A scheme of plain conversation is constructed, which is a universal mechanism for all noncooperative games with incomplete information with at least four players, in the following sense: every solution that can be achieved by means of an arbitrary communication mechanism is a correlated equilibrium payoff of the game extended by the scheme of plain conversation. By a property of the correlated equilibrium, a similar result holds also with the Nash equilibrium solution concept. The universal mechanism can be used without any loss of efficiency. Copyright 1990 by The Econometric Society.
It is often argued that a rational bubble, because it is positive, must increase the price of a stock. This argument is not valid in general: as soon as bubbles affect interest rates, the fundamental value of a stock depends on whether or not a bubble is present. The existence of a rational bubble then might, by raising equilibrium interest rates, depress the fundamental to such an extent that the sum of the positive bubble and decreased fundamental falls short of the fundamental, no-bubble price. Under conditions made precise below, there can therefore be price decreasing bubbles, and an asset can be undervalued.
This article proposes a general method to build exact tests and confidence sets in linear regressions with first-order autoregressive Gaussian disturbances. Because of a nuisance parameter problem, we argue that generalized bounds tests and conservative confidence sets provide natural inference procedures in such a context. Given an exact confidence set for the autocorrelation coefficient, we describe how to obtain a similar simultaneous confidence set for the autocorrelation coefficient and any subvector of regression coefficient. Conservative confidence sets for the regression coefficients are then deduced by a projection method. For any hypothesis that specifies jointly the value of the autocorrelation coefficient and any set of linear restrictions on the regression coefficients, we get exact similar tests. For tesing linear hypotheses about the regression coefficients only, we suggest bounds-type procedures. Exact confidence sets for the autocorrelation coefficient are built by "inverting" autocorrelation tests. The method is illustrated with two examples. Copyright 1990 by The Econometric Society.
This paper defines and tests a form of market efficiency called market dexterity which requires that asset prices adjust instantaneously and completely in response to new information. Examining the behavior of the yen/dollar exchange rate while each of the major markets are open it is possible to test for informational effects from one market to the next. Assuming that news has only country specific autocorrelation such as a heat wave. any intra-daily volatility spillovers (meteor showers) become evidence against market dexterity. ARCH models are employed to model heteroskedasticity across intra-daily market segments. Statistical tests lead to the rejection of the heat wave and therefore the market dexterity hypothesis. Using a volatility type of vector autoregression we examine the impact of news in one market on the time path of volatility in other markets.
In this paper, it will be shown that any conditional moment test of functional form of nonlinear regression models can be converted into a chi-square test that is consistent against all deviations from the null hypothesis that the model represents the conditional expectation of the dependent variable relative to the vector of regressors. Copyright 1990 by The Econometric Society.
Alternating price competition between firms selling differentiated products to nonhomogeneous consumers can yield two different types of equilibria. One, which we call "disciplined, " arises when products are close substitutes. Another, which we call "spontaneous, " emerges when products are more differentiated. In disciplined equilibria, an implicit threat to cut price further, in response to an initial price cut, supports quite collusive outcomes, which become less collusive as product differentiation increases. In spontaneous equilibria, no such threat is needed. Consumers in the smaller market tend to pay a higher price, as do consumers served by the more efficient firm. Copyright 1990 by The Econometric Society.
THIS PAPER PROVIDES the large sample properties of two inequality indices, Atkinson's (1970) index and the generalized entropy index (Cowell and Kuga (1981), Shorrocks (1984)). The large sample properties of the equally-distributed-equivalent (e.d.e.) income measures associated with these indices are also derived. The asymptotic distributions of these inequality and welfare measures allow the construction of confidence intervals and tests for differences in the measures; these confidence intervals and tests are asymptotically distribution-free. Given the increasing availability of large micro-data sets on incomes, these results are directly applicable to empirical work on income distributions. The sampling distributions of some inequality indices, such as the Gini coefficient and Pietra index, are known.' But the ethical bases of these indices have been subject to criticism, and some researchers may prefer the Atkinson or generalized entropy indices on ethical grounds. These researchers are confronted with a choice between using an ethically unattractive index with a known sampling distribution, or using an ethically preferable index whose sampling properties are unknown. The increasing use of the Atkinson and generalized entropy indices in empirical analyses of income distributions suggests many are choosing the second option. It then becomes important to understand the sampling properties of these indices, so that statistical inference procedures may be applied. The analysis in this paper complements the recent research on sampling properties and inference for Lorenz curves. For example, Beach and Davidson (1983), and Gastwirth and Gail (1985) propose tests for equality of Lorenz curves, and Beach and Richmond (1985) provide joint confidence intervals for the Lorenz ordinate vector. Bishop, Chakraborti, and Thistle (1987, 1988a, 1988b) and Bishop, Formby, and Thistle (1989) provide a number of extensions. These papers utilize results from the theory of linear functions of order statistics.2 However, this approach is not directly applicable to the Atkinson and generalized entropy indices; these indices are not linear functions of order statistics. The Atkinson and generalized entropy indices are functions of fractional and negative moments of the distribution, and their large sample properties follow from the properties of the sample moments.
The authors analyze the principal-agent relationship when the principal has private information as a three-stage game: contract proposal, acceptance/refusal, and contract execution. They assume that the information does not directly affect the agent's payoff (private values). Equilibrium exists and is generically locally unique. Moreover, it is Pareto optimal for the different types of principal. The principal generically does strictly better than when the agent knows her information. Equilibrium allocations are the Walrasian equilibria of an "economy" where the traders are different types of principal and "exchange" the slack on the agent's individual rationality and incentive compatibility constraints. Copyright 1990 by The Econometric Society.
This paper presents a simple estimator of the shape parameter in a Weibull duration model with unobserved heterogeneity. The estimator is consistent and asymptotically normal under mild conditions, and a consistent estimator of the asymptotic variance is available. A Monte Carlo study indicates that the asymptotic distribution of the estimator provides a good approximation to the finite sample distribution. The estimation strategy can be extended to a model with regressors and to a log-logistic model with unobserved heterogeneity. The advantages of the estimator are that it is easy to calculate and that its asymptotic distribution can be derived. Copyright 1990 by The Econometric Society.
This paper tests the effects of the level and length of unemployment insurance (UI> benefits on unemployment durations.The paper particularly studies individual behavior during the weeks just prior to when benefits lapse.Higher UI benefits are found to have a strong negative effect on the probability of leaving unemployment.However, the probability of leaving unemployment rises dramatically just prior to when benefits lapse When the length of benefits is extended, the probability of a spell ending is also very high in the week benefits were previously expected to lapse.Individual data are used with accurate information on spell durations, and the level and length of benefits.Semipararnetric estimation techniques are used and compared to alternative approaches.The semiparametric approach yields more plausible estimates and provides useful diagnostics.