New articles on Economics

[1] 2303.12988

Characterizing the Feasible Payoff Set of OLG Repeated Games

We study the set of feasible payoffs of OLG repeated games. We first provide a complete characterization of the feasible payoffs. Second, we provide a novel comparative statics of the feasible payoff set with respect to players' discount factor and the length of interaction. Perhaps surprisingly, the feasible payoff set becomes smaller as the players' discount factor approaches to one.

[2] 2303.13218

Functional-Coefficient Quantile Regression for Panel Data with Latent Group Structure

This paper considers estimating functional-coefficient models in panel quantile regression with individual effects, allowing the cross-sectional and temporal dependence for large panel observations. A latent group structure is imposed on the heterogenous quantile regression models so that the number of nonparametric functional coefficients to be estimated can be reduced considerably. With the preliminary local linear quantile estimates of the subject-specific functional coefficients, a classic agglomerative clustering algorithm is used to estimate the unknown group structure and an easy-to-implement ratio criterion is proposed to determine the group number. The estimated group number and structure are shown to be consistent. Furthermore, a post-grouping local linear smoothing method is introduced to estimate the group-specific functional coefficients, and the relevant asymptotic normal distribution theory is derived with a normalisation rate comparable to that in the literature. The developed methodologies and theory are verified through a simulation study and showcased with an application to house price data from UK local authority districts, which reveals different homogeneity structures at different quantile levels.

[3] 2303.13281

Uncertain Prior Economic Knowledge and Statistically Identified Structural Vector Autoregressions

This study proposes an estimator that combines statistical identification with economically motivated restrictions on the interactions. The estimator is identified by (mean) independent non-Gaussian shocks and allows for incorporation of uncertain prior economic knowledge through an adaptive ridge penalty. The estimator shrinks towards economically motivated restrictions when the data is consistent with them and stops shrinkage when the data provides evidence against the restriction. The estimator is applied to analyze the interaction between the stock and oil market. The results suggest that what is usually identified as oil-specific demand shocks can actually be attributed to information shocks extracted from the stock market, which explain about 30-40% of the oil price variation.

[4] 2303.13295

Information transmission in monopolistic credence goods markets

We study a general credence goods model with $N$ problem types and $N$ treatments. Communication between the expert seller and the client is modeled as cheap talk. We find that the expert's equilibrium payoffs admit a geometric characterization, described by the quasiconcave envelope of his belief-based profits function under discriminatory pricing. We establish the existence of client-worst equilibria, apply the geometric characterization to previous research on credence goods, and provide a necessary and sufficient condition for when communication benefits the expert. For the binary case, we solve for all equilibria and analyze their welfare properties.

[5] 2303.13319

Why Are Immigrants Always Accused of Stealing People's Jobs?

Immigrants are always accused of stealing people's jobs. Yet, in a neoclassical model of the labor market, there are jobs for everybody and no jobs to steal. (There is no unemployment, so anybody who wants to work can work.) In standard matching models, there is some unemployment, but labor demand is perfectly elastic so new entrants into the labor force are absorbed without affecting jobseekers' prospects. Once again, no jobs are stolen when immigrants arrive. This paper shows that in a matching model with job rationing, in contrast, the entry of immigrants reduces the employment rate of native workers. Moreover, the reduction in employment rate is sharper when the labor market is depressed -- because jobs are more scarce then. Because immigration reduces labor-market tightness, it makes it easier for firms to recruit and improves firm profits. The overall effect of immigration on native welfare depends on the state of the labor market. It is always negative when the labor market is inefficiently slack, but some immigration improves welfare when the labor market is inefficiently tight.

[6] 2303.13406

Sequential Cauchy Combination Test for Multiple Testing Problems with Financial Applications

We introduce a simple tool to control for false discoveries and identify individual signals when there are many tests, the test statistics are correlated, and the signals are potentially sparse. The tool applies the Cauchy combination test recursively on a sequence of expanding subsets of $p$-values and is referred to as the sequential Cauchy combination test. While the original Cauchy combination test aims for a global statement over a set of null hypotheses by summing transformed $p$-values, the sequential version determines which $p$-values trigger the rejection of the global null. The test achieves strong familywise error rate control and is less conservative than existing controlling procedures when the test statistics are dependent, leading to higher global powers and successful detection rates. As illustrations, we consider two popular financial econometric applications for which the test statistics have either serial dependence or cross-sectional dependence: monitoring drift bursts in asset prices and searching for assets with a nonzero alpha. The sequential Cauchy combination test is a preferable alternative in both cases in simulation settings and leads to higher detection rates than benchmark procedures in empirics.

[7] 2303.13409

Persuaded Search

We consider a sequential search environment in which the searching agent does not observe the quality of goods. The agent can contract with a profit-maximizing principal who sells a signal about a good's quality but cannot commit to future contracts. The agent is willing to pay a high price for a more informative signal today, but an agent who anticipates high prices in the future is less likely to continue searching due to a low continuation value, thereby reducing the principal's future profits. We show that there is an essentially unique stationary equilibrium in which the principal (i) induces the socially efficient stopping rule, (ii) fully extracts the surplus generated from search, and (iii) persuades the agent against settling for marginal quality goods, thus extending the duration of rent extraction. Our results demonstrate that the principal would not gain from long-term commitment power or considering complicated, non-stationary contracts.