Knowledge that Transforms

Choice models with nonlinear budget sets are important in econometrics.In this paper we propose a nonparametric approach to estimation of choice models with nonlinear budget sets.The basic idea is to think of the choice, in our case hours of labor supply, as being a function of the entire budget set.Then we can ac- count nonparametrically for a nonlinear budget set by estimating a nonparametric regression where the variable in the regression is the budget set.We reduce the dimensionality of this problem by exploiting additive structure implied by utility maximization with convex budget sets.This structure leads to a polynomial con- vergence rate for the estimator.We give asymptotic normality results also.The usefulness of the estimator is demonstrated in Monte Carlo and empirical work, where we find it can have a large impact on estimated effects of tax changes.

The goal of this paper is to probe the validity of the fiscal theory of the price level by modeling explicitly the market structure in which households and the governments make their decisions. I describe the economy as a game, and I am thus able to state precisely the consequences of actions that are out of the equilibrium path. I show that there exist government strategies that lead to a version of the fiscal theory, in which the price level is determined by fiscal variables alone. However, these strategies are more complex than the simple budgetary rules usually associated with the fiscal theory, and the government budget constraint cannot be merely viewed as an equilibrium condition.

We present new identification resiilts for models of first-price, second-price, ascending (English), and descending (Dutch) auctions.We analyze a general specification of bidders' preferences and the underlying information structure, nesting as special cases the pure private values and pure common values models, and allowing both ex ante symmetric and asymmetric bidders.We address identification of a series of such models and propose strategies for discriminating between them on the basis of observed data.In the simplest case, the symmetric independent pri- vate values model is nonparametrically identified even if only the transaction price from each auction is observed.For more complex models, we provide conditions for identification and testing when additional information of one of the following types is available: (i) one or more bids in addition to the transaction price; (ii) exogenous variation in the number of bidders; (iii) bidder-specific covariates that shift the distribution of valuations; (iv) the ex post reahzation of the value of the object sold.Our results include new tests that distinguish between private and common values models.