Banning Bidders from All-pay Auctions

We consider an all-pay auction with complete information among the bidders; the seller does not observe the bidders’ values. We show that for some information structures in which the seller has a small uncertainty about the valuations, it is profitable for him to exclude from the auction all but two (randomly selected) bidders even though the latter are ex ante identical from his point of view.I am grateful to Paolo Bertoletti who introduced me to this topic and provided useful comments. I also thank Dan Kovenock (Co-Editor) and two anonymous referees for suggestions which considerably improved the exposition.     

What You Don’t Know Might Hurt You: Some Unresolved Issues in the Design and Analysis of Discrete Choice Experiments

The papers and comments in this issue focus on four broad areas related to understanding and modeling choices: (1) The use of laboratory experiments to improve valuation methods; (2) The design of stated preference choice set and choice occasions; (3) Latent class models as means of identifying and accommodating preference heterogeneity; and (4) Accommodating uncertainty about the “true” model, modeling ranking and rating tasks and pooling data sources. In what follows I offer some comments on each area, and briefly discuss several unresolved issues associated with each area, closing with some comments about future research opportunities.     

Speculative trade, asset prices and investment levels

Summary. In this paper I consider a dynamically complete market model without intrinsic uncertainty. Agents' beliefs are different, but correct in the limit. Some agents are more patient than others. I show that infinitely often share prices are low and the economy stagnates. Also, infinitely often share prices are high and the economy grows. The changes from growth to stagnation and from stagnation to growth are not caused by exogenous shocks. They are caused by speculative trade among agents with different propensities to save and invest. Received: January 8, 2001; revised version: April 11, 2002 RID="*" ID="*" I thank an anonymous referee for helpful comments. I gratefully acknowledge financial support from the National Science Foundation.     

Probability of survival in a random exchange economy with dependent agents

Summary. In this paper I analyze the general equilibrium in a random Walrasian economy. Dependence among agents is introduced in the form of dependency neighborhoods. Under the uncertainty, an agent may fail to survive due to a meager endowment in a particular state (direct effect), as well as due to unfavorable equilibrium price system at which the value of the endowment falls short of the minimum needed for survival (indirect terms-of-trade effect). To illustrate the main result I compute the stochastic limit of equilibrium price and probability of survival of an agent in a large Cobb-Douglas economy. Received June 7, 2001; revised version: January 7, 2002 RID="*" ID="*" I would like to thank Mukul Majumdar and Thomas DiCiccio for helpful discussion and an anonymous referee for valuable comments and suggestions.     

Quasi-fundamental exchange rate variation

Summary. This paper uses a general equilibrium model to study the determination of the exchange rate in an economy with fundamental uncertainty. The model has steady state equilibria in which the exchange rate is constant. These equilibria may coexist with “quasi-fundamental” equilibria – nonstationary equilibria in which the exchange rate displays stochastic fluctuations that are correlated with the fluctuations in fundamental random variables. The quasi-fundamental equilibria are Pareto dominated by the corresponding constant-exchange-rate steady states. They also converge to these steady states, inevitably or with positive probability. Received: October 2, 1999; revised version: March 26, 2002 RID="*" ID="*" This paper began as a joint project with Alex Mourmouras, who has made many helpful comments and suggestions but is not responsible for any errors or deficiencies. In addition, I thank an anonymous referee for helpful comments.     

Uncertainty: individuals, institutions and technology

In an attempt to refine the concept of uncertainty, this paperelaborates an ontology of the social world concentrating onindividuals, institutions and technology. It shows the strongentwinement of the ontological aspects of the conceptualisationof uncertainty and epistemological ones. It highlights the ontologicaland epistemological dimensions of different concepts of uncertainty,such as fundamental uncertainty, procedural uncertainty, ambiguityand weak uncertainty (or risk). It also comments on a few writingsthat distinguish varieties of uncertainty with adjectives suchas ‘ontological’ and ‘epistemological’or ‘epistemic’.     

