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Characterizing Behavioral Decisions with Choice Datas
Get PDFA number of different models with behavioral economics have a reduced form representation where potentially boundedly rational decision-makers do not necessarily internalize all the consequences of their actions on payoff relevant features (which we label as psychological states) of the choice environment. This paper studies the restrictions that such behavioral models impose on choice data and the implications they have for
welfare analysis. First, we propose a welfare benchmark that is justified using standard
axioms of rational choice and can be applied to a number of existing seminal behavioral
economics models. Second, we show that Sen's axioms and fully characterize choice
data consistent with behavioral decision-makers. Third, we show how choice data to
infer information about the normative signi.cance of psychological states and establish
the possibility of identifying welfare dominated choices
Sharp Bounds on Heterogeneous Individual Treatment Responses
Get PDFThis paper discusses how to identify individual-specific causal effects of an
ordered discrete endogenous variable. The counterfactual heterogeneous causal
information is recovered by identifying the partial differences of a structural
relation. The proposed refutable nonparametric local restrictions exploit the
fact that the pattern of endogeneity may vary across the level of the unobserved
variable. The restrictions adopted in this paper impose a sense of order to an
unordered binary endogeneous variable. This allows for a uni.ed structural
approach to studying various treatment effects when self-selection on unobservables is present. The usefulness of the identi.cation results is illustrated using the data on the Vietnam-era veterans. The empirical findings reveal that when other observable characteristics are identical, military service had positive impacts for individuals with low (unobservable) earnings potential, while it had negative impacts for those with high earnings potential. This heterogeneity would not be detected by average effects which would underestimate the actual effects because different signs would be cancelled out. This partial identification result can be used to test homogeneity in response. When homogeneity is rejected, many parameters based on averages may deliver misleading
information
Complete Markets Strikes Back: Revisiting Risk Sharing Tests under Discount Rate Heterogeneity
Get PDFRecent risk sharing tests strongly reject the hypothesis of complete markets, because in
the data: (1) the individual consumption comoves with income and (2) the consumption
dispersion increases over the life cycle. In this paper, I revisit the implications of these risk
sharing tests in the context of a complete market model with discount rate heterogeneity,
which is extended to introduce the individual choices of effort in education. I .nd that
a complete market model with discount rate heterogeneity can pass both types of the
risk sharing tests. The endogenous positive correlation between income growth rate and
patience makes the individual consumption comove with income, even if the markets are
complete. I also show that this model is quantitatively admissible to account for both
the observed comovement of consumption and income and the increase of consumption
dispersion over the life cycle
Personal indebtedness, community characteristics and theft crimes
Get PDFBecker (1968) and Stigler (1970) provide the germinal works for an economic
analysis of crime, and their approach has been utilised to consider the response
of crime rates to a range of economic, criminal and socioeconomic factors. Until
recently however this did not extend to a consideration of the role of personal
indebtedness in explaining the observed pattern of crime.
This paper uses the Becker (1968) and Stigler (1970) framework, and extends
to a fuller consideration of the relationship between economic hardship and theft
crimes in an urban setting. The increase in personal debt in the past decade has
been significant, which combined with the recent global recession, has led to a spike
in personal insolvencies. In the context of the recent recession it is important to
understand how increases in personal indebtedness may spillover into increases in
social problems like crime.
This paper uses data available at the neighbourhood level for London, UK on
county court judgments (CCJ's) granted against residents in that neighbourhood,
this is our measure of personal indebtedness, and examines the relationship between
a range of community characteristics (economic, socio-economic, etc), including the
number of CCJ's granted against residents, and the observed pattern of theft crimes
for three successive years using spatial econometric methods.
Our results confirm that theft crimes in London follow a spatial process, that
personal indebtedness is positively associated with theft crimes in London, and that
the covariates we have chosen are important in explaining the spatial variation in
theft crimes. We identify a number of interesting results, for instance that there
is variation in the impact of covariates across crime types, and that the covariates
which are important in explaining the pattern of each crime type are largely stable
across the three periods considered in this analysis
Efficient Competition through Cheap Talk: Competing Auctions and Competitive Search without Ex Ante Price
Get PDFWe consider a frictional two-sided matching market in which one side uses public cheap talk announcements so as to attract the other side. We show that if the first-price auction
is adopted as the trading protocol, then cheap talk can be perfectly informative, and the
resulting market outcome is efficient, constrained only by search frictions. We also show
that the performance of an alternative trading protocol in the cheap-talk environment
depends on the level of price dispersion generated by the protocol: If a trading protocol
compresses (spreads) the distribution of prices relative to the first-price auction, then an
efficient fully revealing equilibrium always (never) exists. Our results identify the settings
in which cheap talk can serve as an efficient competitive instrument, in the sense that the
central insights from the literature on competing auctions and competitive search continue
to hold unaltered even without ex ante price commitment
Price Transmission and Effects of Exchange Rates on Domestic Commodity Prices via Offshore and Currency Hedging
Get PDFThe framework presents how trading in the foreign commodity futures market and the forward
exchange market can affect the optimal spot positions of domestic commodity producers and traders.
