Estimating the Parameters of Principal Agent Models

The estimation of principal agent models is a subset of inverse optimal problems. As of now there is no consistent method of estimating all its parameters. In general, some proxies for the parameters have been utilized to test plausible economic implications of such models. This study develops a method of estimation for all the parameters using a very limited time series data for one contracting pair. Progress towards empirical reality, based on stylized facts, has been achieved by iteratively modifying the theoretical models and econometric methods. One of these results provides a theoretical justification for the econometric tools utilized in practice as well. However, a fundamental modification of the underlying assumptions is necessary. Given the emphasis on contracts in economic exchange it is necessary to develop the methods further. The study also outlines some of the pertinent issues.

     

ON THE IMPACT OF FUNDAMENTALS,LIQUIDITY, AND COORDINATION ON MARKET STABILITY*

We develop a coordination game to model interactions between fundamentals and liquidity during unstable periods in financial markets. We then propose a flexible econometric framework for estimation of the model and analysis of its quantitative implications. The specific empirical application is carry trades in the yen–dollar market, including the turmoil of 1998. We find a generally very deep market, with low information disparities among agents. We observe occasional episodes of market fragility or turmoil with up by the escalator, down by the elevator patterns in prices. The key role of strategic behavior in the econometric model is also confirmed.     

Economic Education Research: Part II,New Directions in Theoretical Model Building

This article on research methodology in economic education is the second in a three-part series. The first, which appeared in the Winter 1983 issue of this Journal, focused on issues and questions economic education researchers should address. The present article provides suggestions for the development of theoretical models in which these issues and questions can be conceptualized, organized, and formally stated as empirically testable hypotheses. The final article will review statistical and econometric techniques appropriate for model estimation and statistical testing of specific hypotheses about teaching methods and other issues related to the production of economic learning.     

Nonparametric estimation and hypothesis testing in econometric models

In this paper we systematically review and develop nonparametric estimation and testing techniques in the context of econometric models. The results are discussed under the settings of regression model and kernel estimation, although as indicated in the paper these results can go through for other econometric models and for the nearest neighbor estimation. A nontechnical survey of the asymptotic properties of kernel regression estimation is also presented. The technique described in the paper are useful for the empirical analysis of the economic relations whose true functional forms are usually unknown.     

Unemployment and output dynamics in CIS countries: Okun’s law revisited

Okun’s law is a well-known relationship between the change in the unemployment rate and output growth. The main objective of this article is to provide a rigorous econometric analysis of Okun’s law for several CIS countries using different models and theoretically justified econometric methods. The traditional approach to Okun’s law estimation using OLS regressions does not account for possible endogeneity of regressors and the implied inconsistency of the estimates obtained. These problems point out to incorrectness of applications of the standard OLS estimation techniques. Our study addresses these issues by using econometrically justified instrumental variable regression methods. The article provides the results and discussions on practical use of Okun’s relationships for evaluation of average effects of economic growth on the unemployment rate, and vice versa; importance of accounting for confidence intervals in applications of Okun’s models to economic development analysis and cross-country comparisons and evaluation of effects of crises and other structural shocks on the economies considered. We also discuss in detail the results of formal econometric tests and economic motivation for validity of instrumental variables used in the study. The formal econometric tests, together with economic arguments, allow us to determine the most appropriate Okun-type models for each of the CIS countries under consideration.     

MODELLING EXPECTATIONS: A REVIEW OF LIMITED INFORMATION ESTIMATION METHODS

The plethora of limited information estimation methods applied to expectations models are presented within a coherent framework based on standard econometric estimators. It is then possible to isolate those problems that arise solely because of the inclusion of expectations variables. The relationship between the economic solution of RE models and the appropriate choice of estimator is examined.     

Estimating exchange rate dynamics with diffusion processes: an application to Greek EMU data

Recently various exchange rate models capturing the dynamics during the transition from an exchange rate arrangement of floating rates into a currency union have been derived. Technically, these stochastic equilibrium models are diffusion processes which have to be estimated by discretely sampled observations. Using daily exchange rate data prior to the Greek EMU-entrance on 1 January 2001, we develop a rigorous estimation procedure. Our estimates point to an increasing interventionist economic policy in the run-up to the Greek EMU entrance. A comparison of this econometric indication with policy information provided (ex-post) by the Bank of Greece (BoG) in its Annual Report 2000 reveals that the BoG indeed pursued such an active policy stance (so-called institutional frontloading strategies).      

Demand uncertainty,price-fixing firms,and parameter estimation

Decision models of the firm under uncertainty appear to generate a new class of econometric problems. A specific case and the nature of the estimation problem is described in this paper. The general structure of the identification problem encountered in such a context will, perhaps, be evident only after working through several such variations.     

