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Articles 751 - 780 of 2768
Full-Text Articles in Social and Behavioral Sciences
Leverage And Default In Binomial Economies: A Complete Characterization, Ana Fostel, John Geanakoplos
Leverage And Default In Binomial Economies: A Complete Characterization, Ana Fostel, John Geanakoplos
Cowles Foundation Discussion Papers
Our paper provides a complete characterization of leverage and default in binomial economies with financial assets serving as collateral. Our Binomial No-Default Theorem states that any equilibrium is equivalent (in real allocations and prices) to another equilibrium in which there is no default. Thus actual default is irrelevant, though the potential for default drives the equilibrium and limits borrowing. This result is valid with arbitrary preferences and endowments, contingent or non-contingent promises, many assets and consumption goods, production, and multiple periods. We also show that no-default equilibria would be selected if there were the slightest cost of using collateral or …
Series Estimation Of Stochastic Processes: Recent Developments And Econometric Applications, Peter C.B. Phillips, Zhipeng Liao
Series Estimation Of Stochastic Processes: Recent Developments And Econometric Applications, Peter C.B. Phillips, Zhipeng Liao
Cowles Foundation Discussion Papers
This paper overviews recent developments in series estimation of stochastic processes and some of their applications in econometrics. Underlying this approach is the idea that a stochastic process may under certain conditions be represented in terms of a set of orthonormal basis functions, giving a series representation that involves deterministic functions. Several applications of this series approximation method are discussed. The first shows how a continuous function can be approximated by a linear combination of Brownian motions (BMs), which is useful in the study of the spurious regressions. The second application utilizes the series representation of BM to investigate the …
What Have They Been Thinking? Homebuyer Behavior In Hot And Cold Markets — A 2014 Update, Karl E. Case, Robert J. Shiller, Anne K. Thompson
What Have They Been Thinking? Homebuyer Behavior In Hot And Cold Markets — A 2014 Update, Karl E. Case, Robert J. Shiller, Anne K. Thompson
Cowles Foundation Discussion Papers
Questionnaire surveys undertaken in 1988 and annually from 2003 through 2014 of recent homebuyers in each of four U.S. metropolitan areas shed light on their expectations and reasons for buying during the recent housing boom and subsequent collapse. They also provide insight into the reasons for the housing crisis that initiated the current financial malaise. We find that homebuyers were generally well informed, and that their short-run expectations if anything underreacted to the year-to-year change in actual home prices. More of the root causes of the housing bubble can be seen in their long-term (10-year) home price expectations, which reached …
Nonparametric Predictive Regression, Ioannis Kasparis, Elena Andreou, Peter C.B. Phillips
Nonparametric Predictive Regression, Ioannis Kasparis, Elena Andreou, Peter C.B. Phillips
Cowles Foundation Discussion Papers
A unifying framework for inference is developed in predictive regressions where the predictor has unknown integration properties and may be stationary or nonstationary. Two easily implemented nonparametric F-tests are proposed. The test statistics are related to those of Kasparis and Phillips (2012) and are obtained by kernel regression. The limit distribution of these predictive tests holds for a wide range of predictors including stationary as well as non-stationary fractional and near unit root processes. In this sense the proposed tests provide a unifying framework for predictive inference, allowing for possibly nonlinear relationships of unknown form, and offering robustness to integration …
Matching With Incomplete Information, Quingmin Liu, George J. Mailath, Andrew Postlewaite, Larry Samuelson
Matching With Incomplete Information, Quingmin Liu, George J. Mailath, Andrew Postlewaite, Larry Samuelson
Cowles Foundation Discussion Papers
A large literature uses matching models to analyze markets with two-sided heterogeneity, studying problems such as the matching of students to schools, residents to hospitals, husbands to wives, and workers to firms. The analysis typically assumes that the agents have complete information, and examines core outcomes. We formulate a notion of stable outcomes in matching problems with one-sided asymmetric information. The key conceptual problem is to formulate a notion of a blocking pair that takes account of the inferences that the uninformed agent might make from the hypothesis that the current allocation is stable. We show that the set of …
Runs, Panics And Bubbles: Diamond-Dybvig And Morris-Shin Reconsidered, Eric Smith, Martin Shubik
Runs, Panics And Bubbles: Diamond-Dybvig And Morris-Shin Reconsidered, Eric Smith, Martin Shubik
Cowles Foundation Discussion Papers
The basic two-noncooperative-equilibrium-point model of Diamond and Dybvig is considered along with the work of Morris and Shin utilizing the possibility of outside noise to select a unique equilibrium point. Both of these approaches are essentially nondynamic. We add an explicit replicator dynamic from evolutionary game theory to provide for a sensitivity analysis that encompasses both models and contains the results of both depending on parameter settings.
