Asymmetric parametric division rules

We describe and characterize the family of asymmetric parametric division rules for the adjudication of conflicting claims on a divisible homogeneous good. As part of the characterization, we present two novel axioms which restrict how a division rule indirectly allocates between different versions of the same claimant. We also show that such division rules can alternately be represented as the maximization of an additively separable social welfare function.     

Lorenz rankings of rules for the adjudication of conflicting claims

For the adjudication of conflicting claims, we develop three general approaches to obtain Lorenz rankings of rules. Our first approach concerns a parameterized family that contains several important rules (Thomson in Soc Choice Welf 31:667?C692, 2008). We give a condition that the parameters defining two members of the family should satisfy for one of them to Lorenz dominate the other. Our second approach exploits the concept of ??consistency?? (Young in Math Oper Res 12:398?C414, 1987). We derive a criterion to deduce Lorenz domination for arbitrarily many claimants from Lorenz domination in the two-claimant case. Our third approach is based on the notion of an ??operator?? on the space of rules (Thomson and Yeh in J Econ Theory 143:177?C198, 2008). We develop conditions under which operators preserve the Lorenz order, or reverse it. As corollaries of our general theorems, we obtain rankings of most of the rules that have been discussed in the literature.     

Asymmetric monetary policy rules in Australia

In this study, the hypothesis that the Reserve Bank of Australia (RBA) implements an asymmetric monetary policy rule is tested. We estimate both linear and asymmetric monetary policy reaction functions for the period before inflation targeting was adopted, for the period when inflation targeting was explicitly adopted and for the full sample period. The results of the linear monetary policy rules are consistent with the estimates reported from other studies that estimate linear monetary policy rules for Australia. On the other hand, the results of estimating the asymmetric monetary policy rules for the pre-inflation targeting period shows that the RBA had reacted symmetrically, suggesting that it had acted with the same aggressiveness towards both inflation and output gaps of the same magnitude, over both phases of the business cycle. However, for the inflation targeting period, the results show that the RBA had reacted asymmetrically in its policy response to the inflation gap, output gap or both. A similar result is found for the full sample period. This asymmetric response supports the view that a non-linear monetary policy rule emanated from asymmetric preferences, rather than from the existence of a non-linear Phillips curve.     

Convergence under replication of rules to adjudicate conflicting claims

We study the behavior of rules for the adjudication of conflicting claims when there is a large number of claimants with small claims. We model such situations by replicating some basic problem. We show that under replication, the random arrival rule [Math. Soc. Sci. 2 (1982) 345] behaves like the proportional rule, the rule that is the most often recommended in this context. Also, under replication, the minimal overlap rule [Math. Soc. Sci. 2 (1982) 345] behaves like the constrained equal losses rule, the rule that selects a division at which all claimants experience equal losses subject to no-one receiving a negative amount.     

A characterization of a family of rules for the adjudication of conflicting claims

We consider the problem of adjudicating conflicting claims, and characterize the family of rules satisfying four standard invariance requirements, homogeneity, two composition properties, and consistency. It takes as point of departure the characterization of the family of two-claimant rules satisfying the first three requirements, and describes the restrictions imposed by consistency on this family and the further implications of this requirement for problems with three or more claimants. The proof, which is an alternative to Moulinʼs original proof [Moulin, H., 2000. Priority rules and other asymmetric rationing methods. Econometrica 68, 643–684], is based on a general method of constructing consistent extensions of two-claimant rules [Thomson, W., 2007. On the existence of consistent rules to adjudicate conflicting claims: a constructive geometric approach. Rev. Econ. Design 11, 225–251], which exploits geometric properties of paths of awards, seen in their entirety.     

