Knowledge that Transforms

Many electoral rules require a super-majority vote to change the status quo. Without some restriction on preferences, super-majority rules have paradoxical properties. For example, electoral cycles are possible with anything other than 100 percent majority rule. The auth ors show that these problems do not arise if there is sufficient simi larity of attitudes among the voting population. Their definition of social consensus involves two restrictions on domain: one on individu al preferences, the other on the distribution of preferences. When th is consensus exists, 64 percent majority rule has many desirable prop erties, including the elimination of all electoral cycles. Copyright 1988 by The Econometric Society.

Several partners jointly own an asset that may be traded among them.Each partner has a valuation for the asset; the valuations arc known privately and drawn independently from a common probability distribution.We characterize the set of all incentive-compatible and interim-individually-rational trading mechanisms, and give a simple necessary and sufficient condition for such mechanisms to dissolve the partnership ex post efficiently.A bidding game is constructed that achieves such dissolution whenever it is possible.Despite incomplete in- formation about the valuation of the asset, a partnership can be dissolved ex post efficiently provided no single partner owns too large a share; this contrasts with Myerson and Satterth- waite's result that ex post efficiency cannot be achieved when the asset is owned by a singlf party.

Under fairly general conditions, ordinary least squares and linear instrumental variables estimators are asymptotically normal when a regression equation has nonstationary right hand side variables. Standard formulas may be used to calculate a consistent estimate of the asymptotic variance-covariance matrix of the estimated parameter vector, even if the disturbances are conditionally heteroskedastic and autocorrelated. So inference may proceed in the usual way. The key requirements are that the nonstationary variables share a common unit root and that the unconditional mean of their first differences is nonzero. Copyright 1988 by The Econometric Society.

This paper derives necessary and sufficient conditions for Arrow-Debreu choices of contingent consumption to be compatibl e with the maximization of a state-independent expected utility funct ion that exhibits increasing or decreasing absolute risk aversion, or increasing or decreasing relative risk aversion. The conditions can be used to bound different measures of risk aversion based on a singl e observation of Arrow-Debreu portfolio choice. Copyright 1988 by The Econometric Society.

The idea that markets might aggregate and disseminate information and also resolve conflicts is central to the literature on decentralization (Hurwicz, 1972) and rational expectations (Lucas, 1972). We report on three series of experiments all of which were predicted to have performed identically by the theory of rational expectations. In two of the three series (one in which participants trade a complete set of Arrow-Debreu securities and a second in which all participants have identical preferences), double auction trading leads to efficient aggregation of diverse information and rational expectations equilibrium. Failure of the third series to exhibit such convergence demonstrates the importance of market institutions and trading instruments in achievement of equilibrium.

This paper solves the stochastic inverse optimal problem. Dynamic programming is used to transform the origina l problem into a differential equation. A solution exists for any pro duction function with a finite slope at the origin provided the savin gs function, starting from the origin, is steep initially and flat ev entually. Three consumption functions-linear, Keynes-ian, and Cantabr igian-are also studied with a Cobb-Douglas production technology. A w ell-known result in discrete time models-that a logarithmic utility f unction and a Cobb-Douglas production function imply a Keynesian cons umption function-does not carry through to the continuous time case. Copyright 1988 by The Econometric Society.