Notes On Computational Complexity Of Ge Inequalities, Donald J. Brown
Notes On Computational Complexity Of Ge Inequalities, Donald J. Brown
Cowles Foundation Discussion Papers
Recently, Cheryche et al. (2011) proved the important negative result that deciding the strong feasibility of the Marshallian equilibrium inequalities, introduced by Brown and Matzkin (1996), is NP-complete. Here, I show that the weak feasibility of the equivalent Hicksian equilibrium inequalities, introduced by Brown and Shannon (2000), can be decided in oracle-polynomial time.
The Anatomy Of French Production Hierarchies, Lorenzo Caliendo, Ferdinando Monte, Esteban Rossi-Hansberg
The Anatomy Of French Production Hierarchies, Lorenzo Caliendo, Ferdinando Monte, Esteban Rossi-Hansberg
Cowles Foundation Discussion Papers
We use a comprehensive dataset of French manufacturing firms to study their internal organization. We first divide the employees of each firm into ‘layers’ using occupational categories. Layers are hierarchical in that the typical worker in a higher layer earns more, and the typical firm occupies less of them. In addition, the probability of adding (dropping) a layer is very positively (negatively) correlated with value added. We then explore the changes in the wages and number of employees that accompany expansions in layers, output, or markets (by becoming exporters). The empirical results indicate that reorganization, through changes in layers, is …
Notes On Computational Complexity Of Ge Inequalities, Donald J. Brown
Notes On Computational Complexity Of Ge Inequalities, Donald J. Brown
Cowles Foundation Discussion Papers
This paper is a revision of my paper, CFDP 1865. The principal innovation is an equivalent reformulation of the decision problem for weak feasibility of the GE inequalities, using polynomial time ellipsoid methods, as a semidefinite optimization problem, using polynomial time interior point methods. We minimize the maximum of the Euclidean distances between the aggregate endowment and the Minkowski sum of the sets of consumer’s Marshallian demands in each observation. We show that this is an instance of the generic semidefinite optimization problem: inf x in K f ( x ) ≡ Opt ( K,f ), the optimal value of …
Simple Agents, Intelligent Markets, Karim Jamal, Michael Maier, Shyam Sunder
Simple Agents, Intelligent Markets, Karim Jamal, Michael Maier, Shyam Sunder
Cowles Foundation Discussion Papers
Attainment of rational expectations equilibria in asset markets calls for the price system to disseminate agents’ private information to others. Markets populated by human agents are known to be capable of converging to rational expectations equilibria. This paper reports comparable market outcomes when human agents are replaced by boundedly-rational algorithmic agents who use a simple means-end heuristic. These algorithmic agents lack the capability to optimize; yet outcomes of markets populated by them converge near the equilibrium derived from optimization assumptions. These findings point to market structure (rather than cognition or optimization) being an important determinant of efficient aggregate level outcomes.
