tag:blogger.com,1999:blog-46401912141336051942023-11-16T20:55:03.132+09:00Unpredictably Rational Selected Keywords: Business, Economics, Finance, Game Theory, Market Design, and Soccer.Anonymoushttp://www.blogger.com/profile/02591377447426426764noreply@blogger.comBlogger114125tag:blogger.com,1999:blog-4640191214133605194.post-14338570397233841982016-09-17T10:09:00.000+09:002016-09-17T10:09:06.447+09:00It’s Lonely at the TopI just noticed the <a href="http://colleges.usnews.rankingsandreviews.com/best-colleges/rankings/national-universities">U.S.News 2017 Best Colleges Rankings</a> released.<br />
Princeton keeps the first place, as usual :)<br />
<br />
Increasing trend of tuition and fees is somewhat beyond my expectation. It costs $50,000/year or above in many national colleges on the ranking list. Even though the amount of fellowship/scholarship provided to undergraduate students has been increased, this level of tuition looks (at least to me) way too much.Anonymoushttp://www.blogger.com/profile/02591377447426426764noreply@blogger.com1tag:blogger.com,1999:blog-4640191214133605194.post-20551505604730849712016-05-27T11:34:00.000+09:002016-05-27T11:34:39.150+09:00Wants, Greed, and CapitalismA special TV program on capitalism (<a href="http://www4.nhk.or.jp/P4028/">link</a>) will be broadcasted <b>tomorrow</b> by <b>NHK</b> from 11pm (50 minutes) in Japan. The Japanese title of the program is "欲望と資本主義", which roughly corresponds to the title of this blog post. The program aims to (re)consider essential aspects of our economic society and the future of capitalism (as well as its origin), focusing especially on people's wants and greed. I contribute to the program as a navigator, interviewing major players from academia, financial sector and IT industry. The persons whom I made interviews are listed below (alphabetical order):<br />
<br />
- Alvin E. Roth, Professor at Stanford University (Nobel laureate)<br />
- Tomas Sedlacek, Chief Macroeconomic Strategist at CSOB<br />
- Scott Stanford, Co-Founder & Managing Partner at Sherpa Capital<br />
- Joseph E. Stiglitz, Professor at Columbia University (Nobel laureate)<br />
- William Tanuwijaya, founder & CEO at Tokopedia<br />
<br />
I would be grateful for everyone involved in this wonderful program. Really look forward to watching it :)<br />
<br />
<iframe width="560" height="315" src="https://www.youtube.com/embed/z_Avl48in8s?rel=0" frameborder="0" allowfullscreen></iframe>Anonymoushttp://www.blogger.com/profile/02591377447426426764noreply@blogger.com0tag:blogger.com,1999:blog-4640191214133605194.post-75493545036586860272016-04-30T09:52:00.000+09:002016-04-30T09:52:16.347+09:00The Greatest Happiness of the MINIMUM NumberI uploaded the manuscript titled "<a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2755893">Equal Market Design I: Competitive Market Achieves the Greatest Happiness of the Minimum Number</a>" at SSRN a month ago, which has been downloaded more than 500 times so far! I would like to say big thanks to all of those who kindly red it :) <br />
<br />
The main purpose of the paper is to clarify the <b>trade-off between efficiency and equality</b> when redistribution by the third party is infeasible, which has not been documented (at least in a clear manner) in the literature. As a somewhat striking result, we show that the number of agents who engage in trades under market equilibrium must be <b>minimum</b> among all Pareto efficient and individually rational allocations. (provided that Pareto efficiency is modified from the standard definition in order to incorporate our presumption of no possible redistribution.) <br />
<br />
While the market equilibrium (an intersection of supply and demand) maximizes total surplus, the sum of the agents' gains from trades measured in monetary value, it inevitably generates the agents who are left-behind from any trades. Moreover, the number of such left-behind agents are <b>maximized</b> through the competitive market. The intuition behind the result can be illustrated by the following figure. <br />
<br />
<div class="separator" style="clear: both; text-align: left;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgAW7R9xDQNQZGzIRpnAJPIp0VVxAInUTidNSxxTaoANrGItwuumHIFauXm7imFt7_yEsoJ0b6UlQP5l9gM9x3iSfTIJckVNp91F473a0BDMQBadelzis9deC0Pan81Qv1fHhlRbi7ybOpH/s1600/Leftbehind.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgAW7R9xDQNQZGzIRpnAJPIp0VVxAInUTidNSxxTaoANrGItwuumHIFauXm7imFt7_yEsoJ0b6UlQP5l9gM9x3iSfTIJckVNp91F473a0BDMQBadelzis9deC0Pan81Qv1fHhlRbi7ybOpH/s320/Leftbehind.jpg" /></a></div><br />
In the figure, the number of successful trades or trade volume is 2. Consequently, 4 agents, 2 buyers and 2 sellers, are left-behind. As I explain in the paper, we can strictly increase the number of (mutually beneficial) trades if alternative buyer-seller matchings are possible. While such allocations reduce total surplus, equality is improved in the sense that more agents can enjoy surplus from trades and less agents become left-behind. That is, there exists a trade-off between efficiency (= total surplus) and equality (= trade volume). <br />
<br />
The above finding is not restricted to a specific example; I formally show that there exists a strictly more equal allocation than the competitive equilibrium under very weak assumptions. Therefore, we could essentially say that equilibrium allocations under competitive markets are <b>most unequal</b> (if Pareto efficiency and individual rationality are considered to be least requirements for any sensible allocation). This finding may suggest a potential <b>limitation</b> of market economy even if <b>no market failure</b> is presupposed.<br />
<br />
To check the further argument, please click <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2755893">here</a> and download my paper! It is extremely short (the current version has only 8 pages), intuitive, and non-technical. In fact, it is by far the least technical among the papers that I have ever written, but I believe that its message and policy implication are the most significant. <br />
<br />
For example, consider a <b>labor market</b>. My finding implies that employment is <b>minimized</b> if the market works competitively. By contrast, some frictions or social mechanisms that prevent the market from being competitive may help to create additional job opportunities. This insight is consistent with the findings in <b>experimental economics</b> in its early literature: decentralized markets typically result in <b>excess quantity</b>. See my blog article "<a href="http://yyasuda.blogspot.com.au/2016/04/chamberlin-vs-smith-in-roth-1995.html">Chamberlin vs. Smith in Roth (1995)</a>" for the detail.<br />
<br />
<br />
P.S.<br />
I am now trying to extend the model from a homogeneous good market to a general two-sided matching market with monetary transfers. New findings will soon be available!Anonymoushttp://www.blogger.com/profile/02591377447426426764noreply@blogger.com0tag:blogger.com,1999:blog-4640191214133605194.post-64135859009477739032016-04-28T08:43:00.000+09:002016-04-28T08:47:01.725+09:00Theory Seminar (Amir) at UTSI attended a theory seminar at the University of Technology, Sydney (UTS) yesterday by Professor <a href="http://tippie.uiowa.edu/people/profile/profile.aspx?id=1391402">Rabah Amir</a> from Univ. of Iowa, talking about the following theoretical IO paper:<br />
<br />
<b>Amir, R., Ericksonz, P., and Jin, J.</b> "On the microeconomic foundations of linear demand for differentiated products"<br />
<br />
<br />
This paper provides <b>theoretical foundations of the multi-variate linear demand function for differentiated products</b> that is widely used in industrial organization. While quasi-linear preferences with quadratic utility function (for goods) is known to yield linear demand (Singh and Vives, 1984), the authors extend the result. Namely, under quasi-linear environment, they show that the resulting demand system becomes linear and well defined if and only if the underling utility function (for goods) must be strictly concave and quadratic. The "only if" part implies that the use of linear demand that does not satisfy the law of demand ought to be regarded with some suspicion.<br />
<br />
