A warning on the use of the Cochrane-Orcutt procedure based on a money demand equation

Betancourt/Kelejian [1981] have recently warned against using the Cochrane-Orcutt procedure in models which include a lagged endogenous variable because this procedure can have more than onefixed point even asymptotically. FollowingSargan [1964], we argue instead that fixed points are not necessarily minima and that the question of practical importance is whether the residual sum of squares can have multipleminima. Within this formulation of the problem, we provide the firstreal example of multiple minima obtainable by the Cochrane-Orcutt procedure — with or without a lagged endogenous variable — and use it to caution against routine use of this procedure.     

Strategy-proofness and Arrow's conditions: Existence and correspondence theorems for voting procedures and social welfare functions

Consider a committee which must select one alternative from a set of three or more alternatives. Committee members each cast a ballot which the voting procedure counts. The voting procedure is strategy-proof if it always induces every committee member to cast a ballot revealing his preference. I prove three theorems. First, every strategy-proof voting procedure is dictatorial. Second, this paper's strategy-proofness condition for voting procedures corresponds to Arrow's rationality, independence of irrelevant alternatives, non-negative response, and citizens' sovereignty conditions for social welfare functions. Third, Arrow's general possibility theorem is proven in a new manner.     

“Timing Is Everything” and Marital Bliss

We first show that in a marriage market, when the stability of a matching is disturbed when a new agent joins the game, natural greedy behavior defines an equilibration procedure that converges to a stable matching for the extended problem. We then consider the iterative procedure under which agents join the game sequentially, and the natural greedy procedure is applied after the entrance of each agent. It is shown that this procedure converges to a stable matching for the original (global) problem and that for each agent, if the order of all other agents is given, he/she weakly improves his/her final outcome by deferring his/her arrival time. The agent that arrives last gets his/her optimal outcome under stable matchings. Journal of Economic Literature Classification Numbers: C78, C62.     

On the computation of stable sets and strictly perfect equilibria

Summary. In this paper a procedure is described that computes for a given bimatrix game all stable sets in the sense of Kohlberg and Mertens (1986). Further the procedure is refined to find the strictly perfect equilibria (if any) of such a game. Recieved: December 29, 1999; revised version: February 17, 2000     

Bargaining Outcomes with Double-Offer Arbitration

Increasingly, arbitration is becoming used to resolve bargaining disputes in a variety of settings. Reducing dispute rates is often listed as a main goal in designing arbitration mechanisms. Conventional arbitration and final-offer arbitration are two commonly used procedures, but theoretical examinations of these arbitration procedures show that disputants’ final bargaining positions do not converge and disagreement is likely. This article contains results from a set of experiments designed to compare bargaining outcomes under the two commonly used arbitration procedures with outcomes under an innovative procedure called “double-offer” arbitration (Zeng et al., 1996). This procedure requires that disputants make two final offers at impasse: a primary and a secondary offer. The arbitrator evaluates the pairs of offers using a linear criterion function, and theory suggests the secondary offers converge to the median of the arbitrator’s preferred settlement distribution. Because the procedure’s rules are that convergence of offers generates a settlement at those offers, this theoretical convergence result implies that arbitration is not needed in the end. Experimental results indicate that dispute rates in double-offer arbitration are, on average, about the same as dispute rates in conventional arbitration. However, other results show reason to favor double-offer arbitration. Specifically, in repeated bargaining, there is concern over whether use of an arbitration procedure becomes addictive and makes bargainers more likely to use the procedure in the future-a “narcotic effect.” The data show that double-offer arbitration is non-addictive, whereas both conventional and final-offer arbitration are.     

