Time and Uncertainty in Overlapping Generations Economies

This paper shows the general reversibility of every perfect foresight equilibrium of an overlapping generations economy. It then shows and characterizes the existence of reversible sunspot equilibria in these economies as well, which seems to be at odds with our intuition about the irreversibility of a tree of events. Although the paper establishes also that such reversible stochastic equilibria constitute a negligible subset of all the equilibria of their class, their mere existence may be considered somewhat puzzling for this intuition. Journal of Economic Literature Classification Numbers: D50, D80, D90.     

Credible Equilibria in Games with Utilities Changing during the Play

Whenever one deals with an interactive decision situation of long duration, one has to take into account that priorities of the participants may change during the conflict. In this paper we propose an extensive-form game model to handle such situations and suggest and study a solution concept, called credible equilibrium, which generalizes the concept of Nash equilibrium. We also discuss possible variants to this concept and applications of the model to other types of games. American Mathematical Society Classification Numbers: 90A06, 90A07, 90A43, 90A56, 90D06, 90D10, 90D35, 90D40, 90D80. Journal of Economic Literature Classification Numbers: C70, C72, D10, D11, D80, D83.     

Non-implementation of rational expectations as a perfect Bayesian equilibrium

Summary. We point out several conceptual difficulties of the rational expectations equilibrium concept. In particular we show that such an equilibrium need not be incentive compatible and need not be implementable as a perfect Bayesian equilibrium . A comparison of rational expectations equilibria with the private core is also provided. We conclude that the private core is a more appropriate concept to capture the idea of contracts under asymmetric information.Received: 15 December 2003, Revised: 18 November 2004, JEL Classification Numbers: C71, C72, D5, D82. Correspondence to: Nicholas C. YannelisWe wish to thank Dr A. Hadjiprocopis for his invaluable help with the implementation of Latex in a Unix environment.     

The economic implications of exaptation

Accounts of economic change recognize that markets create selective pressures for the adaptation of technologies in the direction of customer needs and production efficiencies. However, non-adaptational bases for technological change are rarely highlighted, despite their pervasiveness in the history of technical and economic change. In this paper the concept of exaptation -a feature co-opted for its present role from some other origin - is proposed as a characteristic element of technological change, and an important mechanism by which new markets for products and services are created by entrepreneurs. Exaptation is a missing but central concept linking the evolution of technology with the entrepreneurial creation of new markets and the concept of Knightian uncertainty.JEL Classification: O3, M13, D8, D52Correspondence to: Nicholas DewThe authors would like to acknowledge the financial support of the Batten Institute of the Darden School of Business Administration, University of Virginia, for carrying out this research. We also wish to thank Rama Velamuri and an anonymous referee for their comments, which significantly improved this paper. All remaining faults are the sole responsibility of the authors.     

Procedural choice

Summary. In this paper, we attempt to combine the concept of a choice function with a procedural aspect. We examine an individuals choices over alternatives when the available options are linked either to the procedure by which these alternatives came into existence or to the degree of availability of other options. The procedural aspect behind availability may prompt an individual to refuse to choose so that the choice set becomes empty. This particular aspect is used to study different cases that are characterized axiomatically. We relate our conditions to well-known consistency conditions from standard choice theory.Received: 2 December 2002, Revised: 18 August 2003JEL Classification Numbers: D62, D63, D71.Correspondence to: Wulf GaertnerThe first author would like to thank Volkswagen-Stiftung for generous financial support. For helpful comments and suggestions we are grateful to Fuad Aleskerov, Nick Baigent, Nancy Cartwright, Kotaro Suzumura as well as to seminar participants at various universities and audiences at several conferences.     