Asymmetric monetary policy rules for the euro area and the US

We analyse the implications of asymmetric monetary policy rules by estimating Markov-switching DSGE models for the euro area (EA) and the US. The estimations show that until mid-2014 the ECB’s response to inflation was more forceful when inflation was above than below the central bank’s aim. Since then, the ECB’s policy can be characterised as symmetric, and we quantify the macroeconomic implications of this policy change. We uncover asymmetries also in the Fed’s policy, which has responded more strongly in times of crisis. We compute optimal simple rules for the EA and the US in an environment with the effective lower bound and a low neutral real rate, and find that it prescribes a stronger response to inflation and the output gap when inflation is below target compared to when it is above target. We document its stabilisation properties had this optimal rule been implemented over the last two decades.     

On closure rules,homogeneity and dynamics in applied general equilibrium models

The problem of model ‘closure’ has been a major focus of the literature on the theoretical aspects of applied general equilibrium models. This paper addresses the issue by focusing on the implicit behavioral assumption leading to the existence of the closure problem. To do this, it uses a simple temporary equilibrium to make explicit the microeconomic behavior underlying these types of models. The closure problem is analyzed through the assumptions on the role of relative prices that it implies. In particular, emphasis is put on two mechanisms - the real balance effect and an expectation effect - in potentially ensuring the existence of an equilibrium. The paper concludes by showing the implications of this analysis for the construction of a theoretical framework for fully dynamic general equilibrium models.     

Non-manipulable division rules in claim problems and generalizations

When resources are divided among agents, the characteristics of the agents are taken into consideration. A simple example is the bankruptcy problem, where the liquidation value of a bankrupt firm is divided among the creditors based on their claims. We characterize division rules under which no group of agents can increase the total amount they receive by transferring their characteristics within the group. By allowing agents’ characteristics to be multi-dimensional and choosing the meaning of variables appropriately, our model can subsume a number of existing and new allocation problems, such as cost sharing, social choice with transferable utilities, income redistribution, bankruptcy with multiple types of assets, probability updating, and probability aggregation. A number of existing and new results in specific problems are obtained as corollaries.     

Adverse selection problems without the Spence-Mirrlees condition

This paper studies a class of one-dimensional screening problems where the agent's utility function does not satisfy the Spence-Mirrlees condition (SMC). The strength of the SMC for hidden information problems is to provide a full characterization of implementable contracts using only the local incentive compatibility (IC) constraints. These constraints are equivalent to the monotonicity of the decision variable with respect to the agent's unobservable one-dimensional parameter. When the SMC is violated the local IC constraints are no longer sufficient for implementability and additional (global) IC constraints have to be taken into account. In particular, implementable decisions may not be monotonic and discretely pooled types must have the same marginal utility of the decision (or equivalently, get the same marginal tariff). Moreover, at the optimal decision, the principal must preserve the same trade-off between rent extraction and allocative distortion measured in the agent's marginal rent unit. In a specific setting where non-monotone contracts may be optimal we fully characterize the solution.     

A non-cooperative interpretation of the f-just rules of bankruptcy problems

First, we propose an axiomatic characterization of the f-just rules. Second, based on the result, a game is designed and a non-cooperative interpretation of the f-just rules is provided.     

Search for rules for search

This paper presents the findings of some preliminary ‘laboratory’ investigations into ‘actual’ search behavior. Specifically we looked at situations in which searchers' initial information about the distributions was negligible. It seemed likely that simple ‘rules of thumb’ would be used in such situations. Our findings confirmed this view: we identified five such rules which between them ‘accounted’ for a high proportion of observed behaviour. Moreover, these rules although not ‘optimal’) appear to be reasonably good and may be fairly robust; jointly, they may constitute a better explanation (and predictor) of actual search behaviour than do the currently popular supposedly optimal rules.     

Operators for the adjudication of conflicting claims

We consider the problem of allocating some amount of an infinitely divisible and homogeneous resource among agents having claims on this resource that cannot be jointly honored. A “rule” associates with each such problem a feasible division. Our goal is to uncover the structure of the space of rules. For that purpose, we study “operators” on the space, that is, mappings that associate to each rule another one. Duality, claims truncation, and attribution of minimal rights are the operators we consider. We first establish a number of results linking them. Then, we determine which properties of rules are preserved under each of these operators, and which are not.     

