Search

This paper takes steps toward integrating firm theory in the spirit of Alchian and Demsetz (1972) and Grossman and Hart (1986), contract theory in the spirit of Holmstrom (1979), and general equilibrium theory in the spirit of Arrow and Debreu (1954) and McKenzie (1959). In the model presented here, the set of firms that form and the contractual arrangements that appear, the assignments of agents to firms, the prices faced by firms for inputs and outputs, and the incentives to agents are all determined endogenously at equilibrium. Agents choose consumption-but they also choose which firms to join, which roles to occupy in those firms, and which actions to take in those roles. Agents interact anonymously with the (large) market, but strategically within the (small) firms they join. The model accommodates moral hazard, adverse selection, signaling, and insurance. Equilibria may be Pareto ranked. [ABSTRACT FROM AUTHOR]

Many tests of asset-pricing models address only the pricing predictions, but these pricing predictions rest on portfolio choice predictions that seem obviously wrong. This paper suggests a new approach to asset pricing and portfolio choices based on unobserved heterogeneity. This approach yields the standard pricing conclusions of classical models but is consistent with very different portfolio choices. Novel econometric tests link the price and portfolio predictions and take into account the general equilibrium effects of sample-size bias. This paper works through the approach in detail for the case of the classical capital asset pricing model (CAPM), producing a model called CAPM + ε. When these econometric tests are applied to data generated by large-scale laboratory asset markets that reveal both prices and portfolio choices, CAPM + ε is not rejected. [ABSTRACT FROM AUTHOR]

The sensitivity of Bayesian implementation to agents' beliefs about others suggest the use of more robust notions of implementation such as ex post implementation, which requires that each agent's strategy be optimal for every possible realization of the types of other agents. We show that the only deterministic social choice functions that are ex post implementable in generic mechanisms design frameworks with multi-dimensional signals, interdependent valuations, and transferable utilities are constant functions. In other words, deterministic ex post implementation requires that the same alternative must chosen irrespective of agents' signals. The proof shows that ex post implementability of a nontrivial deterministic social choice function implies that certain rates of information substitution coincide for all agents. This condition amounts to a system of differential equations that are not satisfied by generic valuation functions. [ABSTRACT FROM AUTHOR]

This paper argues that incompleteness of intertemporal financial markets has little effect (on welfare, prices, or consumption) in an economy with a single consumption good, provided that traders are long-lived and patient, a riskless bond is traded, shocks are transitory, and there is no aggregate risk. In an economy with aggregate risk, a similar conclusion holds, provided traders share the same CRRA utility function and the right assets are traded. Examples demonstrate that these conclusion need not hold if the wrong assets are traded or if the economy has multiple consumption goods. [ABSTRACT FROM AUTHOR]

This paper offers a new approach to the study of economic problems usually modeled as games of incomplete information with discontinuous payoffs. Typically, the discontinuities arise from indeterminacies (ties) in the underlying problem. The point of view taken here is that the tie-breaking rules that resolve these indeterminacies should be viewed as part of the solution rather than part of the description of the model. A solution is therefore a tie-breaking rule together with strategies satisfying the usual best-response criterion. When information is incomplete, solutions need not exist; that is, there may be no tie-breaking rule that is compatible with the existence of strategy profiles satisfying the usual best-response criteria. It is shown that the introduction of incentive compatible communication (cheap talk) restores existence. [ABSTRACT FROM AUTHOR]

Examines the parallel results for economies with finitely many consumers and infinitely many commodities. Introduction of quadratic concavity; Substitutes of goods; Study of continuous-time trading in financial markets.

This paper defines a general equilibrium model with exchange and club formation. Agents trade multiple private goods widely in the market, can belong to several clubs, and care about the characteristics of the other members of their clubs. The space of agents is a continuum, but clubs are finite. It is shown that (i) competitive equilibria exist, and (ii) the core coincides with the set of equilibrium states. The central subtlety is in modeling club memberships and expressing the notion that membership choices are consistent across the population. [ABSTRACT FROM AUTHOR]