Using Micro Data to Test the Divergence between Prices and Labour Values

An extremely robust finding in Marxian empirical economics is the 'Shaikh result' that estimates of labour values are closely correlated with prices. This result is established using input-output data together with a standard procedure in which variations in money wages are assumed to reflect labour quality. Two problems with this standard procedure can be identified. First, there is no translation between money units of wages and labour value units of output produced by different types of heterogeneous labour. Second, the standard procedure assumes perfectly competitive labour markets. In this paper, a new micro procedure for estimating labour values is developed in which both of these problems are addressed. To translate between money wage rates and the labour value of outputs a practical starting point for empirical analysis is suggested using some of the readily available tools of neoclassical economics. The assumption of perfect competition is accordingly relaxed by estimating a microeconometric wage equation using data from the UK Family Expenditure Survey. Conjoining this micro data with input-output data, estimates of labour values are used to test the Shaikh result, which is found not to hold in this particular exercise; with labour values diverging substantially from money prices.     

Seasonal fractional components in macroeconomic time series

Seasonal fractional models are shown in this article to be alternative credible ways of modelling the seasonal component in macroeconomic time series. A testing procedure that allows one to test different orders of integration at zero and at each of the seasonal frequencies is described. This procedure is then applied to the Italian consumption and income series, the results being very sensitive to the way of modelling the I(0) disturbances.     

The owners' interventions in decision-making in large corporations: A new approach

This paper, which is based on my doctoral dissertation published under the title ‘Propriété et pouvoir dans les grandes entreprises’, presents a new approach for measuring the separation of ownership and control in large corporations. It aims at replacing the usual methodology set up by Berle and Means with a more adapted procedure. In the first part, the conceptual framework is described. The procedure consists mainly of distinguishing between several domains of control according to the types of decisions concerned, as well as between several modalities of the owner's interventions. It leads to a classification of the corporations on a scale consisting of several degrees of separation of ownership and control. In the second part, the paper presents the results of an empirical study applying the procedure to the case of forty large Belgian corporations.     

On planning procedures which are locally strategy proof

We consider planning procedures which generalize the MDP procedure in the sense that, at each step, the planning bureau asks the agents their marginal rates of substitution, and uses the answers to revise the previously announced feasible programme. Such a procedure is “locally strategy proof” if, at each step, answering one's true marginal rate of substitution is the best myopic strategy for each agent. We give a general characterization of the family of locally strategy proof procedures and study its neutrality properties.     

Sharing Rules in Teams

We examine the problem of output sharing in a moral hazard in team situation. Although we do not consider any particular procedure, we assume that the team uses some procedure to decide a sharing rule before actual production takes place (for example, this may be a bargaining process or a team welfare maximization problem). This must take into account that the team will play a noncooperative game in the production process conditional on the chosen sharing rule. We show that the procedure for deciding the sharing rule does not have to look for anything more complicated than simple linear sharing rules. We also show that, when there is limited liability, the procedure needs to consider only the slightly more complicated piecewise linear rules. As a consequence of the linear sharing rule result, we are also able to provide a characterization of implementable outcomes. Journal of Economic Literature Classification Numbers: D82, D2, C72, J54.     

The causality direction in consumption–income process and sensitivity to lag structures

Using the statistical procedures developed by Granger (1969) and Sims (1972), the causality direction in the consumption–income process is examined in this study. The results provide some justification in concluding that the causality direction is from income to consumption. It can also be seen that the results of causality tests are very sensitive to the lag lengths employed. The statistical procedure, which is based on Grangers's contribution, appears to be more consistent than Sims's procedure.     

Testing for Zipf’s law: A common pitfall

It is noted that the regression procedure commonly used when testing for Zipf’s law is erroneous.     

Monte Carlo tests of autocorrelation

Barnard's Monte Carlo test procedure can be used to eliminate the problem of the inconclusive region of the Durbin-Watson statistic in an elegant way. In contrast to conventional tests, this procedure can be extended straightforwardly to systems of equations, which is illustrated here for a translog system. An extension to bootstraps, which avoids the normality assumption, is also discussed.     