TACKLING THE ENDOGENEITY OF FERTILITY IN THE STUDY OF WOMEN'S EMPLOYMENT IN DEVELOPING COUNTRIES: ALTERNATIVE ESTIMATION STRATEGIES USING DATA FROM URBAN BRAZIL

Abstract

Opinions differ about whether family structure, especially fertility, should be considered endogenous in models of behavior in developing countries. Faced with a dearth of good instruments, mainstream researchers often urge working in reduced form and, therefore, losing variables of policy interest or limiting the type of questions they ask to those where good instruments are available. Rather than treating endogeneity as a yes or no characteristic, we suggest instead that researchers consider the likely magnitude of endogeneity bias before moving to reduced form. Facing a situation where endogeneity bias is often presented as a concern but where we expect little endogeneity bias, we tackle endogeneity using multiple econometric techniques not available to the average researcher. We find support for our hypothesis that little bias arises due to the assumption of exogeneity of recent fertility in a model of women's employment.     

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.

     

Exploring the effect of crisis on cooperatives: a Bayesian performance analysis of French craftsmen cooperatives

ABSTRACT

The aim of this paper is to understand the economic performance of craftsmen cooperatives during the crisis period. These cooperatives have the distinctive feature of being supply cooperatives. We use an exhaustive dataset for the French craftsmen cooperatives (2004–2014). We estimate Bayesian Translog econometric models in order to underline the impact of the 2008 crisis on these cooperatives. On the one hand, cooperatives’ turnover and economies of scales decrease during the crisis, the effect is lower for elder cooperatives and varies across sectors. On the other hand, there is a convergence towards the mean for the various generations of cooperatives. These findings are robust to alternative econometric specifications.     

An economic agent in my brain? A critical analysis of multiple-self models in neuroeconomics

Neuroeconomic multiple-self models describe individuals’ choices as the equilibrium of the interaction amongst neural sites modelled as economic agents. This approach aims at explaining some inter-temporal inconsistency problems and the rejection of unfair offers in ultimatum games. However, the experiments on these models do not provide replicable results. The standard view interprets this problem as due to inadequate econometric techniques. Conversely, this paper shows that the non-replicability problem arises from a conundrum of multiple-self models’ (MSMs) theory. It illustrates how the assumption of neuroeconomic agents is deduced from the revealed preferences theory applied to the neuro-level. Therefore, the paper shows how experiments on MSMs cannot test the assumption of neuroeconomic agents but only the empirical hypotheses that derive from it. This entails that the assumption of neuroeconomic agents is a tautology, which might generate hypotheses that do not robustly identify the neural correlates of behaviour.     

A theory of cooperation in games with an application to market socialism

Abstract

Economic theory has focused almost exclusively on how humans compete with each other in their economic activity, culminating in general equilibrium (Walras–Arrow–Debreu) and game theory (Cournot–Nash). Cooperation in economic activity is, however, important, and is virtually ignored. Because our models influence our view of the world, this theoretical lacuna biases economists’ interpretation of economic behavior. Here, I propose models that provide micro-foundations for how cooperation is decentralized by economic agents. It is incorrect, in particular, to view competition as decentralized and cooperation as organized only by central diktat. My approach is not to alter preferences, which is the strategy behavioral economists have adopted to model cooperation, but rather to alter the way that agents optimize. Whereas Nash optimizers view other players in the game as part of the environment (parameters), Kantian optimizers view them as part of action. When formalized, this approach resolves the two major failures of Nash optimization from a welfare viewpoint – the Pareto inefficiency of equilibria in common-pool resource problems (the tragedy of the commons) and the inefficiency of equilibria in public-good games (the free rider problem). An application to market socialism shows that the problems of efficiency and distribution can be completely separated: the dead-weight loss of taxation disappears.     

Is precise econometrics an illusion?1

Abstract

Many empirical economists say that the teaching of econometrics is unbalanced, and students are not well-prepared for the serious problems they will encounter with real data. Here, the author considers the problem of noisy data, which is present in most econometric studies, but receives far too little attention. Most econometric studies are done in a world of low signal-to-noise ratios, and educated common sense suggests that we cannot expect precise results in such an environment. Sensitivity analysis shows that the apparent precision of reported econometric results is generally an illusion, because it is highly dependent on error term independence assumptions.^1,2     

Frisch and Tinbergen on economic planning

The Frisch-Tinbergen model of central economic planning represents the first important non-Soviet planning model. This constrained optimization model makes the central planner a staff adviser to the Premier. The central planner explores the Premier's preference ordering and recommends instruments that maximize the Premier's utility, given the constraints within an econometric model. This model assumes Premiers have no preference over instruments or models and that planning agencies have neither internal structure nor operating responsibilities. The paper explores the consequences of removing such limiting assumptions, utilizing the results of more recent contributions to the theory of.-economic systems.     