Equivalence of the core and the set of Walrasian allocations has long been taken as one of the basic tests of perfect competition. The present paper examines this basic test of perfect competition in economies with an infinite dimensional space of commodities and a large finite number of agents. In this context, we cannot expect equality of the core and the set of Walrasian allocations; rather, as in the finite dimensional context, we look for theorems establishing core convergence (that is, approximate decentralization of core allocations in economies with a large finite number of agents). Previous work in this area has established that core convergence for replica economies and core equivalence for economies with a continuum of agents continue to be valid in the infinite dimensional context under assumptions much the same as those needed in the finite dimensional context. For general large finite economies, however, we present here a sequence of examples of failure of core convergence. These examples point to a serious disconnection between replica economies and continuum economies on the one hand, and general large finite economies on the other hand. We identify the source of this disconnection as the measurability requirements that are implicit in the continuum model, and which correspond to compactness requirements that have especially serious economic content in the infinite dimensional context. We also obtain a positive result. When the commodity space is L¹, the space of integrable functions on a finite measure space, we establish core convergence under the assumptions that marginal utility goes to zero as consumption tends to infinity and the per capita social endowment lies above a consumption bundle which is equidesirable with respect to the preferences. This positive result depends on a version of the Shapley-Folkman theorem for L¹. [ABSTRACT FROM AUTHOR]

Two of the most important refinements of the Nash equilibrium concept for extensive form games with perfect recall are Selten's (1975) perfect equilibrium and Kreps and Wilson's (1982) more inclusive sequential equilibrium. These two equilibrium refinements are motivated in very different ways. Nonetheless, as Kreps and Wilson (1982, Section 7) point out, the two concepts lead to similar prescriptions for equilibrium play. For each particular game form, every perfect equilibrium is sequential. Moreover, for almost all assignments of payoffs to outcomes, almost all sequential equilibrium strategy profiles are perfect equilibrium profiles, and all sequential equilibrium outcomes are perfect equilibrium outcomes. We establish a stronger result: For almost all assignments of payoffs to outcomes, the sets of sequential and perfect equilibrium strategy profiles are identical. In other words, for almost all games each strategy profile which can be supported by beliefs satisfying the rationality requirement of sequential equilibrium can actually be supported by beliefs satisfying the stronger rationality requirement of perfect equilibrium. We obtain this result by exploiting the algebraic/geometric structure of these equilibrium correspondences, following from the fact that they are semi-algebraic sets; i.e., they are defined by finite systems of polynomial inequalities. That the perfect and sequential equilibrium correspondences have this semi-algebraic structure follows from a deep result from mathematical logic, the Tarski-Seidenberg Theorem; that this structure has important game-theoretic consequences follows from deep properties of semi-algebraic sets. [ABSTRACT FROM AUTHOR]

This paper explores the distinction between nonatomicity and thick markets as the source of perfect competition. The focus of the paper is the construction of a model of an imperfectly competitive economy with a nonatomic continuum of traders and a continuum of differentiated commodities, for which Walrasian equilibria exist. The failure of perfect competition in this instance can be identified in two ways: individuals can affect prices and the core is strictly larger than the set of Walrasian allocations. By contrast, it is shown that, when markets are physically or economically thick (or both), then individuals cannot typically affect prices and the core always coincides with the set of Walrasian allocations. [ABSTRACT FROM AUTHOR]

Focuses on the approach used in studying economic problems by discontinuous games. Factors causing discontinuities; Comparison between the conventional and the proposed approach; Information on sharing rule.

This paper establishes the existence of competitive equilibria for economies with production and an infinite-dimensional space of commodities. The commodity spaces treated are normed lattices, but no interiority assumptions are made on the positive cone; such infinite-dimensional spaces include most of those which have been found useful in economic analysis. The crucial assumptions are on compactness of the set of feasible allocations, continuity of preferences, boundedness of the marginal rates of substitution in consumption, and boundedness of the marginal efficiency of production. Examples are presented which show that without such assumptions, competitive equilibria may fail to exist. [ABSTRACT FROM AUTHOR]

The core of a game, which is an abstraction of the core or set of cooperative equilibrium states of an economy, is a fundamental notion of social equilibrium. However, except for games derived from special kinds of economic situations or satisfying restrictive (balancedness) conditions, the core is usually empty. In contrast, this paper shows that, with mild and economically natural assumptions, large games always have non-empty approximate cores. The game-theoretic framework is sufficiently general to cover a wide variety of economic situations. [ABSTRACT FROM AUTHOR]

This paper is organized in the following fashion. In section 2, the spatial autoreggressive model is presented and regularity conditions are specified. Researchers make the important distinction between models with and without the presence of regressors. In section 3, researchers show that when spatial varying regressors are really relevant, identification of parameters can be assured if there is no multicollinearity among regressors and a spatially generated regressor. Section 4 considers the event of multicollinearity where the spatially generated regressor is collinear with the original regressors. Section 5 considers the spatial scenario that each unit can be influenced by many neighbors. In this situation, irregularity of the information matrix may occur and various components of QMLE's may have different rates of convergence. This includes MLE and QMLE for the SAR process. In section 6, examples on the inconsistency of the QMLE are presented and this phenomenon is related to the notion of infill asymptotic.