What Is A Solution To A Matrix Game, Martin Shubik
What Is A Solution To A Matrix Game, Martin Shubik
Cowles Foundation Discussion Papers
These notes are provided to describe many of the problems encountered concerning both structure and behavior in specifying what is meant by the solution to a game of strategy in matrix or strategic form. In the short term in particular, it is often reasonable for the individual to accept as given, both the context in which decisions are being made and the formal structure of the rules of the game. A solution is usually considered as a complete set of equations of motion that when applied to the game at hand selects a final outcome. There are many different theories …
What Is A Solution To A Matrix Game, Martin Shubik
What Is A Solution To A Matrix Game, Martin Shubik
Cowles Foundation Discussion Papers
These notes are provided to describe many of the problems encountered concerning both structure and behavior in specifying what is meant by the solution to a game of strategy in matrix or strategic form. In the short term in particular, it is often reasonable for the individual to accept as given, both the context in which decisions are being made and the formal structure of the rules of the game. A solution is usually considered as a complete set of equations of motion that when applied to the game at hand selects a final outcome. There are many different theories …
Decoupling Markets And Individuals: Rational Expectations Equilibrium Outcomes From Information Dissemination Among Boundedly-Rational Traders, Karim Jamal, Michael Maier, Shyam Sunder
Decoupling Markets And Individuals: Rational Expectations Equilibrium Outcomes From Information Dissemination Among Boundedly-Rational Traders, Karim Jamal, Michael Maier, Shyam Sunder
Cowles Foundation Discussion Papers
Attainment of rational expectations equilibria in asset markets calls for the price system to disseminate traders’ private information to others. It is known that markets populated by asymmetrically-informed profit-motivated human traders can converge to rational expectations equilibria. This paper reports comparable market outcomes when human traders are replaced by boundedly-rational algorithmic agents who use a simple means-end heuristic. These algorithmic agents lack the capability to optimize; yet outcomes of markets populated by them converge near the equilibrium derived from optimization assumptions. These findings suggest that market structure is an important determinant of efficient aggregate level outcomes, and that care is …
The Financing Of A Public Utility, Eric Smith, Martin Shubik
The Financing Of A Public Utility, Eric Smith, Martin Shubik
Cowles Foundation Discussion Papers
The interaction of capital stock with overlapping generations is investigated where the time structures of human capital and other physical capital does not match. We consider the economies with either gold or fiat as the outside money and consider the financing problems that appear in the financing of capital stock. The complexity of the underlying physical structure combined with concern for efficiency and equity help to determine the financial structure.
How Should The Fed Report Uncertainty?, Ray C. Fair
How Should The Fed Report Uncertainty?, Ray C. Fair
Cowles Foundation Discussion Papers
In January 2012 the Fed began reporting ranges of its economic forecasts. The ranges, however, measure differences of opinion, not variances of economic forecasts. This paper discusses what the Fed could report 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 the Fed to report given that it is unlikely to be willing to commit to a single model.
A Web Gaming Facility For Research And Teaching, Martin Shubik
A Web Gaming Facility For Research And Teaching, Martin Shubik
Cowles Foundation Discussion Papers
This essay considers the potential for utilizing web games for research and teaching. It discusses a specific gaming facility that has been constructed and utilized. The gaming facility can be made available for use for those interested in utilizing it for teaching and/or research purposes. The goal is to have this facility be of use for both single play and repeated matrix games. Much of the discussion here is aimed at single play games as a desirable benchmark preliminary to the study of repeated games. Properties of the one stage games are discussed and instructions for the use of the …
A Web Gaming Facility For Research And Teaching, Martin Shubik
A Web Gaming Facility For Research And Teaching, Martin Shubik
Cowles Foundation Discussion Papers
This essay considers the potential for utilizing web games for research and teaching. It discusses a specific gaming facility that has been constructed and utilized. The gaming facility can be made available for use for those interested in utilizing it for teaching and/or research purposes. The goal is to have this facility be of use for both single play and repeated matrix games. Much of the discussion here is aimed at single play games as a desirable benchmark preliminary to the study of repeated games. Properties of the one stage games are discussed and instructions for the use of the …
Is Fiscal Stimulus A Good Idea?, Ray C. Fair
Is Fiscal Stimulus A Good Idea?, Ray C. Fair
Cowles Foundation Discussion Papers
The results in this paper, using a structural multi-country macroeconometric model, suggest that there is at most a small gain from fiscal stimulus in the form of increased transfer payments or increased tax deductions if the increased debt generated must eventually be paid back. The gain in output and employment on the way up is roughly offset by the loss in output and employment on the way down as the debt from the initial stimulus is paid off. This conclusion is robust to different assumptions about monetary policy. To the extent that there is a gain, the longer one waits …
Competing For Customers In A Social Network (R), Pradeep Dubey, Rahul Garg, Bernard De Meyer
Competing For Customers In A Social Network (R), Pradeep Dubey, Rahul Garg, Bernard De Meyer