Estimating Costs of Children from Micro-Unit Records: A New Procedure Applied to Australian Data

Measuring the costs of children is of immense practical importance in a range of economic and social policy areas. In this paper, we introduce a new econometric procedure that improves on existing methods for obtaining estimates of such costs from a demand system. We develop, using an extended linear expenditure system, an iterative maximum likelihood estimator that overcomes possible estimation problems that arise from the 2-step estimation procedures employed by earlier authors. We also allow for a more general assumption about the equation “errors”, that of non-zero correlation between the errors for different commodities in the same household. Another important contribution is the development of an estimation procedure for sets of seemingly unrelated regressions where the different sets of equations are linked by some common parameters. The proposed procedure is applied to the 1988–89 and 1993–94 Australian Household Expenditure Surveys and results obtained update estimates of both the commodity-specific and general scales previously obtained for Australia.

     

Planning under market socialism when iteration is incomplete

If an iterative planning procedure is cut short due to time shortage, the plan must be set subject to information gaps. But the nature of these gaps depends on which iterative procedure was used. For the case of Lange's model, Weitzman's “prices versus quantities” framework is redeveloped for the particular information gaps then found. With one good, the optimal quantity signal comes from the expected supply-demand intersection, but an optimal price signal lies between this intersection and the price from the last stage of iteration. When there are many goods, however, we cannot be so specific.     

Lexicographic compositions of multiple criteria for decision making

This paper considers two distinct procedures to lexicographically compose multiple criteria for social or individual decision making. The first procedure composes M binary relations into one, and then selects its maximal elements. The second procedure first selects the set of maximal elements of the first binary relation, and then within that set, chooses the maximal elements of the second binary relation, and iterates the procedure until the Mth binary relation. We show several distinct sets of conditions for the choice functions representing these two procedures to satisfy non-emptiness and choice-consistency conditions such as contraction consistency and path independence. We also examine the relationships between the outcomes of the two procedures. Finally we investigate under what conditions the outcomes of each procedure are independent of the order of lexicographic application of the criteria.     

Optimal design of experiments to identify latent behavioral types

Bayesian optimal experiments that maximize the information gained from collected data are critical to efficiently identify behavioral models. We extend a seminal method for designing Bayesian optimal experiments by introducing two computational improvements that make the procedure tractable: (1) a search algorithm from artificial intelligence that efficiently explores the space of possible design parameters, and (2) a sampling procedure which evaluates each design parameter combination more efficiently. We apply our procedure to a game of imperfect information to evaluate and quantify the computational improvements. We then collect data across five different experimental designs to compare the ability of the optimal experimental design to discriminate among competing behavioral models against the experimental designs chosen by a “wisdom of experts” prediction experiment. We find that data from the experiment suggested by the optimal design approach requires significantly less data to distinguish behavioral models (i.e., test hypotheses) than data from the experiment suggested by experts. Substantively, we find that reinforcement learning best explains human decision-making in the imperfect information game and that behavior is not adequately described by the Bayesian Nash equilibrium. Our procedure is general and computationally efficient and can be applied to dynamically optimize online experiments.

     

The Effects of Delays on the Stability and Rate of Convergence to Equilibrium of Oligopolies*

The stability of oligopolies is investigated using the Cournot strategy and a general output adjustment procedure. Information delays are incorporated in the adjustment procedure and their specific effects upon the dynamic stability of oligopolies is investigated. The stability of equilibrium for discrete models is unaffected by information delays and remoteness of planning horizons; however the rate of convergence to equilibrium may be slowed. For continuous models with delays, some restraints are required for stability.     

An analysis of the German university admissions system

This paper analyzes the sequential admissions procedure for medical subjects at public universities in Germany. Complete information equilibrium outcomes are shown to be characterized by a stability condition that is adapted to the institutional constraints of the German system. I introduce matching problems with complex constraints and the notion of procedural stability. Two simple assumptions guarantee existence of a student optimal procedurally stable matching mechanism that is strategyproof for students. In the context of the German admissions problem, this mechanism weakly Pareto dominates all equilibrium outcomes of the currently employed procedure. Applications to school choice with affirmative action are also discussed.