A theoretical punch line of the paper is that any (linear) demand system derived by consumer's utility maximization must satisfy the <b>law of demand</b>. I believe that we can establish a slightly more general result than this in the following way. It is known that (see, for example, Mas-Colell et.al. 1995) if a (Marshallian) demand function satisfies the <b>weak axiom</b> of revealed preferences and <b>Walras' law</b> , then its Hicksian demand satisfies the <b>law of demand</b>. If we further assume that there is <b>no income effect</b>, then the (Marshallian) demand function also satisfies the law of demand, since the two demand functions must have identical derivatives w.r.t. prices. The following is a summary the idea.<br />
<br />
<b>(1) weak axiom + (2) Walras's law => law of demand for Hicksian demand</b><br />
<br />
<b>(3) no income effect => Marshiallian demand = Hicksian demand</b><br />
<br />
<b>(1) weak axiom + (2) Walras's law + (3) no income effect => law of demand</b><br />
<br />
<br />
The above argument does not presume any consumer's preferences or utility maximization behind the demand function. By contrast, the current paper associates consumer's demand with his/her utility function. Now, note that if a demand function is derived by utility maximization with an increasing utility function, then conditions (1) and (2) automatically hold. If utility function is quasi-linear and a consumer has enough income, then (3) is also guaranteed. Since these are exactly what the paper assumes, the sufficient conditions (1), (2), and (3) above are satisfied and thus the law of demand (for Marshallian demand) naturally follows.<br />
<br />
<br />
<b>References</b><br />
Mas-Colell, A., Whinston, M. D., & Green, J. R. (1995). Microeconomic theory. New York: Oxford university press.<br />
Singh, N., & Vives, X. (1984). Price and quantity competition in a differentiated duopoly. The RAND Journal of Economics, 546-554.Anonymoushttp://www.blogger.com/profile/02591377447426426764noreply@blogger.com0tag:blogger.com,1999:blog-4640191214133605194.post-91198731762191468252016-04-06T09:22:00.000+09:002016-04-06T10:03:47.520+09:00Chamberlin vs. Smith in Roth (1995)I found very interesting description in <a href="http://www.amazon.co.jp/gp/product/0691058970/ref=as_li_ss_tl?ie=UTF8&camp=247&creative=7399&creativeASIN=0691058970&linkCode=as2&tag=yyasuda-22">The Handbook of Experimental Economics</a><img src="http://ir-jp.amazon-adsystem.com/e/ir?t=yyasuda-22&l=as2&o=9&a=0691058970" width="1" height="1" border="0" alt="" style="border:none !important; margin:0px !important;"/>, Chapter 1: Introduction to Experimental Economics by <a href="http://web.stanford.edu/~alroth/">Prof. Alvin Roth</a>. He refers two pioneering papers on experimental economics, Chamberlin (1948) and Smith (1962), which investigate commodity markets under different trading rules and check whether competitive equilibrium could be established. <br />
<blockquote>[T]he basic design of Chamberlin (1948) for inducing individual reservation prices and aggregate supply and demand curves has become one of the most widely used techniques in experimental economics.</blockquote><br />
Interestingly, Chamberlin (1948) reports systematic gap between his experimental results and the competitive equilibrium. The experimental design and its results are summarized as follows.<br />
<blockquote>Chamberlin created an experimental market by informing each buyer and seller of his reservation price for a single unit of an indivisible commodity, and he reported the transactions that resulted when buyers and sellers were then free to negotiate with one another in a decentralized market.<br />
<...><br />
The experiment he reported involved 46 markets, with slightly varying equilibrium prices. He observed that <b>the number of units transacted was greater than the competitive volume in 42 of these markets and equal to the competitive volume in the remaining 4 markets</b>, while the average price was below the competitive price in 39 of these markets and higher in the rest.</blockquote><br />
By contrast, (repeated) double auctions experimented by Smith (1962) result in convergence to the equilibrium.<br />
<blockquote>One important form of market organization is the double auction market, first experimentally studied by Smith (1962), who observed <b>rapid convergence to competitive equilibrium</b> when the market was repeated several times with stationary parameters.</blockquote><br />
One might be puzzled why the number of transaction in ALL experiments in Chamberlin (1948) exceed or equal to the competitive volume: none falls below it. My recent article, <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2755893">Equal Market Design I: Competitive Market Achieves the Greatest Happiness of the Minimum Number</a>, provides a theoretical account on this puzzle. This short paper (only 8 pages!) shows that the number of agents who engage in trades under any market equilibrium is MINIMUM among all Pareto efficient and individually rational allocations in the environment where redistribution by the third party is infeasible, i.e., no monetary transfers beyond buyer-seller pairs are prohibited. So, if buyers and sellers in Chamberlin's experiments somehow manage to reach the PE and IR allocations (it is likely although I have to check the original data if available), the number of transaction must be weakly larger than that of competitive equilibrium.<br />
<br />
<br />
<b>Acknowledgment</b><br />
I would like to thank <a href="https://sites.google.com/site/mkurino/">Prof. Morimitsu Kurino</a> who pointed out the possible connection between experimental studies and my research, explicitly mentioning the above two papers, i.e., Chamberlin (1948) and Smith (1962).<br />
<br />
<b>References</b><br />
Chamberlin, E. H. (1948). An experimental imperfect market. The Journal of Political Economy, 95-108.<br />
Kagel, J. H. and Roth, A. E. (1995). The handbook of experimental economics. Princeton, NJ: Princeton university press.<br />
Smith, V. L. (1962). An experimental study of competitive market behavior. The Journal of Political Economy, 111-137.<br />
Yasuda, Y. (2016). Equal Market Design I: Competitive Market Achieves the Greatest Happiness of the Minimum Number, mimeo. <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2755893">SSRN#2755893</a> Anonymoushttp://www.blogger.com/profile/02591377447426426764noreply@blogger.com0tag:blogger.com,1999:blog-4640191214133605194.post-69666158968215445322016-02-04T19:32:00.000+09:002016-02-04T19:32:38.711+09:00History of Japan in 9 minutesI found a very interesting, entertaining, and informative movie.<br />
You can learn Japan's history just in 9 minutes!<br />
Please check this out!!<br />
<br />
<iframe allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/Mh5LY4Mz15o" width="560"></iframe><br />
<br />
P.S.<br />
I have changed the title of this blog. Those who are familiar with economics books may guess where it comes <a href="http://www.amazon.co.jp/dp/B002RI9QJE/" target="_blank">from</a>.Anonymoushttp://www.blogger.com/profile/02591377447426426764noreply@blogger.com0tag:blogger.com,1999:blog-4640191214133605194.post-80439876597643401932015-11-10T21:19:00.000+09:002015-11-10T21:19:36.076+09:00SlideShareI've uploaded lecture slides at <a href="http://www.slideshare.net/YosukeYasuda1" target="_blank">SlideShare</a>. They are written in English or Japanese. The below are the titles (+ links) of the slides that are written in English. It would be great if you could take a look!<br />
<br />
<ul>
<li><a href="http://www.slideshare.net/YosukeYasuda1/introduction-to-decision-making-theory" target="_blank">Introduction to Decision Making Theory</a> </li>
<li><a href="http://www.slideshare.net/YosukeYasuda1/introduction-to-mechanism-design" target="_blank">Introduction to Mechanism Design</a> </li>
<li><a href="http://www.slideshare.net/YosukeYasuda1/theory-of-repeated-games" target="_blank">Theory of Repeated Games</a> </li>
</ul>
Anonymoushttp://www.blogger.com/profile/02591377447426426764noreply@blogger.com0tag:blogger.com,1999:blog-4640191214133605194.post-4122810045060949182015-05-02T21:58:00.000+09:002015-05-02T21:58:11.269+09:00Kandori and Matsushima (1998)<i>Original article (<a href="http://blog.livedoor.jp/yagena/archives/50012942.html">link</a>) posted: 12/12/2005 </i><br />
<br />
The following is a short version of <i>An essay on Kandori and Matsushima (1998) "Private Observation, Communication and Collusion" (Econometrica, 66)</i>, the term paper of the class by Professor Dutta.<br />