Cost information sharing with uncertainty averse firms

Summary. A homogeneous Cournot duopoly with asymmetric information is analyzed. Every firm learns its own marginal cost parameter, but not the marginal cost parameter of the opponent. Every firm can commit to revealing its private information to the other firm, i.e. to share information. The influence of uncertainty aversion on the readiness of the duopolists to share cost information is analyzed. Uncertainty aversion is modeled according to the Choquet utility theory. It is shown that low uncertainty aversion leads the firms to share information, while high uncertainty aversion leads the firms not to share. A simple economic explanation for this result is given.Received: 5 January 2001, Revised: 7 May 2003, JEL Classification Numbers: D43, D81, D82.I wish to thank Jürgen Eichberger, Volker Krätschmer, Willy Spanjers, seminar participants at Universität des Saarlandes, seminar participants at University College London, participants in the conference of the Verein für Socialpolitik in Mainz 1999 and an anonymous referee for helpful comments. The views expressed in this paper are those of the author and do not necessarily reflect the views of the European Central Bank.     

Uncertainty and implied variance bounds in long-memory models of the interest rate term structure

We find that long-term uncertainty in a linear model of the interest rate term structure can have dramatic effects on variance bounds implied by the expectations theories of the term structure. We bootstrap fractionally integrated models of the term structure of interest rates. The fractional order of integration's bootstrapped standard errors simulate uncertainty surrounding long-term forecasts of interest rates, and we find that it is possible to overstate the significance of variance-bounds violations by at least a factor of three and perhaps by a factor of ten when long-term uncertainty is ignored.I wish to thank Frank Diebold, Baldey Raj, Eric Renault, Fallaw Sowell and several anonymous referees for their comments and suggestions for earlier versions of this paper. The paper also benefited from comments made by many seminar participants at the World Econometric Congress, the European Econometric Society, and the American Finance Association meetings, the Board of Governors of the Federal Reserve System, the Ecole Nationale de la Statistique et de l'Administration Economique, and the departments of Finance and Statistics at Penn State University.     

Sunspot cycles

Summary. This paper shows new properties about the equilibria of a stationary OG economy by establishing a connection between its stationary equilibria and those of a finite economy, with and without extrinsic uncertainty. Specifically, it shows the countability and local uniqueness with respect to the sup metric of the so-called sunspot cycles introduced here, that encompass both the deterministic cycles and the usual finite Markovian stationary sunspot equilibria. These sunspot cycles are, moreover, able to generate, at a lower cost in terms of assumptions than other sunspot equilibria, time series with the recurrent but irregular fluctuations typical of economic time series. Received: July 26, 2001; revised version: March 5, 2002 RID="*" ID="*" I want to thank an anonymous referee for comments that have helped greatly to improve this paper, as well as the comments about its contents received from several audiences in different seminars and conferences (the Economic Theory seminar of the University of Pennsylvania, the 2001 Meeting of the Econometric Society held at New Orleans, the 2000 Econometric Society World Congress, the 2000 Society for Economic Design Conference) and from comments to a previous paper, Dávila [10], specially from Jim Peck at the 1997 Workshop on General Equilibrium held at the University of Venice, that eventually lead to this one.     

Redistribution from a constitutional perspective

In its traditional form, Paretian welfare economics has little to say about policies of redistribution. I argue that by adopting a constitutional perspective, elements of a theory of redistribution can be developed without recourse to interpersonal utility comparisons. Individuals who find themselves under an imperfect veil of uncertainty at a constitutional stage face a tradeoff between the costs and benefits of redistribution. The benefits consist of a reduction in the variance of a risk-averse agent's income distribution. The costs are represented by deadweight losses caused either by bureaucracy or by disincentive effects associated with the transfer scheme. My simple formal analysis shows that individuals may, even under an imperfect veil of uncertainty, be able to agree unanimously on a certain transfer policy if their personal characteristics are not too different from each other. This paper is a modified version of a chapter from my Master's thesis, submitted at the University of Bonn in 1992. Revisions were done during a stay at DELTA/Ecole Normale Supérieure, Paris. A scholarship from the German Academic Exchange Service is gratefully acknowledged. I wish to thank Urs Schweizer, Hartmut Kliemt, Niclas Berggren, and an anonymous referee of this journal for valuable comments and suggestions, which have greatly improved the paper.     

