Knowledge that Transforms

The authors consider a k-player sequential bargaining model in which the size of the cake and the order in which players move follow a general Markov process. For games in which one agent makes an offer in each period and agreement must be unanimous, the authors provide characterizations of the sets of subgame perfect and stationary subgame perfect payoffs. With these characterizations, they investigate the uniqueness and efficiency of the equilibrium outcomes, the conditions under which agreement is delayed, and the advantage to proposing. Copyright 1995 by The Econometric Society.

A modification of the official Sen poverty index yields an index which is not only continous in individual incomes and consistent with the transfer axiom, but also admits a geometric interpretation in terms of the area beneath a graph called the inverse generalized Lorenz curve for normalized poverty gaps by Jenkins and Lambert (1993) or the poverty gap profile by Shorrocks (1994).

This paper develops and estimates a model of the U.S. automobile industry. On the demand side, a discrete choice model is adopted, which is estimated using micro data from the Consumer Expenditure Survey. The estimation results are used in conjunction with population weights to derive aggregate demand. On the supply side, the automobile industry is modeled as an oligopoly with product differentiation. Equilibrium is characterized by the first-order conditions of the profit-maximizing firms. The estimation results are used in counterfactual simulations to investigate two trade policy issues: the effects of the voluntary export restraint, and exchange rate pass-through. Copyright 1995 by The Econometric Society.

Using a simulated method of moments approach, the author evaluates a representative consumer asset pricing model in which the consumer is assumed to have time nonseparable preferences of several forms. Examining the model's implications for several moments of asset returns, he finds evidence for the local substitution of consumption with habit formation occurring over longer periods of time. The interaction between these two effects is important. The author also shows that, when accounting for sampling error, a model with local substitution and long-run habit persistence is consistent with the Hansen and Jagannathan (1991) bounds. Copyright 1995 by The Econometric Society.

Christopher Harris, Philip Reny, Arthur Robson, The Existence of Subgame-Perfect Equilibrium in Continuous Games with Almost Perfect Information: A Case for Public Randomization, Econometrica, Vol. 63, No. 3 (May, 1995), pp. 507-544

If an agent's preferences over subjectively uncertain acts are consistent with him having a subjective probability distribution over the states of nature, then those preferences can induce consistent preferences over 'objectively' risky lotteries. Such 'probabilistically sophisticated' behavior allows us to treat decision making under uncertainty as though it is under risk. This paper first characterizes exactly what probabilistic sophistication entails for an agent's beliefs about the likelihood of states of nature. Secondly, it presents characterizations of probabilistically sophisticated individuals whose induced lottery preferences obey neither the independence axiom nor a monotonicity property that is shown to share some of the nature of independence. Copyright 1995 by The Econometric Society.

We add a round of pre-play communication to a finite two-player game played by a population of players.Pre-play communication is cheap talk in the sense that it does not directly enter the payoffs.The paper characterizes the set of strategies that are stable with respect to a stochastic dynamic adaptive process.Periodically players have an opportunity to change their strategy with a strategy that is more successful against the current population.Any strategy that weakly improves upon the current poorest performer in the population enters with positive probability.When there is no conflict of interest between the players, only the efficient outcome is stable with respect to these dynamics.For general games the set of stable payoffs is typically large.Every efficient payoff recurs infinitely often.

Continuous-time Markov processes can be characterized conveniently by their infinitesimal generators. For such processes there exist forward and reverse-time generators. We show how to use these generators to construct moment conditions implied by stationary Markov processes. Generalized method of moments estimators and tests can be constructed using these moment conditions. The resulting econometric methods are designed to be applied to discrete-time data obtained by sampling continuous-time Markov processes.

Competing Vertical Structures: Preconmitment and Renegotiation

Different information systems are compared in terms of their relative efficiencies in an agency model. The mean preserving spread relation between the likelihood ratio distributions derived from the original information systems is found to be sufficient to rank information systems under quite general assumptions about the agent's utility function. Furthermore, it is shown that the mean preserving spread criterion can be applied to a broader set of information systems than Holmstrom's informativeness criterion and Blackwell's theorem