An approximation method to derive confidence intervals for quantiles with some applications

Standard jackknife confidence intervals for a quantile Q _y (β) are usually preferred to confidence intervals based on analytical variance estimators due to their operational simplicity. However, the standard jackknife confidence intervals can give undesirable coverage probabilities for small samples sizes and large or small values of β. In this paper confidence intervals for a population quantile based on several existing estimators of a quantile are derived. These intervals are based on an approximation for the cumulative distribution function of a studentized quantile estimator. Confidence intervals are empirically evaluated by using real data and some applications are illustrated. Results derived from simulation studies show that proposed confidence intervals are narrower than confidence intervals based on the standard jackknife technique, which assumes normal approximation. Proposed confidence intervals also achieve coverage probabilities above to their nominal level. This study indicates that the proposed method can be an alternative to the asymptotic confidence intervals, which can be unknown in practice, and the standard jackknife confidence intervals, which can have poor coverage probabilities and give wider intervals.     

Technological change and timing reductions in greenhouse gas emissions

In 2007 Nicholas Stern’s Review (in Science 317:201–202, 2007) estimated that global GDP would shrink by 5–20% due to climate change which brought forth calls to reduce emissions by 30–70% in the next 20 years. Stern’s results were contested by Weitzman (in J Econ Lit XLV(3):703–724, 2007) who argued for more modest reductions in the near term, and Nordhaus (in Science 317:201–202, 2007) who questioned the low discount rate and coefficient of relative risk aversion employed in the Stern Review, which caused him to argue that ‘the central question about global-warming policy—how much how, how fast, and how costly—remain open.’ We present a simulation model developed by Färe et al. (in Time substitution with application to data envelopment analysis, 2009) on intertemporal resource allocation that allows us to shine some light on these questions. The empirical specification here constrains the amount of undesirable output a country can produce over a given period by choosing the magnitude and timing of those reductions. We examine the production technology of 28 OECD countries over 1992–2006, in which countries produce real GDP and CO₂ using capital and labor and simulate the magnitude and timing necessary to be in compliance with the Kyoto Protocol. This tells us ‘how fast’ and ‘how much’. Comparison of observed GDP and simulated GDP with the emissions constraints tells us ‘how costly’. We find these costs to be relatively low if countries are allowed reallocate production decision across time, and that emissions should be cut gradually at the beginning of the period, with larger cuts starting in 2000.     

Deep habits and the cyclical behaviour of equilibrium unemployment and vacancies

We extend the standard textbook search and matching model by introducing deep habits in consumption. This assumption generates amplification in the response of labour market variables to technology shocks by producing endogenous countercyclical mark-ups. The cyclical fluctuations of vacancies and unemployment in our model can replicate those observed in the US data, with labour market tightness being 20 times more volatile than consumption. Vacancies display a hump-shaped response to technology shocks and the numerical simulations generate an artificial Beveridge curve that is in line with the data. Our model preserves the assumption of fully flexible wages for new hires and the calibration is consistent with the estimated elasticity of unemployment to unemployment benefits. Finally, we show that in contrast to models with exogenous mark-up shocks, the deep habits model does not require an implausible variation in the elasticity of demand to match the volatility of labour market variables, and the cyclical properties of the mark-up are in line with empirical evidence.     

A buyer's perspective on collaborative versus transactional relationships

This research examines collaborative and transactional relationships in buying firms to determine whether collaborative relationships offer greater benefits than transactional relationships, and to ascertain which relational factors drive satisfaction and performance for both collaborative and transactional relationship types. Factor analysis, t-tests and step-wise regression were used to analyze data from a survey of buying firms. Results show that collaborative relationships offer higher levels of satisfaction and performance than transactional relationships. Satisfaction factored into two separate constructs: satisfaction with the relationship and satisfaction with the results. Of the relational factors examined, trust is the most important predictor of performance and satisfaction with the relationship regardless of the type of relationship examined.     

Accounting for the business cycle: Nominal rigidities, factor heterogeneity, and Austrian capital theory

An Austrian interpretation of the New Keynesian small menu cost model of the business cycle is proposed. Austrian and New Keynesian business cycle theories share the feature that the cycle is generated by rigidities which prevent the economy from adapting instantaneously to changing conditions. Austrian business cycle theory is capital-based, focusing on credit expansion which artificially lowers interest rates and causes an investment boom and unsustainable business expansion. In contrast, the New Keynesian small menu cost model of the business cycle is based on nominal rigidities which prevent markets from clearing. Small menu costs introduce dichotomous behavior, where firms find it locally optimal to avoid instantaneous output price adjustments in the face of the cost, but this local optimum results in economy-wide output and employment fluctuations which are much greater in relative magnitude. The small menu cost model of the business cycle is extended and reinterpreted in light of Austrian business cycle theory with heterogeneous, multiply-specific capital, thus providing a rigorous formalization of the Austrian business cycle. The Austrian interpretation of this New Keynesian model fortuitously addresses several of its shortcomings. JEL classification B53, E12, E23, E32     

Network externalities and long-run market shares

We study a dynamic duopoly model with network externalities. The value of the product depends on the current and past network size. We compare the market outcome to a planner. With equal quality products, the market outcome may result in too little standardization (i.e. too many products active in the long run) but never too much. The potential inefficiency is non-monotonic in the strength of the network effect, being most likely for intermediate levels. When products differ in quality, an inferior product may dominate even when the planner would choose otherwise, but only if the discount factor is sufficiently large     

A learning-based model of repeated games with incomplete information

This paper tests a learning-based model of strategic teaching in repeated games with incomplete information. The repeated game has a long-run player whose type is unknown to a group of short-run players. The proposed model assumes a fraction of ‘short-run’ players follow a one-parameter learning model (self-tuning EWA). In addition, some ‘long-run’ players are myopic while others are sophisticated and rationally anticipate how short-run players adjust their actions over time and “teach” the short-run players to maximize their long-run payoffs. All players optimize noisily. The proposed model nests an agent-based quantal-response equilibrium (AQRE) and the standard equilibrium models as special cases. Using data from 28 experimental sessions of trust and entry repeated games, including 8 previously unpublished sessions, the model fits substantially better than chance and much better than standard equilibrium models. Estimates show that most of the long-run players are sophisticated, and short-run players become more sophisticated with experience.     

Experiencing change and the evolution of adaptive skills: Implications for economic growth

We distinguish learning in a static environment from that in a dynamic environment to show the existence of an important interaction between the development of new technologies and human capital accumulation. Because technological progress creates a more dynamic environment, it complements education in the production of human capital by enhancing adaptive skills. Higher levels of adaptability and human capital in turn determine the profitability of new inventions and the incentive to invest in new R&D. Differences in the history of technological progress produce different levels of adaptability and our results suggest why countries that have comparable levels of education and per capita incomes may differ significantly in their growth performance.