An empirical note about additive outliers and nonstationarity in Latin-American inflation series

This note shows the empirical dangers of the presence of large additive outliers when testing for unit roots using standard unit root statistics. Using recent proposed procedures applied to four Latin-American inflation series, I show that the unit root hypothesis cannot be rejected.Jel classification: C2, C3, C5I want to thank Pierre Perron for useful comments on a preliminary version of this paper. Helpful comments from an anonymous referee, and Yiagadeesen Samy are appreciated. I thank the Editor Baldev Raj for useful comments about the final structure of this paper. Finally, I also thank André Lucas for helpful suggestions concerning the use of his nice computer program Robust Inference Plus Estimation (RIPE).First revision received: August 2001/Final revision received: December 2002     

Fiscal rules and extrinsic uncertainty

Summary This paper analyzes the effect of two fiscal policy regimes on the set of equilibria. A general equilibrium model with public goods is used to re-examine Friedman's [9] proposal for fiscal reform. The issue is whether a constraint upon fiscal policy requiring budget balance under all contingencies increases the stability of the economy. Stability is modelled in terms of neutralizing extrinsic uncertainty or sunspots. The government consists of bureaus providing public goods. The budgetary rules entail fixed shares of revenues and arrangements for budget balancing. Existence of equilibrium and properties of the equilibrium set are established. The Friedmanite rules permit extrinsic uncertainty to affect outcomes, while a policy that allows the bureaus greater discretion in the pursuit of their objectives neutralizes it.This paper is based on Goenka [11]. I thank Larry Blume, David Easley, Roger Guesnerie, Christophe Préchac, Bruce Smith, and Steve Spear for helpful comments. I would especially like to thank Karl Shell for many discussions and advice, and Michael Woodford whose detailed comments have sharpened the paper. This paper has benefitted from presentations at Buffalo, Cornell, VPI, CMU, LSE, and the 1991 European meetings of the Econometric Society. Research support from N.S.F. Grant SES-8606944 and the Center for Analytic Economics at Cornell University is gratefully acknowledged. All errors are mine.     

Commodity money in the presence of goods of heterogeneous quality

Summary The aim of this paper is to demonstrate that uncertainty about the quality of a particular commodity does not necessarily exclude it from emerging as commodity money. This is shown in the context of the model of a simple economy with specialized agents and decentralized trade described in Kiyotaki and Wright (1989). In order to derive this result, considerations about marketability of the different goods are taken into account.I wish to thank Pierre de Trenqualye for many helpful conversations and ideas. For their comments and suggestions I am also very grateful to G. de Fraja and P. J. Simmons. Special thanks are due to Randall Wright for his kind advice. The usual disclaimer applies. Financial support was provided by CIRIT (Generalitat de Catalunya, Spain).     

On justifying a minimum welfare state

Since anarchy is not viable, limited government is the best that the realistic libertarian can hope for. But limited government will itself always be threatened by an inherent tendency to transgress its limits. In modern western societies the regulatory and redistributive welfare state is the major threat to a constitution of liberty. However, a “minimum welfare state” which redistributes personal income among its citizens may comply with the same principles of individual liberty and the rule of law that are embodied in the protective state. Since any state, including the minimal state, necessarily incorporates regulation and redistribution and thus is a welfare state of sorts the non-anarchist liberal should turn against welfare state privileges rather than against redistribution and regulation per se. He may even have good reason to go beyond the minimal state to found a “minimum welfare state” if this is instrumental in securing liberty under the rule of law. I am grateful to the Center for the Study of Public Choice, George Mason University for hospitality both during the period in which this paper was written and on other occasions. I am deeply indebted to the people at the Center for their criticisms and comments. As far as this paper is concerned Geoffrey Brennan's and Richard Wagner's comments were particularly helpful. I should also like to acknowledge helpful oral comments from Kevin Mulligan and Philip van Parijs, who of course is much more of an expert on demogrant schemes than I am. I also wish to thank two anonymous referees for their valuable suggestions. The general caveat applies.     

Precautionary Principle and Robustness for a Stock Pollutant with Multiplicative Risk

The interest shown by policy makers and economists in the precautionary principle indicates the importance of model uncertainty in global warming policy. I show that through robust control, policy makers can implement the precautionary principle to regulate a stock pollutant, and I analyze its effect on expected steady state pollution taxes, stocks and welfare. The paper is broadly comprised of a theoretical part and an application to global warming policy. I find that: (1) an increase in either uncertainty about the model or risk about abatement cost increases expected steady state pollution taxes; (2) a robust policy is preferred for any level of model uncertainty and this preference increases for either higher model uncertainty or higher multiplicative risk and (3) the effect on expected steady state pollution taxes and stock of introducing model uncertainty is relatively small for high levels of model uncertainty. These results advocate using robust policies for a stock pollutant in the presence of model uncertainty.      

