our strategy exploits market environments where there is a choice-consumption mismatch. We first demonstrate the effectiveness of our identification strategy in obtaining unbiased state dependence estimates via Monte Carlo analysis and highlight its superiority relative to the extant choice-set variation based approach. In an empirical application that uses data of repeat transactions from the car rental industry, we find evidence of structural state dependence, but show that state dependence effects may be overstated without exploiting the choice-consumption mismatches that materialize through free upgrades.
A Model Of Multi-Pass Search: Price Search Across Stores And Time, Navid Mojir, K. Sudhir
A Model Of Multi-Pass Search: Price Search Across Stores And Time, Navid Mojir, K. Sudhir
Cowles Foundation Discussion Papers
In retail settings with price promotions, consumers often search across stores and time. However the search literature typically only models one pass search across stores, ignoring revisits to stores; the choice literature using scanner data has modeled search across time, but not search across stores in the same model. We develop a multi-pass search model that jointly endogenizes search in both dimensions; our model nests a nite horizon model of search across stores within an in nite horizon model of inter-temporal search. We apply our model to milk purchases at grocery stores; hence the model also accounts for repeat purchases …
Varying The Money Supply Of Commercial Banks, Martin Shubik, Eric Smith
Varying The Money Supply Of Commercial Banks, Martin Shubik, Eric Smith
Cowles Foundation Discussion Papers
We consider the problem of financing two productive sectors in an economy through bank loans, when the sectors may experience independent demands for money but when it is desirable for each to maintain an independently determined sequence of prices. An idealized central bank is compared with a collection of commercial banks that generate profits from interest rate spreads and flow those through to a collection of consumer/owners who are also one group of borrowers and lenders in the private economy. We model the private economy as one in which both production functions and consumption preferences for the two goods are …
The Financial Crisis And Macroeconomic Activity: 2008-2013, Ray C. Fair
The Financial Crisis And Macroeconomic Activity: 2008-2013, Ray C. Fair
Cowles Foundation Discussion Papers
This paper provides estimates of the effects of the fall in financial and housing wealth in 2008-2009 on overall macroeconomic activity. These effects are large and account for a large fraction of the slowdown in activity. Much of the 2008-2009 recession is estimated to be simply standard wealth effects at work.
Speculative Asset Prices, Robert J. Shiller
Speculative Asset Prices, Robert J. Shiller
Cowles Foundation Discussion Papers
Nobel Prize Lecture
Gaming And Strategic Opacity In Incentive Provision, Florian Ederer, Richard Holden, Margaret Meyer
Gaming And Strategic Opacity In Incentive Provision, Florian Ederer, Richard Holden, Margaret Meyer
Cowles Foundation Discussion Papers
It is often suggested that incentive schemes under moral hazard can be gamed by an agent with superior knowledge of the environment, and that deliberate lack of transparency about the incentive scheme can reduce gaming. We formally investigate these arguments in a two-task moral hazard model in which the agent is privately informed about which task is less costly for him to work on. We examine two simple classes of incentive scheme that are “opaque” in that they make the agent uncertain ex ante about the values of the incentive coefficients in the linear payment rule. We show that, relative …
Why Is Housing Finance Still Stuck In Such A Primitive Stage?, Robert J. Shiller
Why Is Housing Finance Still Stuck In Such A Primitive Stage?, Robert J. Shiller
Cowles Foundation Discussion Papers
The institutions for financing owner-occupied housing have not progressed as they should, and the financial innovation that has followed the financial crisis of 2007-9 has not been focused on improving the risk management of individual homeowners. This paper lists a number of barriers to housing finance innovation, and in light of these barriers, the problems of some major innovations of the past and future: self-amortizing mortgages, price-level adjusted mortgages (PLAMs), shared appreciation mortgages (SAMs), housing partnerships, and continuous workout mortgages (CWMs).
Information And Volatility, Dirk Bergemann, Tibor Heumann, Stephen Morris
Information And Volatility, Dirk Bergemann, Tibor Heumann, Stephen Morris
Cowles Foundation Discussion Papers
In an economy of interacting agents with both idiosyncratic and aggregate shocks, we examine how the structure of private information influences aggregate volatility. The maximal aggregate volatility is attained in a noise free information structure in which the agents confound idiosyncratic and aggregate shocks, and display excess response to the aggregate shocks, as in Lucas [14]. For any given variance of aggregate shocks, the upper bound on aggregate volatility is linearly increasing in the variance of the idiosyncratic shocks. Our results hold in a setting of symmetric agents with linear best responses and normal uncertainty. We establish our results by …
Uniform Consistency Of Nonstationary Kernel-Weighted Sample Covariances For Nonparametric Regression, Degui Li, Peter C.B. Phillips, Jiti Gao
Uniform Consistency Of Nonstationary Kernel-Weighted Sample Covariances For Nonparametric Regression, Degui Li, Peter C.B. Phillips, Jiti Gao
Cowles Foundation Discussion Papers
We obtain uniform consistency results for kernel-weighted sample covariances in a nonstationary multiple regression framework that allows for both fixed design and random design coefficient variation. In the fixed design case these nonparametric sample covariances have different uniform convergence rates depending on direction, a result that differs fundamentally from the random design and stationary cases. The uniform convergence rates derived are faster than the corresponding rates in the stationary case and confirm the existence of uniform super-consistency. The modelling framework and convergence rates allow for endogeneity and thus broaden the practical econometric import of these results. As a specific application, …
Information And Volatility, Dirk Bergemann, Tibor Heumann, Stephen Morris
Information And Volatility, Dirk Bergemann, Tibor Heumann, Stephen Morris
Cowles Foundation Discussion Papers
In an economy of interacting agents with both idiosyncratic and aggregate shocks, we examine how the information structure determines aggregate volatility. We show that the maximal aggregate volatility is attained in a noise free information structure in which the agents confound idiosyncratic and common components of the payoff state, and display excess response to the common component, as in Lucas (1972). The upper bound on aggregate volatility is linearly increasing in the variance of idiosyncratic shocks, for any given variance of aggregate shocks. Our results hold in a setting of symmetric agents with linear best responses and normal uncertainty. We …
Emissions, Humberto Llavador, John E. Roemer, Joaquim Silvestre
Emissions, Humberto Llavador, John E. Roemer, Joaquim Silvestre
Cowles Foundation Discussion Papers
Mankind must cooperate to reduce GHG emissions to prevent a catastrophic rise in global temperature. How can the necessary costs of reducing GHG emissions be allocated across regions of the world, within the next few generations, and simultaneously address growth expectations and economic development? We postulate a two-region world and, based on sustainability and egalitarian criteria, calculate optimal paths in which a South, like China, and a North, like the United States, converge in welfare per capita to a path of sustained growth of 1% per year by 2080, while global CO2 emissions are restricted to the Representative Concentration Pathway …