<br />
<u>Summary</u><br />
The present paper analyzes the role of communication and the possibility of cooperation in a long term relationship, when the actions of the players are imperfectly observed and each player receives only private signal.<br />
The analysis of such a situation, a repeated game with (imperfect) private monitoring, is known to be a hard problem in game theory due to its fairly complex mathematical structure, particularly due to the lack of common information shared by players. Under private monitoring, the distribution of the private histories is no longer common knowledge after a deviation (off the equilibrium path), because only the deviator takes her deviation into account for up-dating her belief while other players cannot. This means the continuation play off the equilibrium path is not even an equilibrium of the original game. Therefore, the <i>recursive</i> structure found in the public monitoring case, <i>i.e.</i>, the property that the continuation payoff after any history is chosen from the identical set of equilibrium payoffs, is destroyed under private monitoring (hence, we cannot apply dynamic programming techniques provided by <b>Abreu, Pearce and Stacchetti (1990)</b>).<br />
Indeed, in sharp contrast to the well-explored case of repeated games under public information (with the celebrated Folk Theorems by <b>Fudenberg, Levine and Maskin (1994)</b>), little had been known about the private monitoring case until recently. This is unfortunate because this class of games admits a wide range of applications such as collusion under <i>secret price-cutting</i>, exchange of goods with uncertain quality, and observation errors.<br />
In this paper, the authors introduce communication in the model with private monitoring to overcome the basic difficulty of this subject. Namely, they assume that at the end of each period players can communicate what they privately observed. The announced messages generate publicly observable history, and the players can play different equilibria depending on the history of communication. Facilitating communication as a coordination device, the authors construct equilibria in which players reveal their private information truthfully, and show that the folk theorem obtains under a set of mild assumptions.<br />
Finally, it should be noticed that their results provide a theoretical support for the conventional wisdom that communication plays an important role in sustaining collusion.<br />
<br />
<u>Introducing Communication</u><br />
To overcome the difficulties associated with private monitoring, the authors introduce communication which generates publicly observable history, and enables players to play different equilibria depending on the history of communication. Thanks to this communication, the recursive structure is recovered, and one can apply the results in previous literature, <i>e.g.</i>, the characterization of equilibrium payoff sets provided by <b>Abreu, Pearce and Stacchetti (1990)</b> and <b>Fudenberg and Levine (1994)</b>, or Folk Theorems given by <b>Fudenberg, Levine and Maskin (1994)</b>.<br />
<br />
<u>Main Result</u><br />
Folk theorem can obtain given Condition 1-3 listed below.<br />
<br />
<i>Condition 1</i><br />
If player j has a perfectly undetectable deviation at the minimax point for player i, j has no incentive to take it.<br />
<i>Condition 2</i><br />
If either player i or j (but not both) deviates with certain probabilities from a pure action profile wich generales an extremal point, the other players can statistically detect it.<br />
<i>Condition 3</i><br />
The players other than i and j can statistically discriminate player i's (possibly mixed) deviations from player j's at any pure action profile wich generales an extremal point.<br />
<br />
<i>Remark 1</i><br />
These conditions guarantee that every Pareto-efficient profile and each minimax strategy profile are enforceable, which is sufficient to establish the following Folk Theorem. Roughly speaking, Condition 2 and 3 correspond to the <i>pair-wise identifiability</i> condition and Condition 1 is replaced with the <i>individually full-rank</i> condition in <b>Fudenberg, Levine and Maskin (1994)</b>. The former is sufficient for Nash-threat version of the Folk Theorem, while the latter, in addition to the former, is sufficient for minimax version of the Folk Theorem.<br />
<br />
<i>Folk Theorem</i><br />
Suppose that there are more than two players (n>2) and the information structure satisfies Condition 1-3. Also suppose that the dimension of V is equal to the number of players. Then, any interior point in the set of feasible and individually rational payoffs can be achieved as a sequential equilibrium average payoff profile of the repeated game with communication, if the discount factor is close enough to 1.<br />
<br />
<u>Basic Idea</u><br />
In their communication model, one must induce each player to reveal her signal truthfully. To do so, they consider the equilibria in which each player's future payoff is independent of what she communicates. If this is the case, she is just indifferent as to what she says, and truthful revelation becomes a (weak) best response.<br />
As one might expect, this can be done if there are at least three players and the information structure can distinguish different players' deviations. A player's private information can be used to determine when and how to transfer payoffs among other players. (In two player case, this transfer is no longer available and hence the punishment of the other player necessarily invites welfare loss.)<br />
<br />
<i>Remark 2</i><br />
Roughly speaking, efficiency under publicly observable signals can be achieved if players can be punished by "transfers". If the information structure allows us to tell which player is suspect, we can transfer the suspect player's future payoff to the other players. This can provide the right incentives <i>without</i> causing <i>welfare loss</i>, compared to the case where all players are punished simultaneously.<br />
<i>Remark 3</i><br />
The authors also examine the possibility of providing strict incentives to tell the truth. It is shown that when private signals are correlated, there is a way to check if each player is telling the truth and we can construct the equilibria in which the players have strict incentives for truth telling.<br />
<i>Remark 4</i><br />
If there are two players, or if the information structure fails to distinguish different players' deviations, the above idea cannot be utilized. However, even in such cases, the Folk Theorem can be obtained by infrequent communication. This is based on the idea of <b>Abreu, Milgrom and Pearce (1991)</b> that delaying the release of information helps to achieve efficiency.<br />
<i>Remark 5</i><br />
To analyze the equilibria, they employ the method developed by <b>Fudenberg and Levine (1994)</b>. Instead of directly solving the repeated game, this method first considers simple contract problems associated with the stage game. Then, the solutions to those contract problems are utilized to construct the set of equilibrium payoffs of the repeated game.<br />
<br />
<u>Conclusion</u><br />
As I explained in Summary, the characterization of equilibria in repeated games with private monitoring have been an open question, because the games lack recursive structure and are hard to analyze. The present paper shows that communication is an important means to resolve possible confusion among players in the course of collusion during repeated play. Namely, as they introduce communication to generate publicly observable history, the authors recover the recursive structure and show a Folk Theorem.<br />
However, it should be noticed that they did not show the necessity of communication for a Folk Theorem. In principle, there is a possibility that a Folk Theorem holds even without communication. Indeed, the analyses of private monitoring have been rapidly developed (not yet achieve the complete characterization of equilibrium, though) since <b>Kandori and Matushima (1998)</b>. Therefore, I would like to mention the recent literature on repeated games with private monitoring, which concludes this essay (I relied on the excellent survey by <b>Kandori (2002)</b> for the remain part).<br />