Type correlated equilibria for games with payoff uncertainty

Summary Aumann's notion of correlated equilibrium is extended to games with payoff uncertainty. A type correlated equilibrium is a correlated equilibrium for Harsanyi's game in player-types. An equivalent definition is a probability distribution over types and actions which is consistent with the prior distribution over types, such that when each player observes its type and action, the observed action is optimal and no further information about other players' types is obtained. Any such equilibrium can be implemented by a type-independent correlation device when players' observations may be type-dependent. The type correlated equilibrium correspondence is shown to be upperhemicontinuous with respect to player information.Support from NSF grant IRI-8609208 is gratefully acknowledged. I am grateful to Maxwell Stinchcombe for comments on an earlier draft of this paper. Any remaining errors are my own.     

The optimal degree of commitment in a negotiation with a deadline

Summary. This note explores the consequences of a player's freedom of choice over his degree of commitment for the bargaining outcome. In particular, we modify the nonstationary structure of Fershtman and Seidmann (1993)'s bargaining by allowing one player to possess imperfect commitments where the degree of commitment is chosen prior to the negotiation stage. We show that a player optimally chooses an intermediate degree of irrevocability provided the costs of increasing the degree of commitment are small enough. In this case, not only an immediate agreement is reached but also the commitment is effective.Received: 18 July 2002, Revised: 20 March 2003, JEL Classification Numbers: C78.Part of this work was written while I was visiting the IAE-CSIC and the University of Essex, whose hospitalities are gratefully acknowledged. This paper has benefited from comments of seminar participants at the University of Essex, 56th European Econometric Society Meeting, 16th Annual Congress of the European Economic Association in Lausanne and the XXVI Symposium of Economic Analysis in Barcelona. I thank Vicent Calabuig and Gonzalo Olcina for very helpful comments. I am especially indebted t o Clara Ponsatí and an anonymous referee for some very detailed comments which lead to substantial improvement of the paper. I also gratefully acknowledge the financial support from Generalitat Valenciana under a postdoctoral grant.     

Technological innovation and long wave theory: Two pieces of the puzzle

Since the 1930s, there have been few attempts to recast long wave theory and address the problems raised by Schumpeter's and Kuznets' models; most work has been empirical. This paper uses an inter-industrial analytical framework to explain stagnation, downswing and recovery. The proposed rationale enables us to dispense with Schumpeter's hypothesis of periodic bunching of radical innovations.Paper presented at the Schumpeter Society Meetings held at Airlie House, Virginia, June 3, 1990. I want to thank Alfred Kleinknecht and Wolfgang Stolper for comments then. This basic model was presented for the first time in the summer of 1979 at TIMS-OSRA in Honolulu at the invitation of Bela Gold, then in a leçon au Collège de France, June 9, 1986 at the invitation of the late François Perroux, when I benefited from his comments and those of Jean Weiller. In 1989, it was presented at the University of Sherbrooke, where I benefited from Petr Hanel's comments, and at the Société canadienne de sciences économiques. I have also benefited from four anonymous reviewers' comments and advice. I thank Daniel Winer for editing.     

Screening consumers through alternative pricing mechanisms

This paper addresses the optimal design of optional nonlinear tariffs. Two particular solutions commonly used in telecommunications and other industries are fully characterized. These optimal outlay schedules illustrate how the tariff design is altered when there exists a time lag between tariff choice and consumption. In this model, consumers' uncertainty is resolved in the interim, between the tariff choice and the usage decision, through changes in their types. The paper studies whether the monopolist may profit from screening consumers according to different information sets, and it shows that expected profits are higher under an ex-post tariff if the variance of the ex-ante type distribution is large enough. The paper also shows that no results regarding social efficiency may be obtained in general. Welfare comparison of optional tariffs will be very sensitive to type distributions, how types enter demand specifications, and the relative variance of the type components.I wish to thank John Panzar for his guidance on the present research and, for his many suggestions over several endless discussions on this paper. I also thank Kyle Bagwell, Robert Porter, and Daniel Spulber for helpful comments and suggestions. Financial support from the Ministerio de Educación y Ciencia, Spain, is gratefully acknowledged.     

Inflation volatility and stock prices: Evidence from ARCH effects

This paper examines the impact of inflation uncertainty on stock prices in developed as well as in emerging capital markets over the period 1980:1–93:12 via an Autoregressive Conditional Heteroskedasticity (ARCH) model for inflation. The results seem to support the presence of a negative association between inflation uncertainty and stock prices.The authors would like to thank, without implicating, Gikas Hardouvelis, Costas Karfakis, and especially the discussant of the conference session held in Williasmsburg, Robert C. Winder, for helpful comments and suggestions.