minimum effort coordination games stochastic potential and logit equilibrium abstract this paper revisits the minimum effort coordination game with a continuum of pareto ranked nash equilibria noise is introduced via a logit probabilistic choice function the resulting logit equilibrium distribution of decisions is unique and maximizes a stochastic potential function in the limit as the noise vanishes the distribution converges to an outcome that is analogous to the risk dominant outcome for 2 2 games in accordance with experimental evidence logit equilibrium efforts decrease with increases in effort costs and the number of players even though these parameters do not affect the nash equilibria journal of economic literature classification numbers c72 c92

menu dependent stochastic feasibility we examine the role of stochastic feasibility in consumer choice using a random conditional choice set rule rccsr and uniquely characterize the model from conditions on stochastic choice data feasibility is modeled to permit correlation in availability of alternatives this provides a natural way to examine substitutability complementarity we show that an rccsr generalizes the random consideration set rule of manzini and mariotti 2014 we then relate this model to existing literature in particular an rccsr is not a random utility model

the relationship between debt level and fiscal sustainability in organization for economic cooperation and development countries in this article we unify the traditional approaches to testing for fiscal sustainability considering the stock flow system that fiscal variables configure our approach encompasses previous ways of testing for sustainability the results obtained for a group of 17 organization for economic cooperation and development oecd countries point to weak fiscal sustainability as well as to the existence of cointegration between deficit and debt confirming the relevance of the stock flow approach allowing for structural breaks and multicointegration turns out to be of critical importance to assess whether the fiscal authorities apply their policies looking for sustainability and whether simultaneously they try to stabilize real debt target levels jel h62 e62 c22

political support and tax reforms with an application to italy in 2001 the italian government introduced a personal income tax reform to be implemented in successive phases in 2004 taxes were reduced to all income levels with higher gains for low income and high income individuals than for middle income ones a large debate arised this paper explores the political economy reasons under this tax reform mainly the attempt of the government to attract the uncertain voters swing voters a probabilistic voting model is introduced to capture the importance of swing voters the model predicts that the average personal income tax rate tends to be lower for groups of lower income higher preference for leisure and containing more politically mobile voters swing voters however data from italian polls show that while the tax reform was a good strategy to attract swing voters the specific design of the reform which favored high income and low income individuals but not the middle class was not the more appropriate strategy

common trends the government s budget constraint and revenue smoothing abstract the requirement that the government s budget be balanced in present value terms is shown to be equivalent to the condition that government expenditures inclusive of interest tax receipts and seignorage be cointegrated the condition is in fact stronger requiring that the deficit inclusive of interest be stationary stationarity of the net of interest deficit is neither necessary nor sufficient for intertemporal budget balance however it does have implications for barro s tax smoothing hypothesis data for the period 1890 1986 are consistent with intertemporal budget balance but not with tax smoothing

electoral outcomes with probabilistic voting and nash social welfare maxima abstract this paper provides unexpected support to nash s view of how bargaining determines the social choice we first present a spatial model of electoral competition with probabilistic voting and a very close relation between voters preferences and their choice probabilities the outcome of the electoral competition game is then shown to be precisely the social alternative that maximizes a nash type social welfare function theorem 1 this electoral outcome is also interpreted as a unanimity likelihood maximum corollary 1 within our framework existence and uniqueness of such an outcome are guaranteed corollaries 2 and 3

boundedly rational nash equilibrium a probabilistic choice approach we propose an equilibrium for n person finite games based on bounded rationality using the legit model of discrete choice theory at equilibrium each player uses appropriate choice probabilities given those used by the others rationality is parameterized on a continuum from complete rationality to uniform random choice results on the existence of equilibrium and on convergence to nash as rationality becomes perfect are similar to results due to mckelvey and palfrey we identify conditions such that for a given rationality parameter range the path of choices over time when the players use fictitious play converges to equilibrium c 1997 academic press

bubble finance and debt sustainability a test of the government s intertemporal budget constraint this paper tests whether the government s budget is intertemporally balanced in a number of ec countries by applying a method first developed to detect speculative bubbles in financial markets the test aims to establish whether the government can engage in buble finance and is based on a comparison between two sets of estimates the first is obtained directly by regressing the stock of outstanding debt on a distributed lag of the primary surplus the second is obtained indirectly from a pair of equations one relating the current debt stock to next period s primary surplus and debt stock the other specifying an ar process for the primary surplus in the presence of a bubble only the first set of estimates is inconsistent and hence the two sets differ it is found that the null of no bubble can be rejected in the cases of italy germany denmark and greece implying that the government is not intertemporally solvent in these countries the other ec member states appear to be on a sustainable path