<br />
<u>Recent Literature</u><br />
<b>Sekiguchi (1997)</b> is the first paper to construct an equilibrium which is apart from the repetition of the stage game equilibrium under private monitoring. He shows that efficiency can be approximately achieved (without communication) in the prisoner's dilemma model, if the information is almost perfect.<br />
<b>Bhaskar and Obara (2002)</b> extend Sekiguchi's construction to support any point Pareto dominating (d,d) (in the prisoner's dilemma), when monitoring is private but almost perfect. Sekiguchi-Bhaskar-Obara type of equilibrium is called "belief-based" equilibrium because they facilitate the <i>coordinated</i> punishment idea.<br />
<b>Piccione (2002)</b> and <b>Ely and Valimaki (2002)</b> introduce a completely different, useful technique to support essentially the same area under almost perfect monitoring. In contrast to "belief-based" equilibrium by S-B-O, their equilibrium utilizes the <i>uncoordinated</i> punishment idea, and hence is named "belief-free" equilibrium.<br />
<b>Matsushima (2004)</b> extends Ely and Valimaki's construction and show that their Folk Theorem continues to hold even if monitoring is far from perfect, as long as private signals are distributed independently.<br />
<b>Ely, Horner and Olszewski (2005)</b> give the most general results in two-player repeated games with private monitoring. Using "belief-free" strategies, they provide a simple and sharp characterization of equilibrium payoffs. While such strategies support a large set of payoffs, they are not rich enough to generate a Folk Theorem in most games besides the prisoner's dilemma, even when information is almost perfect.<br />
<br />
<u>References</u><br />
<b>Abreu, Milgrom and Pearce (1991)</b> "Information and timing in repeated partnerships" <i>Econometrica, 59</i><br />
<b>Abreu, Pearce and Stacchetti (1990)</b> "Toward a Theory of Discounted Repeated Games with Imperfect Monitoring" <i>Econometrica, 58</i><br />
<b>Bhaskar and Obara (2002)</b> "Belif-based Equilibria in the Repeated Prisoners' Dilemma with Private Monitoring" <i>Journal of Economic Theory, 102</i><br />
<b>Ely, Horner and Olszewski (2005)</b> "Belief-free Equilibria in Repeated Games" <i>Econometrica, 73</i><br />
<b>Ely and Valimaki (2002)</b> "A Robust Folk Theorem for the Prisoner's Dilemma" <i>Journal of Economic Theory, 102</i><br />
<b>Fudenberg and Levine (1994)</b> "Efficiency and Observability with Long-Run and Short-run Players" <i>Journal of Economic Theory, 62</i><br />
<b>Fudenberg, Levine and Maskin (1994)</b> "The folk theorem with imperfect public information" <i>Econometrica, 62</i><br />
<b>Kandori (2002)</b> "Introduction to Repeated Games with Private Monitoring" <i>Journal of Economic Theory, 102</i><br />
<b>Matsushima (2004)</b> "Repeated Games with Private Monitoring: Two Players" <i>Econometrica, 72</i><br />
<b>Piccione (2002)</b> "The Repeated Prisoner's Dilemma with Imperfect Private Monitoring" <i>Journal of Economic Theory, 102</i><br />
<b>Sekiguchi (1997)</b> "Efficiency in the Prisoner's Dilemma with Private Monitoring" <i>Journal of Economic Theory, 76</i>Anonymoushttp://www.blogger.com/profile/02591377447426426764noreply@blogger.com0tag:blogger.com,1999:blog-4640191214133605194.post-31167784436494225022015-02-03T18:34:00.000+09:002015-02-03T18:35:45.002+09:00New PapersMy new paper, "<a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2558661" target="_blank">Exit Option Can Make Cooperation Easier</a>" (joint with <a href="http://web.econ.keio.ac.jp/staff/takakofg/" target="_blank">Takako Fujiwara-Greve</a>) is uploaded at SSRN. The manuscript is very short (only 7 pages!). Please take a look if you are interested in how introducing exit option would affect cooperative incentives.<br />
<br />
A completely different paper on matching, "<a href="https://www.aeaweb.org/articles.php?doi=10.1257%2Fmic.7.1" target="_blank">Expanding "Choice" in School Choice</a>" (joint with Atila Abdulkadiroğlu, Yeon-Koo Che) was finally published in the <b><i>American Economic Journal: Microeconomics</i></b>. (as a <a href="https://www.aeaweb.org/articles.php?doi=10.1257%2Fmic.7.1" target="_blank">lead article</a>!) Our earlier paper, "<a href="https://www.aeaweb.org/articles.php?doi=10.1257/aer.101.1.399" target="_blank">Resolving Conflicting Preferences in School Choice: The "Boston Mechanism" Reconsidered</a>", appeared in the <i><b>American Economic Review</b></i>, was originally a part of this AEJ paper. Both are theoretical works but contains important policy implications on public school choice. It would be very nice if you could read (and hopefully cite) the articles :)Anonymoushttp://www.blogger.com/profile/02591377447426426764noreply@blogger.com0tag:blogger.com,1999:blog-4640191214133605194.post-48749514085042912482014-08-17T07:53:00.000+09:002014-08-18T06:29:44.136+09:00Are Economists Japan's New Exports?I created a <b>list of Japanese economists</b> who currently work at universities <b>outside</b> of Japan: <a href="https://sites.google.com/site/economistsjapan/list" target="_blank">Link</a>.<br />
<br />
Although the list is still incomplete (it may never be complete), the number of economists has already reached <b>100!</b> This is far beyond my expectation!! And so, making the list has taken much longer time than I expected...<br />
<br />
As you might know, getting an academic job at a good research university is very difficult, even if you have a Ph.D. from a top school. The list shows that Japanese economists, especially among the <b>young generation</b> (those graduated their colleges in the late 90's or later), are highly competitive. In recent years, it is not uncommon for Japanese junior economists to get international academic jobs posted in the <a href="https://www.aeaweb.org/joe/" target="_blank">JOE</a>.<br />
<br />
I wish my list help visualizing the great success of overseas Japanese economists, and stimulate domestic Japanese economists as well. By the way, a list of Japanese economists who work at<b> domestic universities</b> (with reasonably good research outputs) is now in preparation. Don't miss it!Anonymoushttp://www.blogger.com/profile/02591377447426426764noreply@blogger.com0tag:blogger.com,1999:blog-4640191214133605194.post-45530609295769621112014-06-11T19:20:00.000+09:002014-06-11T19:20:37.892+09:00Samurai in BrazilAnother cool TV commercial was made by <a href="http://www.cupnoodle.jp/" target="_blank">CUPNOODLE</a>. The Samurai in the movie is Kotaro TOKUDA, the world champion of the <a href="http://en.wikipedia.org/wiki/Freestyle_football" target="_blank">freestyle football</a>!<br />
<br />
<iframe allowfullscreen="" frameborder="0" height="315" src="//www.youtube.com/embed/Gk4vnVsx2wc" width="560"></iframe>Anonymoushttp://www.blogger.com/profile/02591377447426426764noreply@blogger.com0tag:blogger.com,1999:blog-4640191214133605194.post-63724423016399172502014-06-09T14:34:00.001+09:002014-06-09T14:34:36.192+09:00Special CM featuring #10A special TV commercial made by KIRIN BEER was broadcasted only on May 31, the last day of National Stadium (国立競技場). This CM features a Japanese football player Shinji Kagawa, the number 10 of our national team, whom I believe makes a big surprise in the FIFA world cup :) Go Shinji! Go Japan!!<br />
<br />
<iframe allowfullscreen="" frameborder="0" height="315" src="//www.youtube.com/embed/pMqLfvrtgMo" width="560"></iframe>Anonymoushttp://www.blogger.com/profile/02591377447426426764noreply@blogger.com0tag:blogger.com,1999:blog-4640191214133605194.post-78424103682483070602014-05-20T17:07:00.001+09:002014-05-20T17:07:52.644+09:00Athey et al. (2005)<i>Original article (<a href="http://blog.livedoor.jp/yagena/archives/50009423.html">link</a>) posted: 07/11/2005 </i><br />
<br />
<b>Athey, Atkeson and Kehoe (2005)</b> "The Optimal Degree of Discretion in Monetary Policy" <i>Econometrica</i><br />
<br />
