A characterization of efficient, bayesian incentive compatible mechanisms

Summary. A mechanism that is both efficient and incentive compatible in the Bayesian-Nash sense is shown to be payoff-equivalent to a Groves mechanism at the point in time when each agent has just acquired his private information. This equivalence result simplifies the question of whether or not an efficient, Bayesian incentive compatible mechanism can satisfy other desired objectives, for the search for an appropriate mechanism can be restricted to the family of Groves mechanisms. The method is used to extend the result of Myerson and Satterthwaite on the inefficiency of bilateral bargaining to a multilateral setting. Received: June 30, 1997; revised version: May 22, 1998     

On coalitional stability of anonymous interim mechanisms

Summary.   In a situation where agents have private information, we investigate the stability of mechanisms with respect to coalitional deviations. In the cooperative tradition, we first extend the notion of Core, taking into account the information a coalition may have when it forms and the conjectures of outsiders. This leads us to propose a family of Cores rather than a single one. Secondly, we study the stability of Core mechanisms to secession proposals in simple noncooperative games. The two different stability analyses, normative and strategic, tend to give support to the more natural extension of the Core, called Statistical Core, only in situations where some strong form of increasing returns to coalition is met. Without this property, arguments for a concept of Core that is non empty in a reasonably large class of problems are less compelling. Applications to taxation and insurance are given. Received: September 6, 1999; revised version: December 3, 1999     

A note on budget balance under interim participation constraints: the case of independent types

We provide a simple proof of the equivalence between ex ante and ex post budget balance constraints in Bayesian mechanism design with independent types when participation decisions are made at the interim stage. The result is given an interpretation in terms of efficient allocation of risk.     

A more general class of biased estimators of the co-efficients in linear regression

In a recent paper, Ullah and Ullah (1978) proposed a class of biased estimators, namely double k-class (k₁, k₂) for the coefficients in a linear regression model. Even though, this set of estimators contains James and Stein (1961) as a special case, in its present form, it does not contain the ridge type estimators. The aim of this note is to extend Ullah and Ullah set of estimators and then establish a relationship with the various operational ridge estimators. The conditions under which the extended set of estimators dominates the ordinary least squares estimator are analyzed.     

Unilateral effects of mergers with general linear demand

We derive the formula for the unilateral price effects of mergers of two products with linear demand in the general asymmetric situation. The formula uses the same information required to calculate upward pricing pressure in the 2010 Horizontal Merger Guidelines.     

An ordinal characterization of the linear opinion pool

Given a collection of individual ordinal probabilities on a finite state space, we discuss an ordinal condition that is necessary and sufficient for an ordinal probability to be represented as a weighted average of probability representations of the individual probabilities. We also give necessary and sufficient conditions for when such an ordinal probability can be represented as an unweighted average of probability representations. Many thanks are due to an anonymous referee, who provided detailed comments and corrections which greatly improved this paper.     

Ratifiability of efficient collusive mechanisms in second-price auctions with participation costs

We investigate whether efficient collusive bidding mechanisms are affected by potential information leakage from bidders' decisions to participate in them within the independent private values setting. We apply the concept of ratifiability introduced by Cramton and Palfrey [Cramton, P.C., Palfrey, T.R., 1995, Ratifiable mechanisms: Learning from disagreement, Games Econ. Behav. 10 (2), 255–283] and show that when the seller uses a second-price auction with participation costs, the standard efficient cartel mechanisms such as pre-auction knockouts analyzed in the literature will not be ratified by cartel members. A high-value bidder benefits from vetoing the cartel mechanism since doing so sends a credible signal that she has high value, which in turn discourages other bidders from participating in the seller's auction.     

A general existence theorem for equilibrium price dispersions

This paper presents sufficient conditions for the existence of non-degenerate equilibrium price dispersions in economies with sequentially searching consumers. This existence result is obtained by fully utilizing the fixed-point property of equilibrium price dispersions. Compared with the existing literature, the formal framework used in this paper is very general. Consequently, the results of the paper are valid for a large class of economic models.     

