Uncertainty and Consumer Durables Adjustment

We characterize infrequent durables stock adjustment by consumers who also derive utility from non-durable consumption flows in the presence of idiosyncratic income uncertainty. The data we analyse include subjective future income uncertainty measures, which we use as instruments in the estimation of relevant parameters of heterogeneous consumers' dynamic adjustment problems. The data feature two conceptually distinct sources of variation: cross-sectional heterogeneity of the sampled households' dynamic problems, and history-dependent heterogeneity in their situation during the observation period. We note that the latter should affect the likelihood but not the size of stock adjustment decisions, and find broad support for theoretical predictions in formal selection-controlled regressions based on this insight.     

HOMEOSTATIC VERSUS ACTIVE POLICIES IN A NONLINEAR OPTIMAL CONTROL PROBLEM

Perfect foresight dynamics require local determinateness and, consequently, sensitivity to initial conditions. If such dynamics have to be computable, exact integration is needed. We study a non-linear optimal control problem which cannot be integrated exactly; we also introduce some simpler, implementable policy rules and compare their relative performance. Our results make out a case against perfect foresight as a positive theory of expectations formation and as a useful modelling tool.     

Ascending auctions for multiple objects: the case for the Japanese design

Summary. We consider two ascending auctions for multiple objects, namely, an English and a Japanese auction, and derive a perfect Bayesian equilibrium of the Japanese auction by exploiting its strategic equivalence with the survival auction, which consists of a finite sequence of sealed-bid auctions. Thus an equilibrium of a continuous time game is derived by means of backward induction in finitely many steps. We then show that all equilibria of the Japanese auction induce equilibria of the English auction, but that many collusive or signaling equilibria of the English auction do not have a counterpart in the Japanese auction.Received: 2 September 2004, Revised: 20 April 2005, JEL Classification Numbers: C72, D44.Fabrizio Germano: Correspondence toWe are indebted to Philippe Jehiel for useful discussions and to Nicolas Vieille for suggestions in the proof of Proposition 2; we also thank seminar audiences in Athens, Basel, Beer-Sheva, Berlin, Brussels, Cambridge, Edinburgh, Exeter, Lausanne, Lisbon, London, Louvain-la-Neuve, Namur and Tel Aviv. Germano acknowledges financial support from Euopean Commission, TMR Network Grant ERBFMRXCT0055, “Cooperation and Information” as well from the Spanish Ministry of Science and Technology, Grants SEC2001-0792, SEJ2004-06319, and in form of a Ramon y Cajal Fellowship. Lovo is member of GREGHEC, unité CNRS, FRE-2810. The support of the Economic and Social Research Council (ESRC) is also gratefully acknowledged. The work was part of the programme of the ESRC Research for Economic Learning and Social Evolution.