The paper examines a monetary policy game in which the monetary authority has private information about the state of the economy. In the literature, two seminal papers, <b>Taylor (1983)</b> and <b>Canzoneri (1985)</b>, established no discretion should be left to the monetary authority if there is no such private information; the best outcomes can be achieved by rules that specify the action of the monetary authority as a function of observables. The introduction of private information creates a tension between discretion and time inconsistency. Tight constraints on discretion mitigate the time inconsistency problem in which the monetary authority is tempted to claim repeatedly that the current state of the economy justifies a monetary stimulus to output. However, tight constraints leave little room for the monetary authority to time-tune its policy to its private information. In short, loose constraints allow the monetary authority to do that fine tuning, but they also allow more room for the monetary authority to stimulate the economy with surprise inflation.<br />
<br />
Making use of dynamic mechanism design techniques, they find that the optimal mechanism is quite simple; for a broad class of economics, the optimal mechanism is static (policies depend only on the current report by the monetary authority) and can be implemented by setting an inflation cap, an upper limit on the permitted inflation rate. It is also shown that the optimal degree of monetary policy discretion turns out to shrink as the severity of the time inconsistency problem increases relative to the importance of private information.<br />
<br />
<br />
<u>Comment</u><br />
The results they derive seem to be very interesting. In particular, the “inflation cap” result is directly related to the optimal inflation targets and has strong importance with actual monetary policies. As they mention, their work provides one theoretical rationale for the type of constrained discretion advocated by <b>Bernanke and Mishkin (1997)</b>. This paper might become a must-read paper for those who work in monetary policies.<br />
<br />
<br />
<u>References</u><br />
<b>Bernanke and Mishkin (1997)</b> "Inflation Targeting: A New Framework for Monetary Policy?" <i>J. of Econ, Perspectives, 11</i><br />
<b>Canzoneri (1985)</b> "Monetary Policy Games and the Role of Private Information" <i>AER, 75</i><br />
<b>Taylor (1983)</b> "Rules, Discretion, and Reputation in a Model of Monetary Policy: Comments" <i>JME, 12</i>Anonymoushttp://www.blogger.com/profile/02591377447426426764noreply@blogger.com0tag:blogger.com,1999:blog-4640191214133605194.post-43164998108652670402014-05-05T14:45:00.002+09:002014-05-20T17:09:20.389+09:00Echenique (2003)<blockquote class="tr_bq">
Echenique, F. (2003), The Equilibrium Set of a Two Player Game with Complementarities is a Sublattice, <i>Economic Theory</i>, 22: 903-905. <a href="http://link.springer.com/article/10.1007%2Fs00199-002-0337-0?" target="_blank">Link</a> </blockquote>
<blockquote class="tr_bq">
<b>Summary </b>I prove that the equilibrium set in a two-player game with complementarities, and totally ordered strategy spaces, is a sublattice of the joint strategy space.</blockquote>
<br />
It is widely known that in <b>games with strategic complementarities (GSC)</b>, i.e., best reply correspondings are monotone increasing for all players, <b>the set of pure-strategy Nash equilibria forms a non-empty complete lattice</b>. This result implies the existence of smallest and largest Nash equilibria.<br />
<br />
The current paper looks further into the structure of the equilibrium set of GSC, and shows that under certain restrictions <b>the equilibrium set becomes not just a complete lattice but also a sublattice</b>, as is written down in the Summary above.<br />
<br />
The practical importance of this result, according to the author, is:<br />
<blockquote class="tr_bq">
If the equilibrium set of a game is a sublattice, then we can find new equilibria from knowing that two profiles are equilibria, and <b>by taking the componentwise join and meet of players’ strategies</b>.</blockquote>
<br />
Note that we cannot obtain such strong property by a complete lattice structure alone. In this sense, a sublattice is indeed critical. The proof is extremely simple, which makes use of the observation that (a) when there are only 2 players and (b) their strategy spaces are completely ordered, (c) <b>the other player's strategy must be completely ordered</b>. The property (c) does not hold either (a) or (b) is not satisfied. Once (c) is verified, the rest of the proof is just to follow the definition of GSC.<br />
<br />
<u>My random thought</u>: A sublattice property also arises in one-to-one two-sided matching markets (but neither in one-to-many nor many-to-many markets). I'm wondering if the idea of this paper can be somehow connected to the sublattice property of the set of stable matchings.<br />
<br />
<u>A final remark</u>: A nicely written but a bit uninformative note.<br />
<br />Anonymoushttp://www.blogger.com/profile/02591377447426426764noreply@blogger.com0tag:blogger.com,1999:blog-4640191214133605194.post-90535586902671633152014-05-03T09:30:00.000+09:002014-05-20T17:08:54.635+09:00Sotomayor (1996)<blockquote class="tr_bq">
Sotomayor, M. (1996), A non constructive elementary proof of the existence of stable marriages, <i>Games and Economic Behavior</i>, 13: 135–7. <a href="http://www.sciencedirect.com/science/article/pii/S0899825696900299" target="_blank">Link</a> </blockquote>
<blockquote class="tr_bq">
<b>Abstract</b> Gale and Shapley showed in their well known paper of 1962 (<i>Amer. Math. Monthly</i> <b>69</b>, 9–14) that stable matchings always exist for the marriage market. Their proof was constructed by means of an algorithm. Except for the existence of stable matchings, all the results for the marriage market which were proved by making use of the Gale and Shapley algorithm could also be proved without the algorithm. The purpose of this note is to fill out this case. We present here a nonconstructive proof of the existence of a stable matching for the marriage market, which is quite short and simple and applies directly to both cases of preferences: strict and nonstrict. </blockquote>
<br />
In this short note, the author establishes the existence of stable matchings for the marriage market, i.e., one-to-one matching market, without employing any algorithms. Her key idea is a new concept that she calls a <b>simple matching</b>, which is defined as follows:<br />
<blockquote class="tr_bq">
A matching is <b>simple</b> if, in the case a blocking pair <i>(m, w)</i> exists, <i>w</i> is single.</blockquote>
<br />
Since the set of simple matchings is nonempty and finite, there must exist a specific matching that I call here (for notational convenience) an <b>M-simple matching</b>:<br />
<blockquote class="tr_bq">
A simple matching is <b>M-simple</b> if it cannot be (weakly) Pareto dominated for men by any other simple matching.</blockquote>
<br />
Then, she shows that such <b>M-simple matching is stable</b>. The basic logic is that the existence of blocking pair necessarily induces Pareto improvement for men (since <i>w</i> is single), which contradicts to the Pareto efficiency of M-simple matching for men.<br />
<br />
As the author claims, the proof is very shout and simple, yet quite novel I think. To explain her proof strategy in a different way, she<br />
<br />
<ol>
<li>focuses on the <b>subset of stable matchings</b>, </li>
<li>characterize it by "M-simple matching," and</li>
<li>shows that the set is non-empty. </li>
</ol>
<br />
It is immediate that M-simple matching is <b>unique</b> and coincides with <b>M-optimal stable matching</b> when all the <b>preferences are strict</b>. In this way, we can see that her idea is somewhat related to <b>the existence of one-sided optimal stable matchings</b>, a widely known result in the literature.<br />
<br />
<u>A minor remark</u>: The definition of matching in the paper incorporates <b>individual rationality</b>, and consequently that of of stable matchings pays attention only on blocking <b>pairs</b>. This looks a bit non-standard while nothing is lost in her analysis.<br />
<br />
<u>A final remark</u>: I like this paper very much :)Anonymoushttp://www.blogger.com/profile/02591377447426426764noreply@blogger.com0tag:blogger.com,1999:blog-4640191214133605194.post-28311105111880715422014-05-01T16:24:00.001+09:002014-05-01T16:26:41.189+09:00How did GS algorithm come out?Roth, A. (2008), Deferred acceptance algorithms: history, theory, practice, and open questions, <i>International Journal of Game Theory</i>, 36: 537-569.<br />
<br />
In this survey article on the Gale-Shapley's deferred acceptance algorithm, Al Roth mentions (in footnote 3) an amazing story about how GS discovered the algorithm (which of course established the theory of two-sided matchings):<br />