Economic evaluations in migraine: systematic literature review and a novel approach

Abstract

Background: For novel migraine therapies, economic evaluations will be required to understand the trade-offs between additional health benefit and additional cost. The purpose of this study was to conduct a systematic literature review (SLR) to identify previous economic evaluations in migraine from the United Kingdom or Irish perspective to critically appraise these evaluations and to propose, if necessary, a novel modelling approach that can be used for future economic evaluations of migraine therapies.

Methods: An SLR was conducted to identify previous economic evaluations of preventive migraine treatments. Key opinion leaders were consulted to determine the criteria for a robust migraine economic evaluation. Economic evaluations identified in the SLR were appraised against these criteria, and a novel cost-effectiveness model structure was then proposed.

Results: Eight records reporting on published economic evaluations were identified and critically appraised for general quality. Expert consultation provided 6 recommendations on the ideal model structure for migraine that is both clinically and economically meaningful. A decision-tree plus Markov structure was then developed as a cost-effectiveness model for migraine therapies where each health state is associated with a patient distribution across monthly migraine day (MMD) frequencies.

Conclusions: Future migraine economic evaluations should allow for assessments across the full spectrum of migraine, a response-based stopping rule, and the estimation of benefits and resource costs based on MMD frequency. The approach proposed in this paper captures all of the desired elements for an economic evaluation of migraine therapy and is suitable to assess new migraine therapies.     

Imperfect Information and Opportunism

Information is a scarce resource. It is inherently available only in a limited form to decision-makers. Limited or imperfect information is caused by uncertainty — both ontologic and epistemic, limitations in cognitive capabilities or bounded rationality, hidden information, and information asymmetries. This has fundamental implications for the manner in which the self-interested behavior of agents will manifest itself. The article argues that in the context of imperfect information, self-interest can function in a manner quite different from what standard approaches assume. This has been demonstrated by the recent financial crisis. However, there has been limited consideration in mainstream models, both of the neoclassical and institutional type, as to what the exact nature of self-interestedness is, and how this affects the market behavior of agents. The nature of self-interest, therefore, needs to be modeled explicitly to improve the explanatory power of economic theories.     

Advances in specification testing

Testing the specification of econometric models has come a long way from the t tests and F tests of the classical normal linear model. In this paper, we trace the broad outlines of the development of specification testing, along the way discussing the role of structural versus purely statistical models. Inferential procedures have had to advance in tandem with techniques of estimation, and so we discuss the generalized method of moments, non parametric inference, empirical likelihood and estimating functions. Mention is made of some recent literature, in particular, of weak instruments, non parametric identification and the bootstrap.     

城际政府公共投资策略互动行为及其形成机制——基于278个地级及以上城市数据的实证分析

文章基于2007年收支分类改革后新的预算科目和278个地级及以上城市的数据,运用SLM、SEM、Durbin和SAC空间计量模型以及ML估计和工具变量GMM估计方法,通过设定相邻、地表距离和最临近三种空间地理矩阵以及工业化水平、土地出让金收入占比、房地产投资占比、城市化水平和FDI五种经济变量空间矩阵,对当前城市政府间公共投资类财政支出的策略互动情况进行了评估与甄别。结果发现,城市政府在相邻地理位置上的显著互动———以策略互补为主,具有特定的外部性范围和变化轨迹,而工业禀赋型、"土地"财政型和FDI型策略互动的影响则具有同质性,且总体低于以外溢效应和标尺效应为主要源泉的地理空间位置上的策略互动水平。最后,文章对相应理论和政策含义进行了探讨。     

区域产业结构变迁对经济增长的影响*——基于1978-2013年15个省份的实证研究

本文从中国的东中西部地区各随机选取5个省份作为研究样本,利用三大地区1978-2013年的面板数据,在测度产业结构合理化和高级化的基础上,对比研究不同地区的产业结构变迁对于经济增长的影响。实证结果表明：（1）东部地区产业结构合理化和高级化水平均最优;（2）产业结构合理化对经济增长的影响较为稳定,而产业结构高级化对经济增长影响的稳定性却随经济发展阶段的不同而变化。横向比较而言,东部地区的产业结构合理化对其经济增长的影响大于产业结构高级化,而中部和西部地区的产业结构高级化对其经济增长的总效应大于产业结构合理化。