This paper examines the results of experiments with one-stage and two-stage alternating-offers bargaining games. As do previous experiments, we find that the results are inconsistent with the assumptions that players maximize their monetary payoffs and perform backward-induction calculations.
Payoff-interdependent preferences have been suggested as an explanation
for experimental results in bargaining games. We examine whether,
given payoff-interdependent preferences, players respect backward induction.
To do this, we break backward induction into its components, subgame consistency
and truncation consistency. We examine each by comparing the outcomes of two-stage
bargaining games with one-stage games with varying rejection payoffs. We find and
characterize systematic violations of both subgame and truncation consistency.
Journal of Economic Literature classification numbers C70,C78.
Keywords: Bargaining, experiments, backward induction, subgame-perfect equilibrium, interdependent preferences.
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This paper questions current empirical practice in the study of growth. We argue that much of the modern
empirical growth literature is based on assumptions concerning regressors, residuals, and parameters which are
implausible both from the perspective of economic theory as well as from the perspective of the historical experiences
of the countries under study. A number of these problems are argued to be forms of violations of an exchangeability
assumption which underlies standard growth exercises. We show that relaxation of these implausible assumptions can
be done by allowing for uncertainty in model specification. Model uncertainty consists of two types: theory uncertainty,
which relates to which growth determinants should be included in a model, and heterogeneity uncertainty, which relates
to which observations in a data set comprise draws from the same statistical model. We propose ways to account for both
theory and heterogeneity uncertainty. Finally, using an explicit decision-theoretic framework, we describe how one can
engage in policy-relevant empirical analysis.
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Monetary uncertainty and information lags are put into a random matching model so that the resulting setting has some meetings in which producers are relatively informed and others in which consumers are relatively informed.
For that setting, the ex ante socially optimal way to conduct trade is characterized. The optimum can display a variety of relationships between money and total output and the price level. While the price level is always sticky, even the direction of its response and that of total output depend on the magnitude of the lag and on subtle features of the serial correlation properties of the money supply.
JEL classification: E30, E40, D82
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We consider a general equilibrium model with endogenous human capital formation in which ex ante identical groups may be treated differently in equilibrium due to informational externalities. Unlike earlier models of statistical discrimination, group inequalities may arise even if the corresponding model with a single group has a unique equilibrium. The dominant group gains from discrimination, rationalizing why a majority may be reluctant to eliminate discrimination. The model is also consistent with "reverse discrimination" as a remedy against discrimination since it may require to decrease the welfare of the dominant group to achieve parity.
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in pdf.
We consider four models of evolution and learning in games which rely on perturbations of payoffs, including stochastic fictitious play. In all cases, we establish global stability results for zero-sum games, games with an interior ESS, potential games, and supermodular games.
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Real utility functions differ from the classic form in a number of important ways. Presently-biased preferences have received considerable attention. In addition, utilities often depend on the presence of salient unchosen alternatives. For example, sticking to a low-calorie diet is more painful when surrounded by fattening temptations. We argue that important insight into why utility has these features can come from a combination of evolutionary psychology and information economics. Evolutionary psychology suggests viewing utility functions in terms of the incentives they provide for evolutionarily successful decisions. Information economics suggests looking at these incentives in a setting where there is information (the output of cognition) accessible to the agent (the organism) that Nature cannot directly code into the utility function, and information accessible to Nature through accumulated experience that is not easily codified in a form accessible to cognition.
Journal of Economic Literature classification numbers C70, C72, D80, D82
Keywords: Evolution, information, internal conflict, self control, temptation, time consistency, utility.
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This paper develops the notion of a Large Type Limit (LTL) describing the average behavior of adaptive evolutionary systems with many trader types. It is shown that generic and persistent features of adaptive evolutionary systems with many trader types are well described by the large type limit. Stability and bifurcation routes to instability and strange attractors are studied. An increase in the "intensity of adaption" or in the diversity of beliefs may lead to deviations from the RE fundamental benchmark and excess volatility. Simple examples of LTL are able to generate important stylized facts, such as volatility clustering and long memory, observed in real financial data.