business experience and start up size buying more lottery tickets next time around this paper explores the determinants of start up size by focusing on a cohort of 6 247 businesses that started trading in 2004 using a unique dataset on customer records at barclays bank quantile regressions show that prior business experience is significantly related with start up size as are a number of other variables such as age education and bank account activity quantile treatment effects qte estimates show similar results with the effect of business experience on log start up size being roughly constant across the quantiles prior personal business experience leads to an increase in expected start up size of about 50 instrumental variable qte estimates are even higher although there are concerns about the validity of the instrument

periodically expanding discounted debt a threat to fiscal policy sustainability this paper models the behaviour of discounted us debt using a markov switching time series model the significance of modelling fiscal policy within this framework derives from the implications it has for long term sustainability the two regime framework used in this paper identifies periods where the present value of us federal debt is expanding versus periods when it is collapsing using an updated data series from hamilton and flavin 1986 a test is conducted to establish if the expanding periods pose a threat to the long run sustainability of fiscal policy for the usa it is found that they do not copyright 2005 john wiley sons ltd

rational inattention dynamics inertia and delay in decision making we solve a general class of dynamic rational inattention problems in which an agent repeatedly acquires costly information about an evolving state and selects actions the solution resembles the choice rule in a dynamic logit model but it is biased towards an optimal default rule that does not depend on the realized state we apply the general solution to the study of i the sunk cost fallacy ii inertia in actions leading to lagged adjustments to shocks and iii the tradeoff between accuracy and delay in decision making

the role of intergovernmental aid in defining fiscal sustainability at the sub national level the concept of fiscal sustainability has become increasingly used over the last 20 years however much of the literature on fiscal sustainability at the sub national level ignores the role of intergovernmental fiscal relations to address this gap this paper discusses a sufficient condition for sub national fiscal sustainability and examines the importance of intergovernmental aid in determining that sustainability using panel data of counties and municipalities in the us and using unit root and cointegration analytic techniques this paper finds different levels of fiscal sustainability between counties and municipalities we also find that intergovernmental aid plays an important role for fiscal sustainability for both counties and municipalities

the behavior of treasury securities monthly 1942 1984 abstract the monthly market value statistics on outstanding united states treasury debt are reported for the 1981 1984 period in addition a monthly series on privately held gross federal debt is reported for the extended 1942 1984 period together with monthly security price indices for various federal debt aggregates examination of the stochastic structure of t bill prices indicates that the riskiness of t bills has increased dramatically in recent years

regime shifts in stock flow i 2 i 1 systems the case of us fiscal sustainability in the last two decades fiscal sustainability has been tested through the use of non stationary time series analysis two different approximations can be found in the literature first a univariate approach that has focused on the stochastic properties of the stock of debt and second a multivariate one that has focused on the long run properties of the flows of expenditures and revenues i e in the stochastic properties of the deficit in this paper we unify these approaches considering the stock flow system that fiscal variables configure our approach involves working in an i 2 stochastic processes framework given the possibility of the existence of regime shifts in the sustainability of us deficit that the literature has pointed out we develop a new statistic that can be applied to test several types of i 2 cointegration and multicointegration relationships allowing for regime shifts to test for these kinds of changing long run relationships we propose the use of a residual based dickey fuller class of statistic that accounts for one structural break we show that consistent estimates of the break fraction can be obtained through the minimization of the sum of squared residuals when there is i 2 cointegration the finite sample performance of the proposed statistic is investigated by monte carlo simulations the econometric methodology is applied to assess whether the us fiscal deficit and debt are sustainable copyright 2010 john wiley sons ltd