<br />
<blockquote class="tr_bq">
At his birthday celebration in Stony Brook on 12 July 2007, David Gale related the story of his collaboration with Shapley to produce GS by saying that <b>he (Gale) had proposed the model and definition of stability, </b>and had sent to a number of colleagues the conjecture that a stable matching always existed. By return mail<b>, Shapley proposed the deferred acceptance algorithm and the corresponding proof</b>. </blockquote>
<br />Anonymoushttp://www.blogger.com/profile/02591377447426426764noreply@blogger.com0tag:blogger.com,1999:blog-4640191214133605194.post-83183488803299161322014-03-18T02:20:00.000+09:002014-03-18T02:20:46.034+09:00IO Seminar (Rysman)<i>Original article (<a href="http://blog.livedoor.jp/yagena/archives/50009105.html">link</a>) posted: 04/11/2005</i> <br />
<br />
<b>Gowrisankaran and Rysman</b> "Dynamics of Consumer Demand for New Durable Consumer Goods"<br />
<br />
The paper proposes a dynamic model of consumer preferences for new consumer durable goods and estimates it. Consumers in their model are heterogeneous. They are assumed to choose between purchasing a current product and waiting for future products, making rational forecasts about the future distribution of prices and qualities. Two actual industries, DVD players and digital cameras are estimated.<br />
<br />
<u>Comment</u><br />
The model seems to be attractive because it examines dynamic aspects and heterogeneity of consumers that have not been done successfully in the literature, although everyone agrees the importance. I am bit wondering if incorporating the uncertain of the future markets has serious effects to the estimated results or not. In their model, consumers fully know when and what kind of products will appear. However, if the future market is uncertain in the sense that consumers only know the probability distribution of future products, there might be an additional waiting value. That is, consumers may be better off by postponing their purchase to resolve uncertainty. This option value of waiting is known as "Real Option" in finance. In real world, the arrival of new products typically depends on the result of R&D investments which is presumably stochastic. So, even firms cannot exactly know the schedule of future products in many cases. Therefore, to incorporate future uncertainty is an important extension I think.Anonymoushttp://www.blogger.com/profile/02591377447426426764noreply@blogger.com0tag:blogger.com,1999:blog-4640191214133605194.post-78010202048775441122013-11-25T09:49:00.000+09:002014-03-18T02:25:22.524+09:00Review on "The New Geography of Jobs" (by Enrico Moretti)I found a nice review on the following book written by Aaron M. Renn in his <a href="http://www.urbanophile.com/2012/09/23/review-the-new-geography-of-jobs/" target="_blank">blog</a>:<br />
<br />
<b><i>The New Geography of Jobs</i></b> by Enrico Moretti<br />
<iframe frameborder="0" marginheight="0" marginwidth="0" scrolling="no" src="http://rcm-fe.amazon-adsystem.com/e/cm?lt1=_blank&bc1=000000&IS2=1&bg1=FFFFFF&fc1=000000&lc1=0000FF&t=yyasuda-22&o=9&p=8&l=as4&m=amazon&f=ifr&ref=ss_til&asins=0544028058" style="height: 240px; width: 120px;"></iframe><br />
<div>
<br /></div>
Aaron spells out quite a few suggestions and cautions on the materials, yet his last paragraph below clearly indicates appreciation of what this new book achieved:<br />
<blockquote class="tr_bq">
Despite a few things I thought could have been more developed or stronger, I think that, as a book making the case for the innovation economy and what it means, The New Geography of Jobs is a strong one, and I again would suggest it to people in cities that have not yet fully found their place in the new century.</blockquote>
Anonymoushttp://www.blogger.com/profile/02591377447426426764noreply@blogger.com0tag:blogger.com,1999:blog-4640191214133605194.post-36940387753025779552013-04-27T16:47:00.001+09:002013-04-27T16:47:52.806+09:00In Memory of Prof. HayamiI found an interesting article (through <a href="https://twitter.com/yasusawada/status/327975278498443264" target="_blank">this tweet</a> by Prof. Sawada) about Prof. Yujiro HAYAMI, a leading agricultural/development economist who passed away last December:<br />
"<a href="http://www.thefinancialexpress-bd.com/index.php?ref=MjBfMDRfMTZfMTNfMV82XzE2NjQ0Nw" target="_blank">Death of a layman's economist</a>" (by Prof. Abdul Bayes at Financial Express)<br />
<div class="p2">
<br /></div>
<div class="p2">
The article says:</div>
<blockquote class="tr_bq">
Leaving aside for a moment his hundreds of technical articles published in reputed international journals, I shall take the privilege of citing from his famous book on development economics that I have mentioned before. Using the concept of <b>Prisoner's Dilemma</b> - when two persons convicted of a murder are kept in separate cells without one knowing what the other person is saying to the investigating officer - <b>he illustrates how much loss the inability among people to establish cooperative relationship due to lack of communication and trust could generate for the society</b>. This loss can happen in all economic transactions. "For example, in the transaction of a commodity, a buyer may try to reduce payment to a seller on the false charge of quality deficiency in delivered commodities. Then, the seller will deliver low-quality commodities thereafter. As their mutual distrust is heightened, they will stop transactions and thereby close off a mutually profitable business opportunity".</blockquote>
<div class="p2">
Prof. Hayami's famous book mentioned above is the following.</div>
<div class="p2">
</div>
<div class="p2">
<iframe frameborder="0" marginheight="0" marginwidth="0" scrolling="no" src="http://rcm-jp.amazon.co.jp/e/cm?lt1=_blank&bc1=000000&IS2=1&bg1=FFFFFF&fc1=000000&lc1=0000FF&t=yyasuda-22&o=9&p=8&l=as4&m=amazon&f=ifr&ref=ss_til&asins=0199272719" style="height: 240px; width: 120px;"></iframe></div>
<div class="p2">
It is very interesting to know that Hayami has applied game theoretical ideas to his work on developmental studies. I should have tried to talk with him (Actually, Prof. Hayami was my colleague in <a href="http://www.grips.ac.jp/en/" target="_blank">GRIPS</a>...)</div>
<div class="p2">
<br /></div>
<blockquote class="tr_bq">
Hayami cites another example regarding the costs of non-cooperation: "If employment is so insecure that employees may be discharged any moment, they would make little effort to acquire specific knowledge and skill for efficient work in his organisation. Their employer would then be inclined to discharge these employees for their lack of effort. In this way, cooperative relationship will not be established with the little accumulation of skill and knowledge needed for efficient functioning of this organisation". </blockquote>
<blockquote class="tr_bq">
According to Hayami hypothesis, <b>if mutual trust between particular individuals is thus elevated to a moral code in the society, huge savings would be made in transaction costs</b>. If such cooperative negotiations could be guaranteed, business plans could be promoted ex-post much more flexibly and efficiently than by rigid ex-ante specification of contingencies, especially in long-term transactions subject to high risk and uncertainty. <b>By and large, trust is a social capital that needs to be nurtured, if necessary, by structuring the cooperative relations into a hierarchical organisation</b>. If mutual trust between workers and management ceases to work, the cost of monitoring and enforcing the contract would be large.</blockquote>
<blockquote class="tr_bq">
(made <b>bold</b> by yyasuda)</blockquote>
Anonymoushttp://www.blogger.com/profile/02591377447426426764noreply@blogger.com2tag:blogger.com,1999:blog-4640191214133605194.post-9827635977216372152012-06-28T23:51:00.000+09:002013-04-27T15:54:16.805+09:00Uzawa-Equivalence Theorem<br />
I found an interesting section in a nice intermediate textbook on <b>General Equilibrium Theory</b> by Ross M. Starr:<br />
<br />
<iframe frameborder="0" marginheight="0" marginwidth="0" scrolling="no" src="http://rcm-jp.amazon.co.jp/e/cm?lt1=_blank&bc1=000000&IS2=1&bg1=FFFFFF&fc1=000000&lc1=0000FF&t=yyasuda-22&o=9&p=8&l=as4&m=amazon&f=ifr&ref=ss_til&asins=0521533864" style="height: 240px; width: 120px;"></iframe><br />