Journal of Economic Literature classification numbers E32, G12, D84.
Keywords: multi-agent systems, bounded rationality, evolutionary learning, bifurcation and chaos, clustered volatility.
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We review in detail two major ongoing research projects that employ samples of twins reared apart (and in one case, twins reared together). The studies attempt, via model-fitting, to estimate proportions of genetic and environmental variance for many human traits. We discuss problems concerning the representativeness of samples, the accuracy and reliability of the data, the extent of contact of nominally separated twins, the measurement of selective placement effects, and the particular model-fitting procedures. The two studies agree in their conclusions, but we do not find the conclusions to be convincing. We suggest that no scientific purpose is served by the flood of heritability estimates generated by these studies.
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We study auctions in which bidders may know the types of some rival bidders but not others. This asymmetry in bidders' knowledge about rivals' types has different effects on the two standard auction formats. In a second-price auction, it is weakly dominant to bid one's valuation, so the knowledge of rivals' types has no effect, and the good is allocated efficiently. In a first-price auction, bidders refine their bidding strategies based on the knowledge of rivals' types, which yields an inefficient allocation. We show that the inefficient allocation in the first-price auction translates into a poor revenue performance. Given a standard regularity condition, the seller earns higher expected revenue from the second-price auction than from the first-price auction, whereas the bidders are better off from the latter.
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This paper examines changes in the organization structure and profitability of a group of six large Italian banks over an eleven-year period, during which control was transferred from the State to private investors. In this paper, privatization is defined by the transfer of more than 50% of shares to private ownership. It occurred between 1993 and 1998 for these banks, which have about 30% of all Italian banking assets. After privatization, there was an immediate high rate of turnover of top executives and membership of each bank's board of directors. A high rate of branch expansion that occurred before privatization essentially stopped with privatization. Relative to other Italian banks, the number of employees fell sharply and a variety of measures of profitability rose rapidly after privatization, in some cases, the realization of losses from bad loans made a large contribution to subsequent profitability. Results from simple regression models applied to a panel of five of these banks over eleven years, showed that there was a significant effect of privatization on staff costs and profits and, moreover, on trends in costs and profits. Further, privatization coincided with more securitization and with a higher rate of growth of fee income. Thus, while the time span of the post-privatization era is short, the early indications are that privatization is leading to an improved operating performance and more innovation in Italian banking.
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A multi-unit auction environment similar to EBay is studied. Sellers who wish to sell a single unit of a homogenous good set reserve prices for their own independently run auctions. Buyers who hope to acquire a single unit bid as often as they like in a dynamic second-price auction. When the number of buyers and sellers is large but finite, there is a Bayesian equilibrium for this completely decentralized trading procedure in which the ex post efficient set of trades occurs at a uniform trading price. Remarkably, the strategy rules that buyers and sellers use in this equilibrium are very simple. They do not depend in any way on beliefs, or on the number of buyers and sellers.
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in .pdf
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Relative consumption effects, in which agents' preferences
depend upon others' consumption, are often said to be the result
of contests to secure resources that are allocated on the basis
of one's status. This paper argues that Nature may induce relative
consumption effects in order to compensate for incomplete environmental
information. Status-based and information-based relative consumption
effects can lead to quite different comparative static properties
and quite different policy prescriptions.
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In this paper we provide a brief review of how out-of-sample methods can
be used to construct tests that evaluate a time-series model's ability to
predict. We focus on the role that parameter estimation plays in constructing
asymptotically valid tests of predictive ability. We illustrate why forecasts
and forecast errors that depend upon estimated parameters may have statistical
properties that differ from those of their population counterparts.
We explain how to conduct asymptotic inference, taking due account of dependence
on estimated parameters.
J.E.L categories: C12, C32, C52, C53
Keywords: predictive ability, forecast evaluation, hypothesis testing
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WP2001-14.
We model externality abatement as an implementation problem.