Cowles Foundation Discussion Papers
There are many situations in which a customer’s proclivity to buy the product of any firm depends not only on the classical attributes of the product such as its price and quality, but also on who else is buying the same product. Under quite general circumstances, it turns out that customers’ influence on each other dynamically converges to a steady state. Thus we can model these situations as games in which firms compete for customers located in a “social network.” A canonical example is provided by competition for advertisement on the web. Nash Equilibrium (NE) in pure strategies exist in …
The Allocation Of A Prize (R), Pradeep Dubey, Siddhartha Sahi
The Allocation Of A Prize (R), Pradeep Dubey, Siddhartha Sahi
Cowles Foundation Discussion Papers
Consider agents who undertake costly effort to produce stochastic outputs observable by a principal. The principal can award a prize deterministically to the agent with the highest output, or to all of them with probabilities that are proportional to their outputs. We show that, if there is sufficient diversity in agents’ skills relative to the noise on output, then the proportional prize will, in a precise sense, elicit more output on average, than the deterministic prize. Indeed, assuming agents know each others’ skills (the complete information case), this result holds when any Nash equilibrium selection, under the proportional prize, is …
Multi-Dimensional Mechanism Design With Limited Information, Dirk Bergemann, Ji Shen, Yun Xu, Edmund M. Yeh
Multi-Dimensional Mechanism Design With Limited Information, Dirk Bergemann, Ji Shen, Yun Xu, Edmund M. Yeh
Cowles Foundation Discussion Papers
We analyze a nonlinear pricing model with limited information. Each buyer can purchase a large variety, d , of goods. His preference for each good is represented by a scalar and his preference over d goods is represented by a d -dimensional vector. The type space of each buyer is given by a compact subset of R d + with a continuum of possible types. By contrast, the seller is limited to offer a finite number M of d -dimensional choices. We provide necessary conditions that the optimal finite menu of the social welfare maximizing problem has to satisfy. We …
Does Reducing Spatial Differentiation Increase Product Differentiation? Effects Of Zoning On Retail Entry And Format Variety, Sumon Datta, K. Sudhir
Does Reducing Spatial Differentiation Increase Product Differentiation? Effects Of Zoning On Retail Entry And Format Variety, Sumon Datta, K. Sudhir
Cowles Foundation Discussion Papers
This paper investigates the impact of spatial zoning restrictions on retail market outcomes. We estimate a structural model of entry, location and format choice across a large number of markets in the presence of zoning restrictions. The paper contributes to the literature in three ways: First, the paper demonstrates that the omission of zoning restrictions in the extant literature on entry and location choice leads to biased estimates of the factors affecting market potential and competitive intensity. Second, the cross-market variations in zoning regulations helps us test and provide evidence for the theory that constraints on spatial differentiation will lead …
Kantian Optimization: An Approach To Cooperative Behavior, John E. Roemer
Kantian Optimization: An Approach To Cooperative Behavior, John E. Roemer
Cowles Foundation Discussion Papers
Although evidence accrues in biology, anthropology and experimental economics that homo sapiens is a cooperative species, the reigning assumption in economic theory is that individuals optimize in an autarkic manner (as in Nash and Walrasian equilibrium). I here postulate a cooperative kind of optimizing behavior, called Kantian. It is shown that in simple economic models, when there are negative externalities (such as congestion effects from use of a commonly owned resource) or positive externalities (such as a social ethos reflected in individuals’ preferences), Kantian equilibria dominate Nash-Walras equilibria in terms of efficiency. While economists schooled in Nash equilibrium may view …
Bounded Rationality And Limited Datasets: Testable Implications, Identification, And Out-Of-Sample Prediction, Geoffroy De Clippel, Kareen Rozen
Bounded Rationality And Limited Datasets: Testable Implications, Identification, And Out-Of-Sample Prediction, Geoffroy De Clippel, Kareen Rozen
Cowles Foundation Discussion Papers
Theories of bounded rationality are typically characterized over an exhaustive data set. How does one tell whether observed choices are consistent with a theory if the data is incomplete? How can out-of-sample predictions be made? What can be identified about preferences? This paper aims to operationalize some leading bounded rationality theories when the available data is limited, as is the case in most practical settings. We also point out that the recent bounded rationality literature has overlooked a methodological pitfall that can lead to ‘false positives’ and ‘empty’ out-of-sample predictions when testing choice theories with limited data.
Getting At Systemic Risk Via An Agent-Based Model Of The Housing Market, John Geanakoplos, Robert Axtell, J. Doyne Farmer, Peter Howitt, Benjamin Conlee, Jonathan Goldstein, Matthew Hendrey
Getting At Systemic Risk Via An Agent-Based Model Of The Housing Market, John Geanakoplos, Robert Axtell, J. Doyne Farmer, Peter Howitt, Benjamin Conlee, Jonathan Goldstein, Matthew Hendrey
Cowles Foundation Discussion Papers
Systemic risk must include the housing market, though economists have not generally focused on it. We begin construction of an agent-based model of the housing market with individual data from Washington, DC. Twenty years of success with agent-based models of mortgage prepayments give us hope that such a model could be useful. Preliminary analysis suggests that the housing boom and bust of 1997-2007 was due in large part to changes in leverage rather than interest rates.