Asymmetric information without common priors: an indirect evolutionary analysis of quantity competition

The common prior assumption justifies private beliefs as posterior probabilities when updating a common prior based on individual information. We dispose of the common prior assumption for a homogeneous oligopoly market with uncertain costs and firms entertaining arbitrary priors about other firms’ cost-type. We show that true prior beliefs can not be evolutionarily stable when truly expected profit measures (reproductive) success.     

A characterization of optimistic weighted Shapley rules in minimum cost spanning tree problems

In this paper we present an axiomatic characterization of the weighted Shapley value of the optimistic TU game associated with a minimum cost spanning tree problem. This characterization is based on two monotonicity properties, population monotonicity (if a new agent joint the society nobody is worse off) and the strong cost monotonicity (if the connection cost between any pair of agents increases nobody is better off), and weighted share of extra costs (the extra costs should be divided proportionally to the weights of the agents).      

Allocation rules for land division

This paper studies the classical land division problem formalized by Steinhaus (Econometrica 16 (1948) 101-104) in a multi-profile context. We propose a notion of an allocation rule for this setting.  We discuss several examples of rules and properties they may satisfy. Central among these properties is division independence: a parcel may be partitioned into smaller parcels, these smaller parcels allocated according to the rule, leaving a recommended allocation for the original parcel. In conjunction with two other normative properties, division independence is shown to imply the principle of utilitarianism.     

Tests for structural change,aggregation, and homogeneity

Structural change can be considered by breaking up a sample into subsets and asking if these can be aggregated or pooled. Strategies for constructing tests for aggregation and structural change in this setting have not received sufficient attention in the literature. Our methodology for testing generalizes to multiple regimes a discussion of Pesaran et al. (1985) for the case of two regimes. This treatment permits a unified approach to a large number of testing problems discussed separately in the literature, as special cases or as parts of a test of homogeneity. We also provide a simple alternative to much more complex testing strategies currently being researched and developed in testing for structural change.     

Background risk and the demand for state-contingent claims

Summary. We consider the demand for state-contingent claims, in the presence of an independent zero-mean, non-hedgeable background risk. An agent is defined to be generalized risk averse if he/she chooses a demand function for contingent claims with a smaller slope everywhere, given a simple increase in background risk. We show that the conditions for standard risk aversion, that is positive, declining absolute risk aversion and prudence, are necessary and sufficient for generalized risk aversion.Received: 13 February 2002, Revised: 10 February 2003, JEL Classification Numbers: D52, D81, G11. Correspondence to: Guenter FrankeWe are grateful to Louis Eeckhoudt, Christian Gollier, Harris Schlesinger and an unknown referee for valuable comments.     

Participation rules for Pareto-optimal clubs

This paper presents a unifying framework for the club participation problem using compensating variation measures of willingness-to-pay for membership. With more prospective club members than the equilibrium club population, Pareto-efficient participation rules are derived which depend upon whether or not individuals are assured of club access. Sale of lottery tickets offering club membership is shown to be a socially superior club participation allocation mechanism to sale of vouchers guaranteeing membership. The willingness-to-pay format readily encompasses the Buchanan case where all prospective club members are assured of club participation.     

The case for fiscal rules

This paper estimates the effects of fiscal institutions on fiscal policy outcomes, addressing issues related to measurement and endogeneity in a novel way. Recently developed indices, based on partially ordered set theory, are used to quantify the stringency of fiscal rules. Identification of their effects is achieved by exploiting the exogeneity of institutional variables (checks and balances, government fragmentation, inflation targeting), which are found to be relevant determinants of fiscal rules. Our two-stage least squares estimates for (up to) 74 countries over the period 1985–2012 provide strong evidence that countries with more stringent fiscal rules have higher fiscal balances (lower deficits), lower interest rate spreads on government bonds, and lower output volatility.