Auctions with Anticipated Emotions: Overbidding,Underbidding, and Optimal Reserve Prices*

The experimental literature has documented that there is overbidding in second‐price auctions, regardless of the valuations of bidders. In contrast, in first‐price auctions, there tends to be overbidding for large valuations, but underbidding for small valuations. We show that the experimental evidence can be rationalized by a simple extension of the standard auction model, where bidders anticipate (constant) positive or negative emotions caused by the mere fact of winning or losing. Even if the emotional (dis‐)utilities are very small, the revenue‐maximizing reserve price might be significantly different from the standard model. Moreover, decreases with the number of bidders.     

DISCRIMINATING SHORT AND LONG MEMORY IN FINITE SAMPLES USING SENSITIVITY ANALYSIS: AN APPLICATION TO GROWTH CONVERGENCE

The standard linear model where u_t is generated from an ARFIMA process, is considered. The sensitivity of the predictor and sensitivity of variance estimates of the linear model to long memory are investigated by constructing the statistical measures B_L/S and D_L/S , respectively. B_L/S and D_L/S is interpreted as a sensitivity measure for the long‐memory process without the short‐memory effects. As an application, the memory characteristics of per capita GDP of 30 countries are investigated from the Maddison GDP dataset. It is found that per‐capita GDP exhibits long memory characteristics, and the long‐run growth estimates are sensitive to the long memory characteristics.     

Marginal Subsidies in Tullock Contests

In a general Tullock contest, we examine a situation where a limited resource can be used to provide marginal subsidies to either player (weak or strong), or to increase the prize directly. We show that to maximize total effort, subsidizing the weak/strong player is preferred when the contest is sufficiently accurate/inaccurate. This result generalizes to n‐player lottery contests. In a lottery contest (Tullock contest with ), we derive the optimal scheme for a full range of resource: when the resource is small, it is optimal to only subsidize the weak player; when it is large, both players should be subsidized simultaneously.     

PROGRESSIVE TAXATION,ENDOGENOUS GROWTH,AND MACROECONOMIC (IN)STABILITY

In the context of a standard one‐sector model of endogenous growth, we show that the economy exhibits equilibrium indeterminacy and belief‐driven aggregate fluctuations under progressive taxation of income. When the tax schedule is regressive or flat, the economy's balanced growth path displays saddle‐path stability and equilibrium uniqueness. These results imply that in sharp contrast to a conventional automatic stabilizer, progressive income taxation may destabilize an endogenously growing macroeconomy by generating cyclical fluctuations driven by agents' self‐fulfilling expectations or sunspots.     

ON THE CONCAVITY AND QUASICONCAVITY PROPERTIES OF UTILITY FUNCTIONS

Concavity and quasiconcavity have always been important properties in financial economics particularly in decision problems when an objective function has to be maximized over a convex set. Both properties have mainly been used as purely technical assumptions. In this paper, we link concavity and quasiconcavity of a utility function to the basic concepts of risk aversion, prudence, risk vulnerability and temperance. We show that concavity means the agent is more risk vulnerable than prudent. In particular, we can see when a function is both concave and quasiconcave and when it is only quasiconcave.     

DIRECTED SEARCH,COORDINATION FAILURE,AND SELLER PROFITS: AN EXPERIMENTAL COMPARISON OF POSTED PRICING WITH SINGLE AND MULTIPLE PRICES

We experimentally examine posted pricing and directed search. In one treatment, capacity‐constrained sellers post fixed prices, which buyers observe before choosing whom to visit. In the other, firms post both “single‐buyer” (applied when one buyer visits) and “multibuyer” (when multiple buyers visit) prices. We find, based on a 2 × 2 (two buyers and two sellers) market and a follow‐up experiment with 3 and 2 × 3 markets, that multibuyer prices can be lower than single‐buyer prices or prices in the one‐price treatment. Also, allowing the multibuyer price does not affect seller profits and increases market frictions.     

Endogenous Market Structures and International Trade: Theory and Evidence

Under constant elasticity of substitution (CES) preferences and Cournot (or Bertrand) competition, a larger market induces exits of domestic firms, lower prices, and larger production of surviving firms because of competition from more foreign firms, even without resorting to the selection effects of Melitz. The elasticity of the number of firms to population decreases with substitutability between goods, and it reaches 0.5 under Cournot competition with homogeneous goods: empirical evidence supports this structural relation against the unitary elasticity of monopolistic competition. The results hold also in a Heckscher–Ohlin model with imperfect competition generating inter‐ and intra‐industry trade due to comparative advantage or comparative preferences.     