international intertemporal solvency in industrialized countries evidence and implications recent large current account deficits among industrialized countries have caused concern for policy makers some believe for example that the current buildup of claims on the u s by foreigners violates her solvency condition with respect to the rest of the world recent research 22 suggests that for a country s intertemporal solvency condition to hold the change in the country s obligations to the rest of the world i e her current account deficit must be stationary stationarity tests on current accounts were performed for the u s by trehan and walsh 22 and wickens and uctum 23 for the u s and canada by otto 15 and for twenty three countries by gundlach and sinn 10 these papers present evidence that current accounts are non stationary for several major industrialized countries including the u s the u k canada germany and japan these findings do not favor international intertemporal solvency for this reason the issue merits further investigation in this paper we test for the stationarity of current account deficits of the group of seven industrialized countries preliminary results confirm many of gundlach and sinn s 10 findings however several events during the 1980s might have caused discrete breaks in current account balances events potentially linked with current account breaks include the reduction in world inflation tax reduction and reform in the u s and other industrialized countries attempts at international macroeconomic coordination i e the plaza accord and shifts in the after tax rate of return on capital in many countries as shown in recent research on gross national product 16 2 if such breaks are not accounted for stationarity tests will be biased in favor of accepting the null hypothesis of non stationarity our results suggest strong evidence of discrete breaks in the u s and japan and some evidence favoring breaks in the u k germany and canada the break in the u s current account appears to occur in 1983 while breaks in the other countries appear to occur somewhat later between late 1984 and 1987 more importantly once these breaks are incorporated the evidence is more favorable toward the stationarity of current accounts in these countries these findings thus support intertemporal solvency for these countries

sustainability of the deficit process with structural shifts this article discusses the condition for deficit sustainability and searches for shifts in the structure of u s deficit policy i show that contrary to the current literature cointegration between revenues and expenditures inclusive of debt payment is not a necessary but a sufficient condition for a strict interpretation of deficit sustainability the necessary condition requires that debt grow slower than the borrowing rate for tests on structural shifts i use a test for structural change that searches for shifts in the rank of the cointegrating matrix i find that there is a shift in deficit policy in the early 80s so that cointegration between revenue and expenditure inclusive of interest payments holds only up to 1980 i show however that the deficit process is still sustainable despite the failure of cointegration in the 80s the finding of shifts in the deficit process is more uncertain when i normalize by gross national product or population but the deficit is shown to be sustainable regard

the political economy of naturalization this paper presents a political economy model in which self interested natives decide when citizenship and or voting rights should be granted to foreign born workers native voters know that immigrants hold different political preferences and would thus tend to postpone their enfranchisement as much as possible they also consider however that a more restrictive naturalization policy may reduce the gains from immigration we find that the optimal timing of naturalization depends on the quantity quality productivity and preferences of potential immigrants the political composition and the age structure of the native population as well as the sensitivity of migration choices to the citizenship issue

on the limitations of government borrowing a framework for empiricaltesting this paper seeks to distinguish empirically between two views on the limitations of government borrowing according to one view nothing precludes the government from running a permanent budget deficit paying interest due on the growing debt load simply by issuing new debt an alternative perspective holds that creditors would be unwilling to purchase government debt unless the government made a credible commitment to balance its budget in present value terms we show that distinguishing between these possibilities is mathematically equivalent to testing whether a continuing currency inflation might be fueled by speculation alone or is instead driven solely by economic fundamentals empirical tests which have been developed for this economic question lead us to conclude that postwar u s deficits are largely consistent with the proposition that the government budget must be balanced in present value terms this abstract was borrowed from another version of this item

homogeneity bias in models of discrete choice with bounded rationality abstract quantal response equilibrium captures bounded rationality in a strategic game by adopting a stochastic model of discrete choice along with the traditional rational expectation framework we examine the use of a single agent homogeneous parametric quantal response model e g logit response to describe the aggregate behavior of heterogeneous agents sharing the same parametric form for their quantal response functions but having individual rationality parameters in a symmetric population game for any parametric quantal response function arising from a unimodal distribution of exchangeable payoff disturbances we find that a mis specified homogeneous rationality parameter will have downward bias logit response is one such specification this result implies that empirical work that disregards heterogeneity underestimates subjects rationality

us deficit sustainability revisited a multiple structural change approach in this article we re examine the long run sustainability of us budget deficits using bai and perron s multiple structural change approach while the deficit would have been weakly sustainable over the full sample 1947 1 2005 3 strong sustainability would appear only between january 1982 and february 1996

investment effects of departures from governmental present value budget balance the paper investigates whether departures from government borrowing constraints affect the relationship between fiscal policy innovations and changes in the investment level break points or apparent departures from present value budget balance are then identified next the investment deficit relationship is examined prior to and following identified break points in an effort to detect potential changes in behaviour the investment deficit relationship is quantified by examining posterior coverage bounds of impulse response functions britain appears to undergo such a break around 1973 data from this country suggest that significantly more crowding out occurred following the identified breaks in contrast data from other comparison countries that do not appear to have experienced breaks indicate stable investment deficit relationships