Equilibrium without prices: A central issue in pareto’smanuale

Pareto in hisManuale asserts that the price concept is inessential for the notion of equilibrium. This view deeply contrasts with the Arrow-Debreu’s dominant approach of Walrasian derivation. This identifies general equilibrium with a system of prices at which the decentralized choices of economic agents match. In this paper the author justifies and gives substance to the Paretian point of view. The differential merit of the Paretian approach is its independence of assumptions of price taking and of convexity in preferences and in production possibility sets. These assumptions are necessary, in the walrasian framework, only to maintain the centrality of prices, but they clash against the request of realism. (JEL:BOO, D51, D60)     

The impact of prudence on optimal prevention

Summary. What are the determinants of the optimal level of effort to reduce the probability of a loss to occur? Whereas most of the literature on this question focused on risk aversion, we show that the concept of prudence (i.e., a positive third derivative of the utility function) is essential to answer this question. We explain in this paper that prudence and prevention tend to be opponents rather than allies contrary to the intuition attached to everyday language.Received: 7 November 2003, Revised: 3 August 2004, JEL Classification Numbers: D61, D81. Correspondence to: Christian Gollier     

Non-Additive Beliefs and Strategic Equilibria

This paper studies n-player games where players' beliefs about their opponents' behaviour are modelled as non-additive probabilities. The concept of an “equilibrium under uncertainty” which is introduced in this paper extends the equilibrium notion of Dow and Werlang (1994, J. Econom. Theory64, 305–324) to n-player games in strategic form. Existence of such an equilibrium is demonstrated under usual conditions. For low degrees of ambiguity, equilibria under uncertainty approximate Nash equilibria. At the other extreme, with a low degree of confidence, maximin equilibria appear. Finally, robustness against a lack of confidence may be viewed as a refinement for Nash equilibria. Journal of Economic Literature Classification Numbers: C72, D81.     

Games of Fair Division

We consider the problem of fairly allocating an indivisible good to one of several agents equally entitled to it when monetary compensations to the others are possible. Our primary normative concept is no-envy. First, we show that there is no non-manipulable selection from the no-envy solution. Then we study the direct revelation games associated with subsolutions of the no-envy solution. The set of equilibrium allocations of any one of them coincides with the set of envy-free allocations for the true preferences. Journal of Economic Literature Classification Numbers: C72, D63, D7l, D82.     

Left-side Relatively Weak Increases in Risk and Their Comparative Statics

This paper proposes a new concept, a left-side relatively weak increase in risk (L-RWIR) order, that extends the definition of a relatively weak increase in risk (RWIR) order. We show that, for the class of linear payoffs, one can obtain an appealing comparative statics result for L-RWIR shifts imposing additional restrictions on risk preferences of a risk-averse decision maker.JEL classification: D81.revised version received October 10, 2003Acknowledgements The authors would like to thank an anonymous referee for insightful comments and useful suggestions.     

On Non-Nash Equilibria

I consider generalisations of the Nash equilibrium concept based on the idea that in equilibrium the players' beliefs should not be contradicted, even if they could possibly be incorrect. This possibility depends on the information about opponents' behaviour available to the players in equilibrium. Therefore the players' information is crucial for this notion of equilibrium, called Conjectural Equilibrium in general and Rationalizable Conjectural Equilibrium (Rubinstein-Wolinsky 1994) when the game and the players' Bayesian rationality are common knowledge. In this paper I argue for a refinement of Rationalizable Conjectural Equilibrium showing by propositions and by examples how this equilibrium notion works and how the suitable equilibrium concept depends on the players' information.Journal of Economic LiteratureClassification Numbers: C72, D83, D82.     

An Evolutionary Interpretation of Mixed-Strategy Equilibria

A convincing interpretation of mixed-strategy equilibria describes them as steady states in a large population in which players use pure strategies but the population as a whole mimics a mixed strategy. I study the conditions under which an evolutionary, stochastic learning process converges to the appropriate distribution over pure strategies in the population. I find that not all mixed equilibria can be justified as the result of an evolutionary process even if the equilibrium is unique. For symmetric 2 × 2 and 3 × 3 games I give necessary and sufficient conditions for convergence, which are related to the concept of an ESS, and forn × ngames I give a sufficient condition.Journal of Economic LiteratureClassification Numbers: C73, D83.     