A social planner would like to ensure efficient behavior among a
group of agents whose actions are sources of externalities. However,
the planner has limited information about the agents' preferences,
and he is unable to distinguish individual agents except through their
action choices. We prove that if a concavity condition on aggregate
payoffs is satisfied, the planner can guarantee that efficient behavior
is globally stable under a wide range of behavior adjustment processes
by administering a variable pricing scheme. Through a series of
applications, we show that the concavity condition is naturally
satisfied in settings involving negative externalities. We conclude by contrasting the performance of the pricing mechanism with that of a mechanism based on direct revelation and forcing contracts.
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We study the implementation of efficient behavior in settings with
externalities. A planner would like to ensure that a group of agents
make socially optimal choices, but he only has limited information about
the agents' preferences, and can only distinguish individual agents by
the actions they choose. We describe the agents' behavior using a
stochastic evolutionary model, assuming that their choice probabilities
are given by the logit choice rule. We prove that there is a simple
price scheme with the following property: regardless of the realization
of preferences, a group of agents subjected to the price scheme will spend
the vast majority of time in the long run behaving efficiently. The price
scheme defines a game which may possess multiple equilibria, but we are
able to obtain a unique and efficient selection from this set because of
the stochastic nature of the agents' choice rule.
JEL Classification Numbers: C72, C73, D62, D82
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We develop a conceptual framework for valuing biodiversity from an economic perspective.
We consider biodiversity important because of a number of characteristics or
services that it provides or enhances. We attribute biodiveristy loss to economic
activities related to decisions of private optimizing agents that ignore useful
characteristics or services associated with diverse ecosystems. Using a unified model
of economic management of an ecosystem under ecological and genetic constraints, we
compare the optimal value of the social optimization problem where positive externalities
associated with biodiversity are internalized, to that of a private optimization problem.
We obtain an endogenous measure of the biodiversity value and relate this measure to
ecologically/biologically oriented biodiversity metrics (species richness, Shannon or
Simpson indices) that correspond to the equilibrium diversities of the social and private
optimization problems.
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We explore the interaction between evolutionary stability and lexicographic
preferences. To do so, we define a limit Nash equilibrium for a lexicographic
game as the limit of Nash equilibria of nearby games with continuous preferences.
Nash equilibria of lexicographic games are limit Nash equilibria, but not
conversely. Modified evolutionary stable strategies (Binmore and Samuelson
[2]) are limit Nash equilibria. Modified evolutionary stability differs from
"lexicographic evolutionary stability" (defined by extending the common
characterization of evolutionary stability to lexicographic preferences) in
the order in which limits in the payoff space and the space of invasion
barriers are taken.
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We propose and evaluate a technique for instrumental variables estimation of linear models with conditional heteroskedasticity. The technique uses approximating parametric models for the projection of right hand side variables onto the instrument space, and for conditional heteroskedasticity and serial correlation of the disturbance. Use of parametric models allows one to exploit information in all lags of instruments, unconstrained by degrees of freedom limitations. Analytical calculations and simulations indicate that there sometimes are large asymptotic and finite sample efficiency gains relative to conventional estimators (Hansen (1982)). These efficiency gains are robust to minor misspecification of the parametric models.
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This paper surveys some work in economics that might be useful in promoting research at the interface of ecology and economics, and also to identify some potentially promising areas of research which requires joint expertise of ecologists and economists. The objective of the proposed research is to help achieve environmental prosperity comparable to the achievement of material economic prosperity in the developed nations.
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(Note: The electronic version of this paper is in Chiwriter. You can open the file as you would an ascii file.)
477 Brock, William A. COMPLEXITY-BASED METHODS IN CYCLES AND GROWTH Any Potential Value-added? Cycles, Growth and Structural Change, Theories and empirical evidence Lionello F. Punzo, editor, Routledge, London, pp. 301-338, 2001. 478 Scheffer, Marten, William Brock and Frances Westley SOCIOECONOMIC MECHANISMS PREVENTING OPTIMUM USE OF ECOSYSTEM SERVICES: AN INTERDISCIPLINARY THEORETICAL ANALYSIS Ecosystems 3, 451-471, 2000.
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