EFFICIENT LEARNING AND JOB TURNOVER IN THE LABOR MARKET

This article nests a continuous‐time learning model la Jovanovic (Journal of Political Economy 92 (1984), 108–22) into a directed on‐the‐job search framework. We prove that the socially efficient allocation is separable, that is, the workers' value functions and optimal controls are independent of both the distribution of workers across their current match qualities and the unemployment rate. We characterize the dynamics of job transitions in the efficient allocation. Furthermore, when the matching technology is linear, our numerical results show that increasing the vacancy creation cost and the speed of learning have ambiguous effects on the unemployment rate and aggregate job transition.     

A COMOMENT CRITERION FOR THE CHOICE OF RISKY INVESTMENT BY FIRMS*

This article uses Taylor series expansions and the assumption of small risks to derive a comoment criterion that firms should maximize so that the resulting equilibrium is Pareto optimal. This is done in two models of production under uncertainty: the state‐of‐nature model in which the firms’ outputs depend on states of nature and financial markets are complete with respect to these states of nature and the probability model in which the firms’ risky outputs are modeled by their joint probabilities and financial markets span the outcome space of the firms. The comoment criterion provides a unifying framework for the two equilibrium models of production under uncertainty, has the merit of being based on information which is readily available to firms, and provides greater insight than the theoretical criterion into the risk characteristics of its profit stream that a firm should focus on when choosing its investment plan.     

Estimation of Binary Response Models With Endogenous Regressors

This paper reviews six approaches to binary response (y₁) structural forms with an endogenous regressor y₂: (i) the two‐stage least squares estimator‐like substitution approach, (ii) the control function approach, (iii) the system reduced‐form approach, (iv) the artificial instrumental regressor approach, (v) the transformed‐response instrumental variable estimator approach and (vi) the classical maximum likelihood estimator approach. The applicability of the six methods differs greatly, depending on whether y₂ is a continuously distributed random variable or a discrete transformation of a latent . We conduct a real‐data‐based simulation study, and provide an empirical illustration. Our overall recommendation is using (i) and (ii), as the others have undesirable features such as analytic complexity in (iii), computational difficulty in (iv) and (vi), and poor finite‐sample performance in (v).     

On Risk and Uncertainty,and Objective versus Subjective Probability

In this paper, we use the algebra to characterise decision‐makers’ representations of risk and uncertainty. We show that risk can be represented by objective probabilities on one part of the algebra, and that uncertainty can be represented by subjective probabilities on the other part. Decision‐makers are shown to maximise a generalised form of rank‐dependent expected utility. Their occasionally anomalous behaviour is discussed.     

POLLUTION PERMIT SYSTEMS AND FIRM DYNAMICS: HOW DOES THE ALLOCATION SCHEME MATTER?*

I use a firm dynamics model to compare two permit allocation schemes commonly used in pollution permit systems. In the first, closing plants keep their permits, and new entrants do not get them, whereas in the second, closing plants lose their permits, and new entrants get free allowances. Calibrating the model with data from power plants participating in the U.S. program, I find that, compared to the first scheme, in the second arrangement, (i) plants stay, on average, 3.6 years longer and (ii) although the aggregate emission rate is lower, the plant distribution displays more dirty and low‐productivity plants.     

Optimal Trade Policy with Horizontal Differentiation and Asymmetric Costs

This paper examines the optimal export policy under Bertrand competition when the products exhibit horizontal differentiation and production costs are asymmetric. The focus of this paper is on the product‐differentiation effect in the determination of the optimal export policy. We show that given that the equilibrium characteristic of a foreign firm's product R&D lies to the left‐hand side of its initial level , since the foreign firm has a unit cost advantage and the efficiency of its R&D technology is sufficiently low, a rise in the export subsidy of the domestic country increases a domestic firm's profits and then welfare by extending the degree of horizontal differentiation between the two products. Thus, the optimal export policy under Bertrand competition may turn out to be an export subsidy rather than an export tax. This result is in sharp contrast to that of Eaton and Grossman (1986 ).     

PANEL DATA UNIT ROOT TEST WITH FIXED TIME DIMENSION

The consideration of the limit theory in which T is fixed and N is allowed to go to infinity improves the finite‐sample properties of the tests and avoids the imposition of the relative rates at which T and N go to infinity.     

TESTING FOR STATIONARITY IN HETEROGENEOUS PANEL DATA IN THE CASE OF MODEL MISSPECIFICATION

This paper investigates the performance of the tests proposed by Hadri and by Hadri and Larsson for testing for stationarity in heterogeneous panel data under model misspecification. The panel tests are based on the well known KPSS test (cf. Kwiatkowski et al.) which considers two models: stationarity around a deterministic level and stationarity around a deterministic trend. There is no study, as far as we know, on the statistical properties of the test when the wrong model is used. We also consider the case of the simultaneous presence of the two types of models in a panel. We employ two asymptotics: joint asymptotic, T, N →∞ simultaneously, and T fixed and N allowed to grow indefinitely. We use Monte Carlo experiments to investigate the effects of misspecification in sample sizes usually used in practice. The results indicate that the assumption that T is fixed rather than asymptotic leads to tests that have less size distortions, particularly for relatively small T with large N panels (micro‐panels) than the tests derived under the joint asymptotics. We also find that choosing a deterministic trend when a deterministic level is true does not significantly affect the properties of the test. But, choosing a deterministic level when a deterministic trend is true leads to extreme over‐rejections. Therefore, when unsure about which model has generated the data, it is suggested to use the model with a trend. We also propose a new statistic for testing for stationarity in mixed panel data where the mixture is known. The performance of this new test is very good for both cases of T asymptotic and T fixed. The statistic for T asymptotic is slightly undersized when T is very small (≤10).     