It generalizes the models of Kawai and Zilcha (1986) and Kofman and Viaene (1991) to allow both
intermediate and final commodities to be traded in the international and futures markets, and the
exporters/importers to face production shock, domestic factor costs and a random price. Applying
mean-variance expected utility, we find that a rise in the expected exchange rate can raise both supply
and demand for commodities and reduce domestic prices if the exchange rate elasticity of supply is
greater than that of demand. Whether higher volatilities of exchange rate and foreign futures price can
reduce the optimal spot position of domestic traders depends on the correlation between the exchange
rate and the foreign futures price. Even though the forward exchange market is unbiased, and there is
no correlation between commodity prices and exchange rates, the exchange rate can still affect
domestic trading and prices through offshore hedging and international trade if the traders are
interested in their profit in domestic currency. It illustrates how the world prices and foreign futures
prices of commodities and their volatility can be transmitted to the domestic market as well as the
dynamic relationship between intermediate and final goods prices. The equilibrium prices depends on
trader behaviour i.e. who trades or does not trade in the foreign commodity futures and domestic
forward currency markets. The empirical result applying a two-stage-least-squares approach to Thai
rice and rubber prices supports the theoretical result
A Framework for Analyzing Language and Welfare
Get PDFThe paper proposes a general model that will encompass trade and social benefits of a common language, a preference for a variety of languages, the fundamental role of translators, an emo-tional attachment to maternal language, and the threat that globalization poses to the vast ma-jority of languages. With respect to people’s emotional attachment, the model considers minor-ities to suffer losses from the subordinate status of their language. In addition, the model treats the threat to minority language as coming from the failure of the parents in the minority to transmit their maternal language (durably) to their children. Some familiar results occur. In particular, we encounter the usual social inefficiencies of decentralized solutions to language learning when the sole benefits of the learning are communicative benefits (though translation intervenes). However, these social inefficiencies assume a totally different air when the con-sumer gains of variety are brought in. One fundamental aim of the paper is to bring together contributions to the economics of language from labor economics, network externalities and international trade that are typically treated separately
Relationship between trade openness and economic growth of India: A time series analysis
Get PDFThe paper aims to examine the empirical relationship between trade openness and economic growth of India for the time period 1970-2010. Trade openness is a multi-dimensional concept and hence measures of both trade barriers and trade volumes have been used as proxies for openness. The estimation results from Vector Autoregressive method suggest that growth in trade volumes accelerate economic growth in case of India. We do not find any evidence from our analysis that trade barriers lower growth
Confidence and Competence in Communication
Get PDFThis paper studies information transmission between an uninformed decision maker (receiver) and an informed player (sender) who have asymmetric beliefs ("con fidence") on the sender s ability ("competence") to observe the state of nature. We fi nd that even when the material payoffs of are perfectly aligned, the sender s over- and
underconfi dence on his information give rise to information loss in communication, although they do not by themselves completely eliminate information transmission in equilibrium. However, an underconfi dent sender may prefer no communication to informative communication. We also show that when the sender is biased, overconfi dence can lead to more information transmission and welfare improvement
Human capital, social mobility and the skill premium
Get PDFThis paper develops a dynamic general equilibrium model to highlight the role of human capital accumulation of agents differentiated by skill type in the joint determination of social mobility and the skill premium. We first show that our model captures the empirical co-movement of the skill premium, the relative supply of skilled to unskilled workers and aggregate output in the U.S. data from 1970-2000.
We next show that endogenous social mobility and human capital accumulation are key channels through which the effects of capital tax cuts and increases in public spending on both pre- and post-college education are transmitted. In particular, social mobility creates additional incentives for the agents which enhance the beneficial effects of policy reforms. Moreover, the dynamics of human capital accumulation imply that, post reform, the skill premium is higher in the short-
to medium-run than in the long-run