A characterization of the demand for land

In a model of an economy where land is modelled explicitly as heterogeneous subsets of the plane and utility takes an integral form, demand can be characterized as a specific map from endowments and prices into subsets of the plane. A modified form of the Neyman-Pearson lemma is used to obtain this result, the modification being necessary because the analog of randomized tests must be excluded from this model.     

A general framework for the analysis of fiscal equalisation systems

This paper shows that, despite the existing diversity of models of fiscal equalisation, there is a common underlying structure that links all of them. To this end, a framework of analysis sufficiently general so as to encompass the main schemes present in the literature is developed. This allows to uncover the common features of these schemes and to identify more readily the origin and nature of their differences. The formal approach is complemented with a numerical simulation of the models considered. The paper also shows the usefulness of the approach for reform policy and suggests two new models.JEL Classification: H2, H7I would like to thank three anonymous referees for their helpful comments and suggestions to a previous draft of this article.     

A general revealed preference theorem for stochastic demand behavior

Summary. We present a general revealed preference theorem concerning stochastic choice behavior by consumers. We show that, when the consumer spends her entire wealth, the Weak Axiom of Stochastic Revealed Preference due to Bandyopadhyay, Dasgupta, and Pattanaik (1999) is equivalent to a restriction on stochastic demand behavior that we call stochastic substitutability. We also show that the relationship between the Weak Axiom of Revealed Preference and Samuelson's inequality in the deterministic theory, and the main result of Bandyopadhyay, Dasgupta, and Pattanaik (1999) are both special cases of our result.Received: 10 September 2001, Revised: 4 April 2003, JEL Classification Numbers: D11. Correspondence to: Prasanta K. PattanaikOur greatest debt is to the referee of this paper, who made numerous helpful suggestions. We thank Robin Cubitt, Kunal Sengupta and seminar audiences at Jawaharlal Nehru University, Indian Statistical Institute, University of East Anglia, Universidad Carlos III, University of Essex and University of Montreal for their helpful comments. Prasanta K. Pattanaik acknowledges his intellectual debt to Salvador Barbera, Tapas Majumdar and Amartya Sen.     

A general theory of demand for information about product quality

The purpose of this paper is to construct a general theory—analogous to the neoclassical theory of consumer demand—of demand for information about product quality. The model proposed here introduces uncertain product quality by assuming that commodities possess attributes which consumers desire and that an uncertain commodity possesses are unknown quantity of some attribute. It is assumed that information about the quality of uncertain products is available. The consumer's utility function of information is derived and his information demand function is obtained.Partial analogues of the neoclassical theorems are proved for information demand. Roughly, we find that the Slutsky matrix is symmetric and that a submatrix is negative definite. The negative definite submatrix contains those terms which measure the effect of (income compensated) changes in information prices on information demand.The analysis employed to obtain these results parallels—with some important modifications—the neoclassical analysis of commodity demand. The method used to obtain expressions for the Slutsky substitution terms is an extension of the approach introduced by McKenzie [10] and later used by Hurwicz and Uzawa [6]. This approach uses an “income compensation” function to arrive at an “income compensated” demand function.     

Bartlett adjustments for systems of linear equations with linear restrictions

Simple matrix formulae are derived for calculating a Bartlett adjustment to the likelihood ratio test statistic for testing linear parameter restrictions in a system of linear equations. For the special case of column and/or row restrictions on the matrix of coefficients the adjustment is a simple function of matrix dimensions being invariant to sample observations and the error covariance matrix. An example of testing for homogeneity and symmetry in a demand system is given.     

A general equilibrium framework for the affine class of term structure models

The Duffie and Kan (1966) model, which can be considered as the most general affine term structure formulation, was originally specified in terms of risk-adjusted stochastic processes for its state variables. The goal of the present paper is to derive a Duffie and Kan (1966) model specification under the physical probability measure that is compatible with the formulation given by the authors under the equivalent martingale (money market account) measure. For that purpose, the Duffie and Kan (1966) model will be fitted into a general equilibrium monetary framework. The resulting analytical solution for the vector of factor risk premiums enables the econometric estimation of the model parameters using a time-series or a panel-data approach, and nests, as special cases, several other specifications already proposed in the literature.Received: November 2002, Accepted: February 2004, JEL Classification: E43, G11, G12Financial support by FCTs research grant PRAXISXXI/BD/5712/95 is gratefully acknowledged.     