Monotonic and implementable solutions in generalized matching problems

We consider one-to-one matching problems when preferences are weak orders and search for (Maskin-)monotonic and implementable solutions. We show that for any coalition structure , the strong -core is monotonic if and only if it is the individually rational solution. We introduce a solution, which we call the “union strong -core”, and show that this solution is the minimal way to expand the strong -core recovering monotonicity. We also show that the union strong -core is implementable.     

Convergence and approximation results for non-cooperative Bayesian games: Learning theorems

Summary LetT denote a continuous time horizon and {G ^t :tT} be a net (generalized sequence) of Bayesian games. We show that: (i) if {x ^t : tT} is a net of Bayesian Nash Equilibrium (BNE) strategies for G^t we can extract a subsequence which converges to a limit full information BNE strategy for a one shot limit full information Bayesian game, (ii) If {x ^t : tT} is a net of approximate or _t-BNE strategies for the game G^t we can still extract a subsequence which converges to the one shot limit full information equilibrium BNE strategy, (iii) Given a limit full information BNE strategy of a one shot limit full information Bayesian game, we can find a net of _t-BNE strategies {x ^t : tT} in {G ^t :tT} which converges to the limit full information BNE strategy of the one shot game.We wish to thank Larry Blume, Mark Feldman, Jim Jordan, Charlie Kahn, Stefan Krasa, Gregory Michalopoulos, Wayne Shafer, Bart Taub, and Anne Villamil for several useful discussions. The financial support of the University of Illinois at Urbana-Champaign Campus Research Board is gratefully acknowledged.     

Comparisons of robust tests for shifts in trend with an application to trend deviations of real exchange rates in the long run

We study the finite sample properties of tests for structural changes in the trend function of a time series that do not require knowledge of the degree of persistence in the noise component. The tests of interest are the quasi-Feasible Generalized Least Squares (FGLS) procedure by Perron and Yabu (2009b Perron, P and Yabu, T. 2009b. Testing for shifts in trend with an integrated or stationary noise component. Journal of Business and Economic Statistics, 27: 369–96. [Taylor &; Francis Online], [Web of Science ®] , [Google Scholar]) and the weighted average of the regression t-statistics by Harvey et al. (2009 Harvey, DI, Leybourne, SJ and Taylor, AMR. 2009. Simple, robust, and powerful tests of the breaking trend hypothesis. Econometric Theory, 25: 995–1029. [Crossref], [Web of Science ®] , [Google Scholar]), both of which have the same limit distribution whether the noise component is stationary or has a unit-root. We analyse the finite sample size and power properties of these tests under a variety of Data-Generating Processes (DGPs). The results show that the Perron–Yabu test has greater power overall. With respect to the size, the Harvey–Leybourne–Taylor test exhibits larger size distortions unless a moving-average component is present. Using the Perron and Yabu procedure to test for structural changes in the trend function of long-run real exchange rates with respect to the US dollar indicates that for 17 out of 19 countries, the series have experienced a shift in trend since the late nineteenth century.     

Phillips-Kurve und Bargaining-Theorie

Ohne ZusammenfassungSymbole N Beschäftigung - F (N) Produktionsfunktion (F>0,F <0) - Substitutionselastizität - Arbeitsangebot=Arbeitskräftepotential - Reallohnsatz - w Nominallohnsatz - p Preisniveau - T Zykluslänge - s Kosten der Erhöhung vonv (gemessen in Einheiten der Lohnsumme/Periode) - I Investition (konstant) - s_p (s_w) Sparquote aus Profiten (Löhnen) - Nutzendiskontrate - q Schattenpreis der Erhöhung von     

Apportioning of risks via stochastic dominance

Consider a simple two-state risk with equal probabilities for the two states. In particular, assume that the random wealth variable dominates via ith-order stochastic dominance for i=M,N. We show that the 50-50 lottery dominates the lottery via (N+M)th-order stochastic dominance. The basic idea is that a decision maker exhibiting (N+M)th-order stochastic dominance preference will allocate the state-contingent lotteries in such a way as not to group the two “bad” lotteries in the same state, where “bad” is defined via ith-order stochastic dominance. In this way, we can extend and generalize existing results about risk attitudes. This lottery preference includes behavior exhibiting higher-order risk effects, such as precautionary effects and tempering effects.