Kantian Optimization, Social Ethos, And Pareto Efficiency, John E. Roemer
Kantian Optimization, Social Ethos, And Pareto Efficiency, John E. Roemer
Cowles Foundation Discussion Papers
Although evidence accrues in biology, anthropology and experimental economics that homo sapiens is a cooperative species, the reigning assumption in economic theory is that individuals optimize in an autarkic manner (as in Nash and Walrasian equilibrium). I here postulate an interdependent kind of optimizing behavior, called Kantian. It is shown that in simple economic models, when there are negative externalities (such as congestion effects from use of a commonly owned resource) or positive externalities (such as a social ethos reflected in individuals’ preferences), Kantian equilibria dominate Nash-Walras equilibria in terms of efficiency. While economists schooled in Nash equilibrium may view …
Short Run Needs And Long Term Goals: A Dynamic Model Of Thirst Management, Guofang Huang, Ahmed Khwaja, K. Sudhir
Short Run Needs And Long Term Goals: A Dynamic Model Of Thirst Management, Guofang Huang, Ahmed Khwaja, K. Sudhir
Cowles Foundation Discussion Papers
Beverage consumption occurs many times a day in response to a variety of needs that change throughout the day. In making their choices, consumers self-regulate their consumption by managing short run needs (e.g., hydration and mood pickup) with long-term goals (e.g., health). Using unique intra-day beverage consumption, activity and psychological needs data, we develop and estimate a model of high frequency consumption choices that accounts for both intra-day changes in short run needs and individual level unobserved heterogeneity in the degree of self-regulation. A novel feature of the model is that it allows for dynamics of consumption and stockpiling at …
Improved Estimates Of Using Luminosity As A Proxy For Economic Statistics: New Results And Estimates Of Precision, William D. Nordhaus, Xi Chen
Improved Estimates Of Using Luminosity As A Proxy For Economic Statistics: New Results And Estimates Of Precision, William D. Nordhaus, Xi Chen
Cowles Foundation Discussion Papers
Previous work has analyzed whether luminosity data contain useful information for estimating economic output and concluded that there was significant promise for regions with poor quality economic statistics. The present paper examines alternative measures of the precision of the estimates using bootstrap and prior estimates of the errors for both the luminosity quality and the national accounts quality. Based on the new results, we conclude: First, for countries with high quality systems, there is no reason to use luminosity data as a supplement to standard data in any context where standard data are available. Second, we find that there is …
Mandate-Based Health Reform And The Labor Market: Evidence From The Massachusetts Reform, Jonathan T. Kolstad, Amanda E. Kowalski
Mandate-Based Health Reform And The Labor Market: Evidence From The Massachusetts Reform, Jonathan T. Kolstad, Amanda E. Kowalski
Cowles Foundation Discussion Papers
We model the labor market impact of the three key provisions of the recent Massachusetts and national “mandate-based” health reforms: individual and employer mandates and expansions in publicly-subsidized coverage. Using our model, we characterize the compensating differential for employer-sponsored health insurance (ESHI) — the causal change in wages associated with gaining ESHI. We also characterize the welfare impact of the labor market distortion induced by health reform. We show that the welfare impact depends on a small number of sufficient statistics” that can be recovered from labor market outcomes. Relying on the reform implemented in Massachusetts in 2006, we estimate …
Sieve Inference On Semi-Nonparametric Time Series Models, Xiaohong Chen, Zhipeng Liao, Yixiao Sun
Sieve Inference On Semi-Nonparametric Time Series Models, Xiaohong Chen, Zhipeng Liao, Yixiao Sun
Cowles Foundation Discussion Papers
The method of sieves has been widely used in estimating semiparametric and nonparametric models. In this paper, we first provide a general theory on the asymptotic normality of plug-in sieve M estimators of possibly irregular functionals of semi/nonparametric time series models. Next, we establish a surprising result that the asymptotic variances of plug-in sieve M estimators of irregular (i.e., slower than root-T estimable) functionals do not depend on temporal dependence. Nevertheless, ignoring the temporal dependence in small samples may not lead to accurate inference. We then propose an easy-to-compute and more accurate inference procedure based on a “pre-asymptotic” sieve variance …