Bioeconomic modeling for control of weeds in natural environments

When a weed invasion is first discovered a decision has to be made on whether to attempt to eradicate it, contain it or do nothing. Ideally, these decisions should be based on a complete benefit-cost analysis, but this is often not possible. A partial analysis, combining knowledge of the rate of spread, seedbank longevity, costs of control and techniques of economic analysis, can assist in making a good decision. This paper presents a decision model to determine when immediate eradication of a weed should be attempted, or more generally whether weed control should be attempted at all. The technique is based on identifying two ‘switching points’: the invasion size at which it is no longer optimal to attempt eradication but where containment may be an option; and the invasion size at which it becomes optimal to apply no form of control at all. The model is applied to a woody perennial weed in a natural environment. The results show that seedbank longevity is the main constraint on the maximum eradicable area and spread rate is the main constraint on the maximum containment area. Stochastic simulations are undertaken to derive probability distributions of costs which are than used to evaluate the effect of budget constraints on areas that can be eradicated. We find that, in the absence of a budget constraint, it may be desirable to eradicate invasions from areas as large as 8000 ha, but when budget constraints typical of those faced by agencies in Australia are introduced, feasible eradicable areas are less than 1000 ha.     

Cost efficient pesticide reductions: A study of Sweden

The minimum cost for reducing the farmers' use of pesticides is calculated. The measures include are; (i) a decrease in use of inputs, (ii) an improvement of the insurance system, and (iii) application of an ecotechnology where 5–10 meters along the borders of the fields are left untreated with pesticides. The cost of reducing the use of pesticides is measured by means of pesticide demand functions and the cost for improving an insurance system is measured as the risk premium. The empirical results indicate that the minimum cost for reducing the use of pesticides by 50% in Sweden corresponds to about 6 per cent of farmers' incomes from crop production. A simple comparison of policy instruments shows that the cost of a quota system is about 40 per cent higher than the costs of the charge and permit market systems. The farmers' decreases in incomes under a charge system are twice as high as under the other two policy instruments. The results are, however, sensitive to the levels of the pesticide price elasticities.     

The cost structure of a simple general equilibrium system: A graphical characterization and its application to the question of monopsony distortions

A two-sector, two-factor general equilibrium model is used in which one sector is subject to distortions. Cost functions are used to give a graphical analysis of the equilibrium and its comparison to the distortion-free, competition situation.     

The use of modeling tools for policy in evolutionary environments

This is a position paper on the possibilities of informing the (economic and environmental) policy debate by using quantitative evolutionary models. I argue that an evolutionary worldview implies that the existing quantitative modeling tools used for policy analysis are problematic. Then I summarize the main elements of an evolutionary way of analysis, and the way in which it can be incorporated into quantitative models. I conclude with an outline of a proposal for how to apply the ideas in the analysis of energy transitions.     

A characterization of strategic complementarities

I characterize games for which there is an order on strategies such that the game has strategic complementarities. I prove that, with some qualifications, games with a unique equilibrium have complementarities if and only if Cournot best-response dynamics has no cycles; and that all games with multiple equilibria have complementarities. As applications of my results, I show that: (1) generic 2×2 games either have no pure-strategy equilibria, or have complementarities; (2) generic two-player finite ordinal potential games have complementarities.     

A turnpike property of optimal programs for a class of simple linear models of production

Summary. This paper establishes a ‘turnpike theorem’ for a closed linear model of production with a primitive input requirement matrix. Optimal programs of resource allocation have a ‘turnpike property’ if the growth factor of every sector in the economy converges, in the long run, to a common value. The usefulness of such a theorem is due to the fact that the input requirement matrix for an economy with a large number of goods may be primitive (some power of the matrix is strictly positive). Received: April 19, 1998; revised version: July 15, 1998