permanent budget deficits and inflation abstract the issue of whether permanent primary budget deficits have to be monetized is re examined in a simple monetary model hybrid of the sidrauski and overlapping generations frameworks in which intergenerational effects are generated by the arrival of new infinitely lived cohorts the presence of intergenerational effects enlarges for a given fiscal policy the set of admissible monetary policies and weakens the need to monetize the deficit comparisons between the growth and interest rates are in general insufficient to predict whether increased deficit must be monetized because of the existence of both bond and money seigniorage laffer curves

cointegration and government borrowing constraints evidence for the united states testable implications are derived in a present value borrowing constraint model for the u s federal government critical values for unit root and cointegration tests are calculated with monte carlo studies cointegration techniques are employed to determine whether the government has been involved in perpetual debt financing in recent years the data reject this assertion

testing for the sustainability of the current account deficit in two industrial countries abstract the objective of this paper is to test for the sustainability of the current account deficits in the united states and canada over the 1973 1994 period using various unit root and cointegration tests some of which allow for structural changes we conclude that the real current account deficits to gdp ratios are not sustainable

fiscal deficit sustainability of the spanish regions carrion i silvestre j l fiscal deficit sustainability of the spanish regions regional studies the fiscal deficit of the spanish autonomous communities is investigated using non stationary panel data analysis the paper considers the two main approaches in the literature first assessing whether there is a long run relationship between the revenues and expenditures of the autonomous communities and second focusing on the use of fiscal rules the paper shows that it is possible to relate these approaches in a unified framework

start up size and post entry performance the case of tourism services in italy a large and comprehensive longitudinal database is used to identify the start up of new firms in the italian tourist industry and their subsequent post entry performance analysed in particular is the link between the survival of hotels restaurants and catering firms in each italian region and their start up size by using logit estimation it is found that for eighteen out of twenty regions the relationship has the expected sign although only for twelve regions and the country as a whole did it turn out to be statistically significant

new firm survival new results using a hazard function a limitation of audretsch s 1991 study of new firm survival was the level of aggregation to industries this precluded linking establishment specific characteristics such as organizational structure and size to post entry performance the purpose of this paper is to relate the post entry performance of individual establishments not only to their technological and market structure environments but also to establishment specific characteristics we do this by estimating a hazard duration function for more than 12 000 individual establishments in u s manufacturing started in 1976 by tracking their subsequent performance over a ten year period we conclude that establishment specific characteristics which audretsch was not able to capture in his earlier study play an important role in shaping the exposure to risk confronting new establishments copyright 1995 by mit press

precautionary price stickiness abstract this paper proposes a model in which retail prices are sticky even though firms can always change their prices at zero cost instead of imposing a menu cost we assume that more precise decisions are more costly in equilibrium firms optimally make some errors in price setting thus economizing on managerial time both the time cost of choice and the resulting risk of errors give firms an incentive to leave their prices unchanged until they perceive a sufficiently costly deviation from the optimal price we show that this error prone control cost framework helps explain many puzzling observations from microdata however on the macroeconomic side pricing errors do little to explain the real effects of monetary shocks

us deficit sustainability a new approach based on multiple endogenous breaks recent empirical work has questioned the consistency of us fiscal policy with an intertemporal budget constraint empirical results have tended to indicate that the deficit process has undergone at least one structural shift during recent decades with the deficit becoming either unsustainable or sustainable in only a weak sense in the post shift period in this paper we re examine sustainability using a new approach based on a cointegration model with multiple endogenous breaks a bayesian methodology is applied incorporating markov chain monte carlo simulators in contrast to previous analyses we find evidence of a sustainable deficit process over the 1947 1992 period despite the occurrence of breaks during the 1970s and 1980s copyright 2000 john wiley sons ltd