<br />
<br />
In Section 18.4 titled "Uzawa-Equivalence Theorem" shows the equivalence of two existence theorems:<br />
<br />
<ol>
<li><span style="background-color: white;">The existence of <b>equilibrium in an economy</b> characterized by a <b>continuous excess demand function</b> fulfilling <b>Walras' Law</b> </span></li>
<li><span style="background-color: white;">The <b>Brouwer Fixed-Point Theorem</b></span></li>
</ol>
<br />
Interestingly, the two apparently distinct results are <b>mathematically equivalent</b>, which is originally shown by<span style="background-color: white;"> Hirofumi Uzawa (1962) in his short note: "Walras' Existence Theorem and Brouwer's Fixed Point Theorem." <i>Economic Studies Quarterly</i>, 8: 59-62.</span><br />
<br />
The importance of the theorem is stressed by Prof. Starr as follows:<br />
<blockquote class="tr_bq">
What are we to make of the Uzawa Equivalence Theorem? It says that use of the Brouwer Fixed-Point Theorem is not merely one way to prove the existence of equilibrium. In a fundamental sense, it is the only way. <b>Any alternative proof of existence will include, inter alia, an implicit proof of the Brouwer Theorem. Hence, this mathematical method is essential; one cannot pursue this branch of economics without the Brouwer Theorem</b>. If Walras (1874) provided an incomplete proof of existence of equilibrium, it was in part because the necessary mathematics was not yet available.</blockquote>
The paper is included in <a href="http://ebooks.cambridge.org/chapter.jsf?bid=CBO9780511664496&cid=CBO9780511664496A077" target="_blank">this volume</a> of Uzawa's collected papers. (I thank <a href="http://homepages.ed.ac.uk/kkawamur/" target="_blank">Prof. Kawamura</a> for the information.)Anonymoushttp://www.blogger.com/profile/02591377447426426764noreply@blogger.com0tag:blogger.com,1999:blog-4640191214133605194.post-6262181024020254052012-03-16T01:07:00.001+09:002012-03-16T01:10:06.440+09:00What is an Auction?I found a nice introductory description of <b>auction</b> from the viewpoint of economics or game theory in the following textbook on <b>auction theory</b>:<br />
<iframe frameborder="0" marginheight="0" marginwidth="0" scrolling="no" src="http://rcm-jp.amazon.co.jp/e/cm?lt1=_blank&bc1=000000&IS2=1&bg1=FFFFFF&fc1=000000&lc1=0000FF&t=yyasuda-22&o=9&p=8&l=as4&m=amazon&f=ifr&ref=ss_til&asins=0199275998" style="height: 240px; width: 120px;"></iframe><br />
<br />
<div><br />
</div><div>The below is the (partial) quotation from the chapter 2.3.1, titled "What is an Auction?":</div><br />
<blockquote>[A]uctions Have become an effective tool to implement public policy. Their use now ranges from the allocation of <b>radio spectrum</b> necessary for mobile communication, to spot markets trading <b>electricity</b> and <b>pollution permits</b>, as well as being widely used in <b>government procurement</b>. </blockquote><blockquote>We can now define an auction by one of its central properties: as a market clearing mechanism, to equate demand and supply. Other market mechanisms include <b>fixed price sales</b> (as in a supermarket) or <b>bargaining</b> (as in the negotiated sale of a house or a used car). Within the class of market mechanisms which allocate scarce resources, one particular characteristic of the auction is that the <b><i>price formation process is explicit</i></b>. That is, the rules that determine the final price are usually well-understood by all parties involved. </blockquote><blockquote>Auctions are often used in the sale of goods for which there is <b>no established market</b>. Auctions were instrumental in the <b>mass privatization in Eastern Europe</b> given the absence of a price system that could guide the valuation process for firms being privatized. <b>Rare or unique objects</b> are typically sold in auctions as the markets for these objects are likely to be very <b>thin</b>. However, auctions are also used to sell <b>Treasury bills</b> and the markets for these assets are very <b>thick</b>. The reason is that only governments can legally produce such bonds and therefore the sale in an auction is an exercise in <b>revenue maximization</b>. </blockquote><blockquote><b><i>Auctions are more flexible than a fixed price sale and perhaps less time-consuming than negotiating a price</i></b>. Auctions are used to sell hundreds of goods, such as bales of wool or used cars, in a few hours. One can imagine how many hours it would take to sell 100 used cars through negotiated sales.</blockquote>Anonymoushttp://www.blogger.com/profile/02591377447426426764noreply@blogger.com0tag:blogger.com,1999:blog-4640191214133605194.post-42856481309356613792011-11-07T22:30:00.000+09:002011-11-07T22:30:09.991+09:00Lucas' View on Free TradeContinued from the previous <a href="http://yyasuda.blogspot.com/2011/11/romer-vs-uzawa-lucas.html" target="_blank">post</a>, I would like to quote a couple of paragraphs from the Lucas' book on economic growth. In the introductory chapter, the author mentions the connection between <b>international trade and economic growth</b>, which illustrates his (and perhaps most economists') view on free trade. While this part is written as an introduction to Chapter 3 ("Making a Miracle"), his evocative illustration provides <b>better economic understanding and insight of free trade </b>in general.<b> </b>This could also contribute to <b>the debate on free trade</b> (especially, on <b>TPP</b> issues in Japan).<br />
<br />
<blockquote class="tr_bq">The <b>most spectacular growth successes of the postwar world have been associated with growth in international trade</b>. This is the single empirical generalization that strikes everyone who is trying to understand economic growth in the last 50 years. Countries like Japan, South Korea, Taiwan, Hong Kong, and Singapore began producing goods they had never made before and exporting them to the United States, successfully competing with American and European producers who had the advantages of decades of experience. At the other extreme, the Communist countries that cut themselves off from trade with the West stagnated, as did India and many Latin American economies that used tariff walls to protect inefficient domestic producers from outside competition. These observations seem to provide further confirmation of the usual economic arguments in favor of free trade, arguments that <b>seem to me as true and as relevant now as they were</b> when Hume an Smith first articulated them. </blockquote><blockquote class="tr_bq">But <b>classis trade theory does not really help in understanding the connections between trade and growth that we see in the postwar period</b>. One problem is that while some of the Asian successes - in Taiwan and Honk Kong - were associated with liberal trade policy, others - Japan, Korea, and Singapore - occurred in <b>heavily managed environments</b>, under policies that Smith would certainly have criticized as mercantilist. (I agree with Smith that the mercantilist economies would have hared even better without managed trade, but this view is obviously not a straightforward statement of the facts.) A second, more important, barrier to the application of the theory of gains-from-trade to postwar growth is that<b> quantitative versions of the theory do not yield estimated benefits of tariff reduction</b> that are of the right order of magnitude to account for the growth miracles. (...) These models support a compelling case for the importance of free trade. <b>What they do not provide, though, is a theoretical link between free trade and economic growth that is both rapid and sustained</b>.</blockquote>Anonymoushttp://www.blogger.com/profile/02591377447426426764noreply@blogger.com0tag:blogger.com,1999:blog-4640191214133605194.post-50252679716964750702011-11-03T19:37:00.000+09:002011-11-03T19:37:58.342+09:00Romer vs. Uzawa-LucasAs I illustrated in the previous <a href="http://yyasuda.blogspot.com/2011/10/growth-higher-than-rational.html" target="_blank">post</a>, the most cited paper of Robert Lucas is written about (endogenous) economic growth. Surprisingly, its citation is <b>even greater than those of Paul Romer</b> (1986a, 1986b), the pioneering papers in this field (according to Google Scholar).<br />
To understand the essence of these models and their differences, I have checked the Lucas' book on economic growth (this is actually a volume of collected papers), and found insightful exposition.<br />
