Knowledge that Transforms

If a resource importing country can commit to the future development of a backstop tec hnology, such a development program can be used strategically to affe ct the pricing policy of a resource supplier. Previous studies have r evealed the interesting possibility that by delaying development of t he substitute, the importing country could benefit from a favorable p roduction response on the part of the exporting country. This paper d emonstrates that this effect can indeed occur, but the set of paramet ers for which it does occur is smaller than previously realized. The intuition behind this effect is further developed. Copyright 1988 by The Econometric Society.

Consider a homogeneous product market where firms have private information about an uncertain demand parameter and compete in quan tities. The author examines the convergence properties of Bayesian-Co urnot equilibria as the economy is replicated and concludes that larg e Cournot (or almost competitive) markets do not aggregate informatio n efficiently except possibly when the production technology exhibits constant returns to scale. A competitive market is nevertheless cons trained efficient when taking as given the decentralized private info rmation structure of the economy. The results are shown to be robust to the consideration of endogenous information acquisition and to the addition of extra rounds of competition. Copyright 1988 by The Econometric Society.

The authors study the Nash equilibria of a two-person, infinitely-repeated game in which players' preferences depend on repeated game payoffs and the complexity of the strategies they use. The model considered is that of A. Rubinstein (1986). Necessary conditions on the structure of the equilibria are derived. These results place significant restrictions on equilibrium payoffs. The results suggest that the introduction of implementation costs results in a striking discontinuity in the Nash equilibrium sets in terms of strategies and payoffs. Copyright 1988 by The Econometric Society.

Contributions by E. Maskin and S. Williams have established that any social choice cor respondence satisfying monotonicity, no veto power, and having at lea st three participants is Nash implementable under the proviso that th e number of social alternatives is finite and that the correspondence satisfies citizen sovereignty. The author makes improvements in two aspects of their Nash implementation theorems: a reduction in the str ategy space and a proof for an arbitrary alternative set. Each partic ipant announces two participants' preferences, an alternative, and a positive integer. With this strategy space specification, the author confirms Maskin's theorem for an arbitrary size of the alternative se t. Copyright 1988 by The Econometric Society.

This paper uses cross-sectional and longitudinal data to examine differences in pay for equally-skilled workers in different ind ustries. The major finding is that there is substantial dispersion in wages across industries, even after allowing for measured and unmeas ured labor quality, working conditions, fringe benefits, transitory d emand shocks, the threat of union-ization, union bargaining power, fi rm size, and other factors. In addition, evidence is presented demons trating that turnover has a negative relationship with industry wage differentials. These findings suggest that workers in high-wage indus tries receive noncompetitive rents. Copyright 1988 by The Econometric Society.

S. Scotchmer has shown that, even if the population is homogeneous, hedonic prices do not correctly measure long-run benefit s of a large public project. This paper examines the direction of err ors and shows that the use of cross-sectional land rent differentials leads to overestimation of the benefits. The short-run benefits with fixed lot size are also considered. Copyright 1988 by The Econometric Society.

This paper contains an equilibrium model of the labor market. The supply function allows f or temporal substitution in response to wage fluctuations, and the de mand function allows for adjustment costs. Two related issues are emp hasized: identification of supply and demand functions, and sources o f serial correlation in employment and real wages. When the supply an d demand shocks are AR(1) processes, the equilibrium process for empl oyment and real wages is a restricted VAR(2). The supply and demand f unctions are (locally) identified using only employment and real wage data. An illustrative application is presented, using U.S. data for 1948-71. Copyright 1988 by The Econometric Society.

The authors consider auctions for a single indivisible object when bidders have information about each other that is unavailable to the seller. They show that the seller can use this information to his own benefit, and they characterize th e environments in which a well-chosen auction gives him the same expected payoff as that obtainable were he able to see the object und er full information. This hinges on the possibility of constructing lotteries with the correct properties. The authors study the problem for auctions where the bidders have dominant strategies and those where the relevant equilibrium concept is Bayesian-Nash. Copyright 1988 by The Econometric Society.

This paper extends the Pearson chi-square testing method to nondynam ic parametric econometric models, in particular, to models with covar iates. The paper establishes the asymptotic distribution of the test statistic when the test statistic is based on data-dependent random cells of a general form and on an arbitrary asymptotically normal estimator. These results a re attained by extending recent probabilistic results for the weak convergence of empirical processes indexed by sets. The chi-square test that is introduced can be used to test goodness-of-fit of a parametric model, as well as to test particular aspects of the parametric model that are of interest. Copyright 1988 by The Econometric Society.