Working papers results
utility from decision problems under exogenous uncertainty to choice in strategic
environments. Interactive uncertainty is modeled both explicitly - using
hierarchies of preference relations, the analogue of beliefs hierarchies
implicitly - using preference structures, the analogue of type spaces la
Harsanyi - and it is shown that the two approaches are equivalent.
Preference structures can be seen as those sets of hierarchies arising when certain
restrictions on preferences, along with the players' common certainty of
the restrictions, are imposed. Preferences are a priori assumed to satisfy only
very mild properties (reflexivity, transitivity, and monotone continuity).
Thus, the results provide a framework for the analysis of behavior in games
under essentially any axiomatic structure. An explicit characterization is
given for Savage's axioms, and it is shown that a hierarchy of relatively
simple preference relations uniquely identifies the decision maker's
utilities and beliefs of all orders. Connections with the literature on beliefs
hierarchies and correlated equilibria are discussed.
Kewords: Subjective probability, Preference hierarchies, Type spaces, Beliefs
hierarchies, Common belief, Expected utility, Incomplete information,
Correlated equilibria
on sellers' investment. We show that a retailer extracts a larger
surplus from the negotiation with an upstream manufacturer the
more it is essential to the creation of total surplus. In turn, this
depends on the rivalry between retailers in the bargaining process.
Rivalry increases when the retail market is more fragmented, when
the retailers are less differentiated and when decreasing returns to
scale in production are larger. The allocation of total surplus affects
also the incentives of producers to invest in product quality, an instance
of the hold up problem. This not only makes both the supplier and
consumers worse off, but it may harm also the retailers.
Kewords: Retailers' power, Hold-up, Supplier's under-investment
Our paper seeks to answer this question by providing evidence on the
age-productivity and age-earnings profiles for a sample of plants in three
manufacturing industries (forest, industrial machinery and electronics) in
Finland. Our main result is that exposure to rapid technological and managerial
changes does make a difference for plant productivity, less so for wages. In
electronics, the Finnish industry undergoing a major technological and
managerial shock in the 1990s, the response of productivity to age-related
variables is first sizably positive and then becomes sizably negative as one
looks at plants with higher average seniority and experience. This declining
part of the curve is not there either for the forest industry or for industrial
machinery. It is not there either for wages in electronics. These conclusions
survive when a host of other plausible productivity determinants (notably,
education and plant vintage) are included in the analysis. We conclude that
workforce aging may be a burden for firms in high-tech industries and less so in
other industries.
We study the joint dynamics of economic and political change. Predictions of the simple model that we formulate in the paper get
considerable support in a panel of data on political regimes and GDP per capita for about 150 countries over 150 years. Democratic cap-
ital - measured by a nation's historical experience with democracy and by the incidence of democracy in its neighborhood - reduces the
exit rate from democracy and raises the exit rate from autocracy. In democracies, a higher stock of democratic capital stimulates growth
in an indirect way by decreasing the probability of a sucessful coup. Our results suggest a virtuous circle, where the accumulation of phys-
ical and democratic capital reinforce each other, promoting economic development jointly with the consolidation of democracy.
model misspecification. The principal tools used to solve robust control problems
are state-space methods (see Hansen and Sargent, 2006, and Giordani and
Soderlind, 2004). In this paper we show that the structural-form methods
developed by Dennis (2006) to solve control problems with rational expectations
can also be applied to robust control problems, with the advantage that they
bypass the task, often onerous, of having to express the reference model in
statespace form. Interestingly, because state-space forms and structural forms
are not unique the two approaches do not necessarily return the same equilibria
for robust control problems. We apply both state-space and structural solution
methods to an empirical New Keynesian business cycle model and find that the
differences between the methods are both qualitatively and quantitatively important.
In particular, with the structural-form solution methods the specification errors generally
involve changes to the conditional variances in addition to theconditional means of the
shock processes.
is attracting considerable attention. In this paper we briefly review the underlying
theory and then compare the impulse response functions resulting from two alternative
estimation methods for the DFM. Finally, as an example, we reconsider the issue of
the identification of the driving forces of the US economy, using data for about 150
macroeconomic variables.
considerable attention recently, due to the increased availability of large datasets. In
this paper we propose a new parametric methodology for estimating factors from large
datasets based on state space models and discuss its theoretical properties. In particular,
we show that it is possible to estimate consistently the factor space. We also
develop a consistent information criterion for the determination of the number of factors
to be included in the model. Finally, we conduct a set of simulation experiments
that show that our approach compares well with existing alternatives.
integrates labor market search and matching into an otherwise
standard New Keynesian model. I allow for changes of the labor
input at both the extensive and the intensive margin and develop
two alternative specifications of the bargaining process. Under
efficient bargaining (EB) hours are determined jointly by the firm
and the worker as a part of the same Nash bargain that determines
wages. With right to manage (RTM), instead, firms retain the right to
set hours of work unilaterally. I show that introducing search and
matching frictions affects the cyclical behavior of real marginal costs
by way of two different channels: a wage channel under RTM and an
extensive margin channel under EB. In both cases, the presence of
search and matching frictions may cause a lower elasticity of marginal
costs with respect to output and thus help to account for the observed
inertia in inflation.
parameter estimation and model evaluation whenthe objective function measures
the distance between estimated and model impulse responses. We show that
observational equivalence, partial and weak identification problems are widespread,that
they lead to biased estimates, unreliable t-statistics and may induce investigators to
select false models. We examine whether different objective functions affect identification
and study how small samples interact with parameters and shock identification.
We provide diagnostics and tests to detect identification failures and apply them to a
state-of-the-art model.
attempts to addresses this question that exploited within-country variation.
It shows that the answer is largely positive, but also depends on the details
of democratic reforms. First, the sequence of economic vs political reforms
matters: countries liberalizing their economy before extending political rights
do better. Second, different forms of democratic government lead to different
economic policies, and this might explain why presidential democracy leads
to faster growth than parliamentary democracy. Third, it is important to distinguish
between expected and actual political reforms. Taking expectations of regime
change into account helps identify a stronger growth effect of democracy.