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In the Introduction of the book, the author first provides a nice summary of Paul Romer's pioneering works.<br />
<blockquote class="tr_bq"><b>Paul Romer (1986a, 1986b) worked out an explicit model of a growing economy that reconciled the opposing forces of increasing an diminishing returns</b>, and did so in a way that generated sustained production growth and was at the same time consistent with market equilibrium of many, competing producers. The economics of Romer's model are closely related to the ideas of Allyn Young (1928), but <b>his development of these ideas is entirely new</b>. In the theory, goods are produced with a <b>single kind of capital</b> - Romer called it "knowledge capital" - and each producer's output depends both on his own stock of this capital and on the stock held by other firms. Aggregating over producers, production in the economy as a whole is subject to increasing returns: Every 10 percent increase in the total stock of knowledge capital leads to an output increase of more than 10 percent. But an individual producer, who has no control over the economy's total stock of capital, faces diminishing returns to increases in his own capital. <b>Thus the fact of increasing inequality among the economies of the world is reconciled with the absence of a tendency to monopolization within each economy</b>.</blockquote><br />
Then, the author relates Romer's idea with his own (Lucas, 1988).<br />
<blockquote class="tr_bq">Section 4 of my "On the Mechanics of Economic Development" constructs a model designed to deal with the problem posed by diminishing returns along the lines proposed by Romer. In doing this, <b>I found it more convenient to make use of a model of Uzawa (1965) in which there is both physical and human capital but returns, private and social, depend only on the ratio of these two stocks</b>. The theory replaces the increasing returns assumed by Romer with a kind of constant returns, yielding a system which is easier to analyze than Romer's but which circumvents the problems of diminishing returns in a similar way.<br />
The human capital model I used involves an external effect of human capital, patterned on the external effect of knowledge capital that Romer introduced. But in my analysis, <b>this external effect is not needed to ensure the existence of a competitive equilibrium the way it is in Romer's model</b>. If this effect is removed, the model continues to be internally consistent and is in fact even easier to analyze. [footnote] </blockquote><blockquote class="tr_bq">[footnote]: Rebelo (1991) stripped the model down to its simplest one-capital-good "<i>Ak</i>" form. Caballe and Santos (1993) provide an elegant analysis of the off-balanced-path dynamics of an Uzawa model without a production externality.</blockquote><br />
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<u>References</u><br />
Caballe, Jordi, and Manuel S. Santos (1993) "On Endogenous Growth with Physical and Human Capital." <i>Journal of Political Economy</i>, 101: 1042-1067. [313]<br />
Lucas, Robert E., Jr (1988) "On the mechanics Economic Development." <i>Journal of Monetary Economics</i>, 22: 3-42. [13791]<br />
Rebelo, Sergio (1991) "Long Run Policy Analysis and Long Run Growth." <i>Journal of Political Economy</i>, 99: 500-521. [2748]<br />
Romer, Paul M. (1986a) "Increasing Returns and Long-Run Growth." <i>Journal of Political Economy</i>, 94: 1002-1037. [12099]<br />
Romer, Paul M. (1986b) "Cake Eating, Chattering, and Jumps: Existence Results for Variational Problems." <i>Econometrica</i>, 54: 897-908. [58]<br />
Uzawa, Hirofumi (1965) "Optimum Technical Change in an Aggregative Model of Economic Growth." <i>International Economic Review</i>, 6: 18-31. [1142]<br />
Young, Allyn A. (1928) "Increasing Returns and Economic Progress." <i>Economic Journal</i>, 38: 527-542. [2014]<br />
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(Number in [ ] shows the citation in Google Scholar.)Anonymoushttp://www.blogger.com/profile/02591377447426426764noreply@blogger.com0tag:blogger.com,1999:blog-4640191214133605194.post-2658799032725010652011-10-27T21:59:00.001+09:002011-10-27T22:06:07.953+09:00Growth "higher" than Rational ExpectationsProfessor <b>Robert E. Lucas Jr.</b> at Chicago Univ. is perhaps the most famous macroeconomist in the (at least academic) world. He is especially well-known to his series of works on <b>rational expectations</b>. In fact, he received the Nobel Prize in 1995 due to this contribution:<br />
<blockquote class="tr_bq">The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1995 was awarded to Robert E. Lucas Jr. "<i>for having developed and applied the hypothesis of rational expectations, and thereby having transformed macroeconomic analysis and deepened our understanding of economic policy</i>" (from the <a href="http://www.nobelprize.org/nobel_prizes/economics/laureates/1995/">official website</a> of the Nobel Prize).</blockquote>However, somewhat surprisingly, I just noticed that Professor Lucas' most cited paper is NOT about rational expectations. According to Google Scholar (search result is <a href="http://scholar.google.com/scholar?q=robert+lucas">here</a>), his most cited paper is "<a href="http://www.sciencedirect.com/science/article/pii/0304393288901687">On the mechanics of economic development</a>" (<i>Journal of Monetary Economics</i>, 1988), which is cited <b>more than three times</b> as much as the second one, "Econometric policy evaluation: A critique." The citation of the former exceeds <b>13,000</b>, which is amazingly high in the field of Economics (maybe in other fields, too).<br />
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The "mechanics" paper is a seminal pioneering work in <b>endogenous growth theory</b> and is built on the idea of <b>Uzawa</b> ("<a href="http://www.jstor.org/pss/2525621">Optimum Technical Change in An Aggregative Model of Economic Growth</a>", <i>International Economic Review</i>, 1965); because of this, the model is often called <b>Uzawa-Lucas model</b>. Professor Paolo Mattana, the author of "The Uzawa-Lucas Endogenous Growth Model" explain the model as follows:<br />
<blockquote class="tr_bq">R. Lucas, in the late 1980s, writes a path-breaking paper: by taking some initial intuitions of Uzawa (1965) a step further, he proposes a <b>two-sector capital accumulation growth model where human capital plays the role of the key variable</b> through which ongoing growth can be generated. Human capital is understood to refer, in Becker's tradition, to the skills and knowledge intensity of the labor force and is accumulated in the learning (or educational) sector via a linear constant-returns to scale technology, only requiring older vintages of human capital. <b>The Uzawa-Lucas economy differs in a fundamental way from the standard neoclassical model</b>; since a lower bound to the return of accumulation is implicitly imposed, the long-run growth rate basically reflects an endogenous equilibrium where only the "primitives" of a specific economy (endowments, technology and preferences) are relevant. Other factors, such as increasing population or exogenous technical progress, crucial in the traditional theory, have, conversely, no critical influence.</blockquote><br />
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</div>Anonymoushttp://www.blogger.com/profile/02591377447426426764noreply@blogger.com0tag:blogger.com,1999:blog-4640191214133605194.post-10655512719296887862011-07-18T17:37:00.000+09:002011-07-18T17:37:29.607+09:00Dream Comes True: Japan edge USA!Congratulations! Many many many thanks to Nadeshiko JAPAN!! We all are very proud of you :)<br />
<blockquote>Japan are FIFA Women’s World Cup™ champions for the first time after a penalty shootout victory over USA, following a drama-charged 2-2 draw in Frankfurt. (<a href="http://www.fifa.com/womensworldcup/matches/round=255989/match=300144437/index.html">Link</a> to FIFA official site)</blockquote><br />
What a wonderful moment! They really became world champion!!<br />
<iframe allowfullscreen="" frameborder="0" height="390" src="http://www.youtube.com/embed/vAQUOTVhPiA?hd=1" width="640"></iframe>Anonymoushttp://www.blogger.com/profile/02591377447426426764noreply@blogger.com0