THE ECONOMICS OF HOMELAND SECURITY EXPENDITURES: FOUNDATIONAL EXPECTED COST‐EFFECTIVENESS APPROACHES

While most economists expect some marginal conditions to result from basic expected value models involving government expenditures and homeland security investments, such models are not readily found in the literature. The article presents six basic models that all incorporate uncertainty; they also capture various problems involving technological limits, behavioral interactions, false negatives and false positives, and decision making with uncertainty and irreversibility. Recent reviews of homeland security programs by the U.S. Government Accountability Office are used to illustrate the relevance of the models.(JEL H100)     

Logconcavity versus Logconvexity: A Complete Characterization

This paper provides a complete characterization of logconcavity, an increasingly popular concept in the economics of uncertainty and information. New and known results are proven without assuming that density functions are differentiable. A systematic comparison between logconcavity and logconvexity is made and the source of the asymmetries between the two is investigated. The key difference is that logconcavity is preserved under one-sided integrations regardless of the types of distribution supports. This property, however, does not hold for logconvexity. Logconcavity for multivariate distributions is also discussed.Journal of Economic LiteratureClassification Number: D80.     

New market creation through transformation

Is new market creation a search and selectionprocess within the theoretical space of all possible markets? Or is it the outcome of a process of transformation of extant realities into new possibilities? In this article we consider new market creation as a process involving a new network of stakeholders. The network is initiated through an effectual commitment that sets in motion two concurrent cycles of expanding resources and convergingconstraints that result in the new market. The dynamic model was induced from two empirical investigations, a cognitive science-based investigation of entrepreneurial expertise, and a real time history of the RFID industry. JEL Classification: M13, M31, D4, D52, D71, D72, L1, L2, P42 We would like to thank the Batten Institute at the Darden Graduate School of Business Administration, University of Virginia, for supporting this research. We would also like to thank the following on specific contributions to our thesis: Anil Menon for his relentless insistence on more precise formulations of effectual reasoning; Jim March for his conversation and for inspiring us to dig into Type I and Type II errors; Rob Wiltbank for firming up the section on opportunity costs; and Stuart Read for helping us clarify our writing. Correspondence to: S.D. Sarasvathy     

Understanding the effects on HR-QoL of treatment for overactive bladder: a detailed analysis of EQ-5D clinical trial data for mirabegron

Abstract

Background:

Analysis of EQ-5D data often focuses on changes in utility, ignoring valuable information from other parts of the instrument. The objective was to explore how the utility index, EQ-5D profile, and EQ-VAS captured change in clinical trials of mirabegron, a new treatment for overactive bladder (OAB).

Data:

Data were pooled from three phase III clinical trials that investigated the efficacy and safety of mirabegron vs placebo. Tolterodine ER 4?mg was included as an active control in one study: (1) placebo, mirabegron 50?mg and 100?mg, and tolterodine 4?mg ER; (2) placebo, mirabegron 50?mg and 100?mg; (3) placebo, and mirabegron 25?mg and 50?mg. Data were collected at baseline, week 4, 8, and 12.

Methods:

Analyses were performed on full analysis and modified intention to treat (ITT) data sets using UK utilities. Analysis controlled for relevant patient characteristics. Analysis of Covariance identified changes from baseline at each time point in utilities and EQ-VAS. Areas Under the Curve were estimated to summarize inter-temporal differences in effect. EQ-5D profile data were analysed using the Paretian Classification of Health Change.

Results:

In modified ITT analyses, mirabegron 50?mg was superior to tolterodine 4?mg in changes from baseline utilities after 12 weeks (p?<?0.05); similarly, AUC results showed mirabegron 50?mg to be superior to tolterodine (p?<?0.05) and placebo (p?<?0.05) with the benefit already apparent at 4 weeks (p?<?0.05). EQ-VAS more consistently indicated superior outcomes: all three mirabegron doses showed statistically significant greater effectiveness compared to tolterodine at 12 weeks. Individual EQ-5D dimensions and the overall profile showed no significant differences between study arms.

