New articles on Economics

[1] 2107.12494

A Unifying Framework for Testing Shape Restrictions

This paper makes the following econometric contributions. First, we develop a unifying framework for testing shape restrictions based on the Wald principle. Second, we examine the applicability and usefulness of some prominent shape enforcing operators in implementing our test, including rearrangement and the greatest convex minorization (or the least concave majorization). In particular, the influential rearrangement operator is inapplicable due to a lack of convexity, while the greatest convex minorization is shown to enjoy the analytic properties required to employ our framework. The importance of convexity in establishing size control has been noted elsewhere in the literature. Third, we show that, despite that the projection operator may not be well-defined/behaved in general non-Hilbert parameter spaces (e.g., ones defined by uniform norms), one may nonetheless devise a powerful distance-based test by applying our framework. The finite sample performance of our test is evaluated through Monte Carlo simulations, and its empirical relevance is showcased by investigating the relationship between weekly working hours and the annual wage growth in the high-end labor market.

[2] 2107.12552

Estimating high-dimensional Markov-switching VARs

Maximum likelihood estimation of large Markov-switching vector autoregressions (MS-VARs) can be challenging or infeasible due to parameter proliferation. To accommodate situations where dimensionality may be of comparable order to or exceeds the sample size, we adopt a sparse framework and propose two penalized maximum likelihood estimators with either the Lasso or the smoothly clipped absolute deviation (SCAD) penalty. We show that both estimators are estimation consistent, while the SCAD estimator also selects relevant parameters with probability approaching one. A modified EM-algorithm is developed for the case of Gaussian errors and simulations show that the algorithm exhibits desirable finite sample performance. In an application to short-horizon return predictability in the US, we estimate a 15 variable 2-state MS-VAR(1) and obtain the often reported counter-cyclicality in predictability. The variable selection property of our estimators helps to identify predictors that contribute strongly to predictability during economic contractions but are otherwise irrelevant in expansions. Furthermore, out-of-sample analyses indicate that large MS-VARs can significantly outperform "hard-to-beat" predictors like the historical average.

[3] 2107.12625

Dhaka Water-logging: Causes, Effects and Remedial Policy Options

Water-logging is a major challenge for Dhaka city, the capital of Bangladesh. The rapid, unregulated, and unplanned urbanization, as well as detrimental social, economic, infrastructural, and environmental consequences, not to mention diseases like dengue, challenge the several crash programs combating water-logging in the city. This study provides a brief contextual analysis of the Dhakas topography and natural, as well as storm water drainage systems, before concentrating on the man-made causes and effects of water-logging, ultimately exploring a few remedial measures.

[4] 2107.12702

Income Inequality and Intergenerational Mobility in India

Using three rounds of NSS datasets, the present paper attempts to understand the relationship between income inequality and intergenerational income mobility (IGIM) by segregating generations into social and income classes. The originality of the paper lies in assessing the IGIM using different approaches, which we expect to contribute to the existing literature. We conclude that the country has low-income mobility and high inequality which is no longer associated with a particular social class in India. Also, both may have a negative or positive relationship, hence needs to be studied at a regional level.

[5] 2107.12848

Information Foraging in the Attention Economy

Over the past 200 years, rising rates of information proliferation have created new environments for information competition and, consequently, new selective forces on information evolution. These forces influence the information diet available to consumers, who in turn choose what to consume, creating a feedback process similar to that seen in many ecosystems. As a first step towards understanding this relationship, we apply animal foraging models of diet choice to describe the evolution of long and short form media in response to human preferences for maximising utility rate. The model describes an increase in information rate (i.e., entropy) in response to information proliferation, as well as differences in entropy between short-form and long-form media (such as social media and books, respectively). We find evidence for a steady increase in word entropy in diverse media categories since 1900, as well as an accelerated entropy increase in short-form media. Overall the evidence suggests an increasingly competitive battle for our attention that is having a lasting influence on the evolution of language and communication systems.

[6] 2107.12870

A Free and Fair Economy: A Game of Justice and Inclusion

Frequent violations of fair principles in real-life settings raise the fundamental question of whether such principles can guarantee the existence of a self-enforcing equilibrium in a free economy. We show that elementary principles of distributive justice guarantee that a pure-strategy Nash equilibrium exists in a finite economy where agents freely (and non-cooperatively) choose their inputs and derive utility from their pay. Chief among these principles is that: 1) your pay should not depend on your name, and 2) a more productive agent should not earn less. When these principles are violated, an equilibrium may not exist. Moreover, we uncover an intuitive condition -- technological monotonicity -- that guarantees equilibrium uniqueness and efficiency. We generalize our findings to economies with social justice and inclusion, implemented in the form of progressive taxation and redistribution, and guaranteeing a basic income to unproductive agents. Our analysis uncovers a new class of strategic form games by incorporating normative principles into non-cooperative game theory. Our results rely on no particular assumptions, and our setup is entirely non-parametric. Illustrations of the theory include applications to exchange economies, surplus distribution in a firm, contagion and self-enforcing lockdown in a networked economy, and bias in the academic peer-review system. Keywords: Market justice; Social justice; Inclusion; Ethics; Discrimination; Self-enforcing contracts; Fairness in non-cooperative games; Pure strategy Nash equilibrium; Efficiency. JEL Codes: C72, D30, D63, J71, J38

[7] 2107.12420

Efficient Treatment Effect Estimation in Observational Studies under Heterogeneous Partial Interference

In many observational studies in social science and medical applications, subjects or individuals are connected, and one unit's treatment and attributes may affect another unit's treatment and outcome, violating the stable unit treatment value assumption (SUTVA) and resulting in interference. To enable feasible inference, many previous works assume the ``exchangeability'' of interfering units, under which the effect of interference is captured by the number or ratio of treated neighbors. However, in many applications with distinctive units, interference is heterogeneous. In this paper, we focus on the partial interference setting, and restrict units to be exchangeable conditional on observable characteristics. Under this framework, we propose generalized augmented inverse propensity weighted (AIPW) estimators for general causal estimands that include direct treatment effects and spillover effects. We show that they are consistent, asymptotically normal, semiparametric efficient, and robust to heterogeneous interference as well as model misspecifications. We also apply our method to the Add Health dataset and find that smoking behavior exhibits interference on academic outcomes.

[8] 2107.12516

They Chose to Not Tell You

The world's stock markets display a strikingly suspicious, decades long pattern of overnight and intraday returns that nobody (other than us) has plausibly explained and that nobody (other than us) has clearly and persistently alerted you to. We use correspondence on this topic over the past five years to show that the silence of others on this issue does not arise from their having a good reason to believe this pattern is fine. Separately, and regardless of whether this pattern turns out to be fine, we have documented that people in a position to alert you to the presence of strikingly suspicious return patterns in the world's stock markets that nobody can innocuously explain are aware of this issue, have no good reason to believe it is not a problem, and chose to not tell you.

[9] 2107.12885

No free lunch for markets with multiple numéraires

We consider a global market constituted by several submarkets, each with its own assets and num\'eraire. We provide theoretical foundations for the existence of equivalent martingale measures and results on superreplication prices which allows to take into account difference of features between submarkets.