Knowledge that Transforms

With many semi-anonymous players, the equilibria of simultaneous-move games are extensively robust. This means that the equilibria survive even if the simultaneous-play assumption is relaxed to allow for a large variety of extensive modifications. Such modifications include sequential play with partial and differential revelation of information, commitments, multiple revisions of choices, cheap talk announcements, and more.

This paper examines direct broadcast satellites (DBS) as a competitor to cable. We first estimate a structural consumer level demand system for satellite, basic cable, premium cable and local antenna using micro data on almost 30000 households in 317 markets, including extensive controls for unobserved product quality and allowing the distribution of unobserved tastes to follow a fully flexible multivariate normal distribution. The estimated elasticity of expanded basic is about -15, with the demand for premium cable and DBS more elastic. The results identify strong correlations in the taste for different products not captured in conventional logit models. Estimates of the supply response of cable suggest that without DBS entry cable prices would be about 15 percent higher and cable quality would fall. We find a welfare gain of between $127 and $190 per year (aggregate $2.5 billion) for satellite buyers, and about $50 (aggregate $3 billion) for cable subscribers.

An asymptotically efficient likelihood-based semiparametric estimator is derived for the censored regression (tobit) model, based on a new approach for estimating the density function of the residuals in a partially observed regression. Smoothing the self-consistency equation for the nonparametric maximum likelihood estimator of the distribution of the residuals yields an integral equation, which in some cases can be solved explicitly. The resulting estimated density is smooth enough to be used in a practical implementation of the profile likelihood estimator, but is sufficiently close to the nonparametric maximum likelihood estimator to allow estimation of the semiparametric efficient score. The parameter estimates obtained by solving the estimated score equations are then asymptotically efficient. A summary of analogous results for truncated regression is also given. Copyright The Econometric Society 2004.

A systems cointegration rank test is proposed that is applicable for vector autoregressive (VAR) processes with a structural shift at unknown time. The structural shift is modeled as a simple shift in the level of the process. It is proposed to estimate the break date first on the basis of a full unrestricted VAR model. Two alternative estimators are considered and their asymptotic properties are derived. In the next step the deterministic part of the process including the shift size is estimated and the series are adjusted by subtracting the estimated deterministic part. A Johansen type test for the cointegrating rank is applied to the adjusted series. The test statistic is shown to have a well-known asymptotic null distribution that does not depend on the break date. The performance of the procedure in small samples is investigated by simulations.

The Amsterdam auction has been used to sell real estate in the Dutch capital for centuries. By awarding a premium to the highest losing bidder, the Amsterdam auction favors weak bidders without having the implementation difficulties of Myerson's (1981) optimal auction. In a series of experiments, we compare the standard first-price and English auctions, the optimal auction, and two variants of the Amsterdam auction. With strongly asymmetric bidders, the second-price Amsterdam auction raises substantially more revenues than standard formats and only slightly less than the optimal auction. Copyright Econometric Society 2004.

We provide evidence that long-term relationships between trading parties emerge endogenously in the absence of third party enforcement of contracts and are associated with a fundamental change in the nature of market interactions. Without third party enforcement, the vast majority of trades are initiated with private offers and the parties share the gains from trade equally. Low effort or bad quality is penalized by the termination of the relationship, wielding a powerful effect on contract enforcement. Successful long-term relations exhibit generous rent sharing and high effort (quality) from the very beginning of the relationship. In the absence of third-party enforcement, markets resemble a collection of bilateral trading islands rather than a competitive market. If contracts are third party enforceable, rent sharing and long-term relations are absent and the vast majority of trades are initiated with public offers. Most trades take place in one-shot transactions and the contracting parties are indifferent with regard to the identity of their trading partner. Copyright The Econometric Society 2004.

The local Whittle (or Gaussian semiparametric) estimator of long range dependence, proposed by Künsch (1987) and analyzed by Robinson (1995a), has a relatively slow rate of convergence and a finite sample bias that can be large. In this paper, we generalize the local Whittle estimator to circumvent these problems. Instead of approximating the short-run component of the spectrum, ϕ(λ) , by a constant in a shrinking neighborhood of frequency zero, we approximate its logarithm by a polynomial. This leads to a "local polynomial Whittle" (LPW) estimator. We specify a data-dependent adaptive procedure that adjusts the degree of the polynomial to the smoothness of ϕ(λ) at zero and selects the bandwidth. The resulting "adaptive LPW" estimator is shown to achieve the optimal rate of convergence, which depends on the smoothness of ϕ(λ) at zero, up to a logarithmic factor. Copyright The Econometric Society 2004.

An extension of Condorcet's paradox by McGarvey (1953) asserts that for every asymmetric relation R on a finite set of candidates there is a strict-preferences voter profile that has the relation R as its strict simple majority relation. We prove that McGarvey's theorem can be extended to arbitrary neutral monotone social welfare functions which can be described by a strong simple game G if the voting power of each individual, measured by the it Shapley-Shubik power index, is sufficiently small. Our proof is based on an extension to another classic result concerning the majority rule. Condorcet studied an election between two candidates in which the voters' choices are random and independent and the probability of a voter choosing the first candidate is p > 1/2. Condorcet's Jury Theorem asserts that if the number of voters tends to infinity then the probability that the first candidate will be elected tends to one. We prove that this assertion extends to a sequence of arbitrary monotone strong simple games if and only if the maximum voting power for all individuals tends to zero.

The purpose of this note is to show how semiparametric estimators with a small bias property can be constructed. The small bias property (SBP) of a semiparametric estimator is that its bias converges to zero faster than the pointwise and integrated bias of the nonparametric estimator on which it is based. We show that semiparametric estimators based on twicing kernels have the SBP. We also show that semiparametric estimators where nonparametric kernel estimation does not affect the asymptotic variance have the SBP. In addition we discuss an interpretation of series and sieve estimators as idempotent transformations of the empirical distribution that helps explain the known result that they lead to the SBP. In Monte Carlo experiments we find that estimators with the SBP have mean-square error that is smaller and less sensitive to bandwidth than those that do not have the SBP.

We study fairness in economies with one private good and one partially excludable nonrival good. A social ordering function determines for each profile of preferences an ordering of all conceivable allocations. We propose the following Free Lunch Aversion condition: if the private good contributions of two agents consuming the same quantity of the nonrival good have opposite signs, reducing that gap improves social welfare. This condition, combined with the more standard requirements of Unanimous Indifference and Responsiveness, delivers a form of welfare egalitarianism in which an agent's welfare is measured by the quantity of the nonrival good that, consumed at no cost, would leave her indifferent to the bundle she is assigned.