A Hausman-type test to detect the presence of influential outliers in regression analysis

In regression analysis, classical estimations may be excessively influenced by a few atypical observations. We propose a Hausman-type test to balance robustness and efficiency and to check whether a robust method should be implemented. An economic application is presented.     

Do bookmakers possess superior skills to bettors in predicting outcomes?

In this paper we test the hypothesis that bookmakers display superior skills to bettors in predicting the outcome of sporting events by using matched data from traditional bookmaking and person-to-person exchanges. Employing a conditional logistic regression model on horse racing data from the UK we find that, in high liquidity betting markets, betting exchange odds have more predictive value than the corresponding bookmaker odds. To control for potential spillovers between the two markets, we repeat the analysis for cases where prices diverge significantly. Once again, exchange odds yield more valuable information concerning race outcomes than the bookmaker equivalents.     

Conjectural variations, symmetric equilibria and economic policy

In this paper, we consider conjectural variations in a simple static general equilibrium model under oligopolistic competition. The modeling of conjectures captures the role played by beliefs in a micro-founded model. So, the economy may have three kinds of symmetric general equilibria. Furthermore, these equilibria can be Pareto-ranked by the conjectural variation parameter. Finally, we consider the implementation of a tax on the strategic behaviors in case of balanced-budget rule. The comparative statics illustrates the idea according to which the effectiveness of the multiplier mechanism to mitigate the market distortions depends on the symmetric equilibrium considered. Therefore, the effect of the tax on the prices and economic activity depends on the degree of market power which is conjectured by the agents.     

A comparison of citizen and “expert” preferences using an attribute-based approach to choice

This paper explores whether expert judgements can be taken as a proxy for citizen preferences for determining investment strategies for public goods. As an illustration, we focus on the provision of Public Rights Of Way (PROW) by Local Government Authorities in England. These provide rights of passage over property to those other than the owners, and little information is available on the welfare effects of changes in the provision and use of PROW. Given limited funds, reliance on expert judgement could be a cost effective alternative for decision-making compared with stated preference surveys of citizens. Two methods are compared. The Analytic Hierarchy Process (AHP) is used to elicit expert judgement to proxy citizen preferences for different attributes of PROW. The Choice Experiment (CE) technique is then used to derive preferences directly through personal interviews with citizens. Overall it was found that judicious use of AHP by experts can, in this instance, be used to represent citizen views. However, this result may not be easily generalisable to other settings.     

State prices,liquidity, and default

We show, in a monetary exchange economy, that asset prices in a complete markets general equilibrium are a function of the supply of liquidity by the Central Bank, through its effect on default and interest rates. Two agents trade goods and nominal assets to smooth consumption across periods and future states, in the presence of cash-in-advance financing costs that have effects on real allocations. We show that higher spot interest rates reduce trade and as a result increase state prices. Hence, states of nature with higher interest rates are also states of nature with higher risk-neutral probabilities. This result, which cannot be found in a Lucas-type representative agent model, implies that the yield curve is upward sloping in equilibrium, even when short-term interest rates are fairly stable and the variance of the (macroeconomic) stochastic discount factor is 0. The risk-premium in the term structure is, therefore, a monetary-cost risk premium.     

The asymptotic shapley value for a simple market game

We consider the game in which b buyers each seek to purchase 1 unit of an indivisible good from s sellers, each of whom has k units to sell. The good is worth 0 to each seller and 1 to each buyer. Using the central limit theorem, and implicitly convergence to tied down Brownian motion, we find a closed form solution for the limiting Shapley value as s and b increase without bound. This asymptotic value depends upon the seller size k, the limiting ratio b/ks of buyers to items for sale, and the limiting ratio of the excess supply relative to the square root of the number of market participants. This work was sponsered in part by NSF Grant DMS-03-01795.     

Government Expenditures and Revenues: Evidence of Fractional Cointegration in an Asymmetric Modeling

In this paper, we examine the relationship between the US government expenditures and revenues using a fractional cointegration framework. In doing so, we permit a much richer degree of flexibility in the dynamic adjustment process toward equilibrium than in the classical case of cointegration. Moreover, we relax the assumption of a symmetric adjustment process throughout the use of threshold autoregressive (TAR) and momentum threshold autoregressive (M-TAR) models in the error correction representation of the process. The results show that both individual series are non-stationary I(1) and we do not find evidence of cointegration of any degree. However, if we take into account a structural break at 1973(2), fractional cointegration is found if the underlying process is autocorrelated, especially in the asymmetric modeling.

A seasonal fractional multivariate model. A testing procedure and impulse responses for the analysis of GDP and unemployment dynamics

This paper deals with the analysis of seasonally, fractionally integrated, multivariate models. We present a procedure that permits us to test the seasonal fractional differencing parameters from the reduced-form system, which allows us to recover the parameters of the structural model through simple restrictions as in the standard VAR case with the additional incorporation of seasonality and fractional integration. An empirical application based on a bivariate system using GDP and unemployment in the UK, USA and Japan is also carried out at the end of the paper.     

An experimental analysis of team production in networks

Experimental and empirical evidence highlights the role of networks on social outcomes. This paper tests the properties of exogenously fixed networks in team production. Subjects make the same decisions in a team work environment under four different organizational networks: the line, the circle, the star, and the complete network. In all the networks, links make information available to neighbors. This design allows us to analyze decisions across networks and a variety of subject types in a standard linear team production game. Contribution levels differ significantly across networks and the star is the most efficient incomplete network. Moreover, our results suggest that subjects act as conditional cooperators with respect to the information received from the network.