Costas Meghir, Guglielmo Weber, Intertemporal Nonseparability or Borrowing Restrictions? A Disaggregate Analysis using a U.S. Consumption Panel, Econometrica, Vol. 64, No. 5 (Sep., 1996), pp. 1151-1181
The authors show in this paper that renegotiable short-term contracts can be as efficient as long-term renegotiation-proof contracts even in situations of asymmetric information. They do so by extending their earlier results on symmetric information models. Some limited commitment thus seems to be a necessary and sufficient condition to achieve long-run efficiency. The authors moreover show that, due to ratchet effects and time inconsistencies in the structure of informational rents, spot contracts are much less efficient under asymmetric information, even is there is no need for intertemporal smoothing. Copyright 1996 by The Econometric Society.
MUCH OF THE DISCUSSION ON THE ESTIMATION of production functions is related to the fact that inputs may be endogenous and therefore direct estimators of the production functions may be inconsistent. One way to overcome this problem has been to apply the concept of duality. The purpose of this note is to point out that estimates based on duality, unlike direct estimators of the production function, do not utilize all the available information and therefore are statistically inefficient and the loss in efficiency may be sizeable. Examination of the sources of input variability suggests generalizations of currently used estimators. A SIMPLE MODEL Duality theory is a microtheory and as such its empirical implications are related to firm, rather than market, data. Our discussion is conducted within this framework and we ignore further complications that arise from the use of aggregate market data. The conceptual problems in the choice of estimators can be presented in terms of a well known simple model. Whatever other virtues more complex models possess, the problems discussed here are not resolved by the added complexity. Let the production function be
[This paper examines the effect of cash transfers and food stamp benefits on family labor supply and welfare participation among two-parent families. The Aid to Families with Dependent Children--Unemployed Parent Program has provided cash benefits to two-parent households since 1961. Despite recent expansions, little is known about the program's effect on labor supply and welfare participation. I develop a model of family labor supply in which hours of work for the husband and wife are chosen to maximize family utility subject to a family budget constraint accounting for AFDC-UP benefits and other tax and transfer programs. The husband's and wife's labor supply decisions are restricted to no work, part-time work, and full-time work. Maximum likelihood techniques are used to estimate parameters of the underlying hours of work and welfare participation equations. The estimates are used to determine the magnitude of the work disincentive effects of the AFDC-UP program, and to simulate the effects of changes in AFDC-UP benefit and eligibility rules on family labor supply and welfare participation. The results suggest that labor supply and welfare participation among two-parent families are highly responsive to changes in the benefit structure under the AFDC-UP program.]
This paper examines how proportional transaction costs, short-sale constraints, and margin requirements affect inferences based on asset return data about intertemporal marganil rates of substitution (IMRSs). Small transaction costs greatly reduce the required variability of IMRSs, suggesting that the low variability of many parametric, aggregate consumption based IMRSs need not be inconsistent with asset return data. Euler inequalities for a transaction cost economy with power utility are tested using aggregate consumption data and returns on stocks and U.S. Treasury bills. In the majority of cases, there is little evidence against power utility specifications with a low risk-aversion parameter. Copyright 1996 by The Econometric Society.
At least since Keynes (1935), many economists have had the intuition that the marginal propensity to consume out of wealth declines as wealth increases. Nonetheless, standard perfect-certainty and certainty equivalent versions of intertemporal optimizing models of consumption imply a marginal propensity to consume that is unrelated to the level of household wealth. We show that adding income uncertainty to the standard optimization problem induces a concave consumption function in which, as Keynes suggested, the marginal propensity to consume out of wealth or transitory income declines with the level of wealth.
John C. Ham, Robert J. Lalonde, The Effect of Sample Selection and Initial Conditions in Duration Models: Evidence from Experimental Data on Training, Econometrica, Vol. 64, No. 1 (Jan., 1996), pp. 175-205
Tests based on generalized-method-of-moments estimators often have true levels that differ greatly from their nominal levels when asymptotic critical values are used. This paper gives conditions under which the bootstrap provides asymptotic refinements to the critical values of t tests and the test of overidentifying restrictions. Particular attention is given to the case of dependent data. It is shown that, with such data, the bootstrap must sample blocks of data and that the formulae for the bootstrap versions of the test statistics differ from the formulae that apply with the original data. Copyright 1996 by The Econometric Society.
This paper presents a new, probabilistic model of learning in games which investigates the often stated intuition that common knowledge of strategic intent may arise from repeated interaction. The model is set in the usual repeated game framework, but the two key assumptions are framed in terms of the likelihood of beliefs and actions conditional on the history of play. The first assumption formalizes the basic intuition of the learning approach; the second, the indeterminacy that inspired resort to learning models in the first place. Together the assumptions imply that, almost surely, play will remain almost always within one of the stage game's minimal inclusive sets. In important classes of games, including those with strategic complementarities, potential functions, and bandwagon effects, all such sets are singleton Nash.