Knowledge that Transforms

Conventional analyses of single spell duration models control for unobservables using a random effect estimator with the distribution of unobservables selected by ad hoc criteria. Both theoretical and empirical examples indicate that estimates of structural parameters obtained from conventional procedures are very sensitive to the choice of mixing distribution. Conventional procedures overparameterize duration models. We develop a consistent nonparametric maximum likelihood estimator for the distribution of unobservables and a computational strategy for implementing it. For a sample of unemployed workers our estimator produces estimates in concordance with standard search theory while conventional estimators do not. ECONOMIC THEORIES of search unemployment (Lippman and McCall [34]; Flinn and Heckman [14]), job turnover (Jovanovic [25]), mortality (Harris [17]), labor supply (Heckman and Willis [23]) and marital instability (Becker [3]) produce structural distributions for durations of occupancy of states. These theories generate qualitative predictions about the effects of changes in parameters on these structural distributions, and occasionally predict their functional forms.2 In order to test economic theories about durations and recover structural parameters, it is necessary to account for population variation in observed and unobserved variables unless it is assumed a priori that individuals are homogeneous.3 In every microeconomic study in which the hypothesis of heterogeneity is subject to test, it is not rejected. Temporally persistent unobserved components are an empirically important fact of life in microeconomic data (Heckman [19]). Since the appearance of papers by Silcock [39] and Blumen, Kogan, and McCarthy [5], social scientists have been aware that failure to adequately control for population heterogeneity can produce severe bias in structural estimates of duration models. Serious empirical analysts attempt to control for these unob

In this paper we show that, in the small sample case, while the LR test is robust, the LM and W tests are not robust when the errors are Student t. For the large sample, however, all three tests are found to be robust. A variation of the W test is also considered and it turns out to be nonrobust. The implications of assuming the errors to be distributed as multivariate Student t, rather than multivariate normal, are also discussed. It is found that not all of Evans and Savin's [4] results carry through when the errors are Student t.

This paper examines the nature of rational choice in strategic games.Although there are many reasons why an agent might select a Nash equilibrium strategy in a particular game, rationality alone does not require him to do so.A natural extension of widely accepted axioms for rational choice under uncertainty to strategic environments generates an alternative class of strategies, labelled "rationalizable."It is argued that no rationalizable strategy can be discarded on the basis of rationality alone, and that all rationally justifiable strategies are members of the rationalizable set.The properties of rationalizable strategies are studied, and refinements are considered.PROOF OF PROPOSITION 5.5: Since under the specified conditionsf(-) is a contraction mapping, Nash equilibrium is unique.We need only show P(G) = N*(G).Since P(G) is the intersection of an infinite sequence of compact, nested sets, it is compact.Consequently, we can define di = max d(s,, s,).s,,s, E-P,(G) Assume without loss of generality that d, > di Vi > 1.If point rationalizable strategies are not unique, then di > 0. Let s' and sj' be the strategies for which d(s'1, sj') = dl.There must exist t', t' e P(G)such that fl(t') = sj, and fl(t") = sj', with g,(t') = v1(t") (the first component doesn't effect fl( )).Now d(t', t") < ( d2 ) < d1(I-1)1/2. (i=2 J Further, d(f(t'), f(t")) > d(s', sj') = dl.So d(f(t), ft"))> d(t, t"I(I 1 ,/2

[A model of job-matching is considered, in which the set of employees hired by each firm, and the set of jobs accepted by each worker, are endogenously determined, as are the job descriptions settled on by each worker-firm pair. The set of outcomes that are in equilibrium, in the sense of being stable with respect to recontracting, is shown to be nonempty. It is shown that the interests of the firms and workers are polarized over the set of stable outcomes: There exists a firm-optimal stable outcome that is the best stable outcome for every firm and the worst for every worker, and a corresponding worker-optimal stable outcome that is best for every worker and worst for very firm. These results generalize and extend previous results for models of this type, and raise questions about the nature and underlying causes of such polarization of interests.]

[This article focuses on the desirability of quantity controls in an economy when the first best optimum is not attainable. Based on the analysis of constrained consumer demand, a formula for the desirability of small personalized compensated quotas is first established. Conclusions for the desirability of anonymous quotas: redistribution in kind, rationing, are derived. Actions on prices through taxes and quantity controls are compared. The analysis is also shown to have implications for the theory of optimum income taxation.]

Hours of work equations are derived from the constrained maximization of a utility function that is not separable over time and that varies with a household's demographic structure. These equations are fitted to observations on wage rates, nonlabor income, and other variables for husbands, wives, and unmarried women. The dependence of each household's current work and consumption behavior upon its work and consumption behavior in the past is examined closely and different interpretations of the relationship are confronted with the data.

Bibliography: p. 38-40.