Conclusion:

Mirabegron showed quicker and superior improvement in HR-QoL compared to tolterodine 4?mg ER. A limitation of the study is that EQ-5D was a secondary outcome in the pivotal trials, which were not powered to measure differences on EQ-5D.     

Are incomplete markets able to achieve minimal efficiency?

Summary. We consider economies with incomplete markets, one good per state, two periods, t = 0,1, private ownership of initial endowments, a single firm, and no assets other than shares in this firm. In Dierker, Dierker, Grodal (2002), we give an example of such an economy in which all market equilibria are constrained inefficient. In this paper, we weaken the concept of constrained efficiency by taking away the planners right to determine consumers investments. An allocation is called minimally constrained efficient if a planner, who can only determine the production plan and the distribution of consumption at t = 0, cannot find a Pareto improvement. We present an example with arbitrarily small income effects in which no market equilibrium is minimally constrained efficient.Received: 26 November 2002, Revised: 28 May 2003, JEL Classification Numbers: D2, D52, D61, G1.We are grateful to an anonymous referee for very valuable comments. E. and H. Dierker would like to thank the Institute of Economics, University of Copenhagen, for its hospitality and its financial support.     

ARE COLLECTIVE ECONOMY UNDERTAKINGS INTEGRATED INTO THE CONCEPT OF ECONOMIC AND SOCIAL POLICY IN THE FEDERAL REPUBLIC OF GERMANY? A POSTSCRIPT*

I. The concept of economic and social policy in the Federal Republic of Germany. II. Public undertakings: conditionally recognized. III. Co-operatives: integrated. IV. Trade union undertakings: disputed. V. German collective economy: a creation of theory, not a political reality.     

An application of the SF-6D to create heath values in Portuguese working age adults

Objectives: This study describes the health-related quality of life (HRQOL) of the Portuguese working age population and investigates sociodemographic differences.

Methods: Subjects randomly selected from the working age population (n=2,459) were assessed using the SF-36v2 and converted into the preference-based SF-6D.

Results: The mean SF-6D utility value was 0.70 (range 0.63–0.73). The mean utility value was lower for the lower educational level than for the highest. Women, people living in rural areas and older adults reported lower levels of utility values. Non-parametric tests showed that health utility values were significantly related to employment; unskilled manual workers reported utility values lower than non-manual workers. For different diseases, mean utility values ranged from 0.58 (sexual diseases) to 0.66 (hepatic conditions). Cluster analysis was adopted to classify individuals into three groups according to their answers to the SF-6D dimensions. Multinomial logit regression was used to detect sociodemographic characteristics affecting the probability of following each cluster pattern. This study yielded normative data by age and gender for the SF-6D.

Conclusions: The authors conclude that SF-6D is an effective tool for measuring HRQOL in the community so that different population groups can be compared. The preference-based measure used seems to discriminate adequately across sociodemographic differences. These results allow a better understanding of the impact of sociodemographic variables on the burden of illness perception.

A previous version of this paper was presented at the International Society for Pharmacoeconomics and Outcomes Research (ISPOR) 8th Annual European Congress held at Florence, Italy in November 2005.     

Information technology investment strategies: a review and synthesis of the literature

In spite of high importance of information technology (IT) investments, managers do not have sufficient guidelines to formulate IT investment strategy of a firm. In this paper, we review the literature to determine the factors that influence the IT investment strategy. The concept of IT investment strategy so far considered two domains: intensity and proactiveness; we enhance this concept by adding the domain of investment focus. Through this review, we made an attempt to answer three strategic questions related to IT investments: (i) level of investment that a firm should make in IT, that is, investment intensity; (ii) areas of firm where these investments should be more focused, that is, investment focus; and (iii) timing of investment, that is, whether to be an early mover in adopting IT or whether to invest relatively late compared to competitors.