multicointegration and sustainability of fiscal practices i introduction governments are charged with the responsibility of crafting national budgets over time budgets tend to move between balance surplus and deficit these fluctuations result from the fact that all too often a government makes financial decisions in one year that have implications for spending commitments and revenue streams a number of years down the road thus responsible government budgeting involves examining the budget position over time that is engaging in intertemporal budgeting economists generally utilize two criteria to assess the intertemporal budget s sustainablity does the government run persistent deficits if so what is the resulting level of debt are these two criteria sufficient to make predictions regarding budget sustainability recent work by bohn 1995 1998 and ball et al 1998 suggests that budgets are far too complicated to be evaluated with respect to deficits and debt alone these authors have shown that persistent deficits and accumulation of debt does not necessarily imply that the debt is unmanageable and hence fiscal processes unsustainable the implication of their work is that the standard approach to testing whether government adheres to its intertemporal budget constraint cointegration analysis does not provide sufficient criteria for determining whether the fiscal process is truly sustainable consequently in this article we develop a more encompassing set of criteria under more realistic assumptions for determining whether a country exhibits a sustainable budgeting process our criteria for sustainability are based the multicointegration approach first presented by granger and lee 1989 1990 and further developed in engsted gonzalo and haldrup 1997 and haldrup 1998 the budgeting practices of 15 industrialized countries belgium canada denmark finland france great britain greece italy the netherlands norway portugal spain sweden switzerland and the united states are evaluated in terms of the criteria our sample spans the modern era 1960 98 we extend the intertemporal budgeting literature by employing the multicointegration framework to develop the appropriate policy responses to deficits and debt accumulation and to test for their presence the methodology assesses both the stock and flow relationships that should characterize sustainable fiscal processes when the data are nonstationary cointegration between the spending revenue flow relationship is the first component of our criteria cointegration between the flow of revenue spending and the stock of debt is the second jointly these conditions characterize multicointegration between government spending and revenue in the multicointegration case the system is characterized by a complex stock flow equilibrium relationship that is not uncommon in intertemporal models of economic behavior such a relationship is typically associated with issues of optimal control where the levels and rates of change of the variables making up the system are determinants of the policy response multicointegration can ensure that a country s budgeting strategy is sustainable in bad states of nature that is when the rate of economic growth falls short of the real interest rate on sovereign debt 1 bohn 1995 and ball et al 1998 point out that existing theoretical models that underpin traditional sustainability tests are too simple specifically bohn 1995 shows that the sustainability of imbalances in a stochastic setting involves satisfying an intertemporal budget constraint and a transversality condition that differs from that implicit in simple deterministic models the transversality condition requires that the limit of the debt discounted at a rate that is a function of the probability distribution of future debt and the marginal rate of substitution between present and future consumption be zero this correct discounting is critical in economies where the rate of growth has been higher than the real interest rate

causality and comovement between taxes and expenditures historical evidence from argentina brazil and mexico abstract this paper presents empirical tests for stationarity of fiscal deficits for three latin america countries it also examines the causality patterns between government expenditures and government revenues long historical series covering most of the 20th century for argentina brazil and mexico are used the findings suggest that deficits were stationary in argentina and mexico but not in brazil

the logit response dynamics we develop a characterization of stochastically stable states for the logit response learning dynamics in games with arbitraryspecification of revision opportunities the result allows us to show convergence to the set of nash equilibria in the class of best response potential games and the failure of the dynamics to select potential maximizers beyond the class of exact potential games we also study to which extent equilibrium selection is robust to the specificationof revision opportunities our techniques can be extended and applied to a wide class of learning dynamics in games

a measure of rationality and welfare evidence showing that individual behavior often deviates from the classical principle of preference maximization has raised at least two important questions 1 how serious are the deviations 2 what is the best way to analyze choice behavior in order to extract information for the purpose of welfare analysis this paper addresses these questions by proposing a new way to identify the preference relation that is closest in terms of welfare loss to the revealed choice

determinants of firm start up size an application of quantile regression for ireland in this paper we provide empirical evidence on the determinants of firm start up size using data for the manufacturing sector in ireland and compare our results with recent findings for portuguese manufacturing industries mata and machado 1996 to allow for firm heterogeneity between firm entrants we use quantile regression techniques for our empirical estimation we find that the determinants of start up size differ in their importance for small and large scale entrants in particular industry size and industry growth seem to affect large scale entrants only

determinants of firm start up size in the brazilian industry an empirical investigation the article investigates the determinants of newly created industrial establishments in brazil in 1997 taking as reference explanatory variables referring to market structure and industry dynamics stronger effects are detected for larger firms minimum efficient scale industry size industry growth and turbulence display the expected positive effects on firm size but the intensity of those are more pronounced for larger firms the suboptimal scale variable on the other hand exhibits a counterintuitive positive effect and perhaps other types of barriers to entry that are not related to scale aspects may be important in the brazilian case

statistical testing of bounded rationality with applications to the newsvendor model abstract in this paper we define bounded rationality in terms of probabilistic cost efficiency this establishes a framework where bounded rationality can be examined rigorously by statistical methods we apply this theory to data from laboratory experiments on the newsvendor model we enter into a theoretical discussion of the classical pull to center effect and explain why underorders are typically larger than overorders

probabilistic choice and procedurally bounded rationality abstract we derive a family of probabilistic choice models including the multinomial logit model from a microeconomic model in which the decision maker has to make some effort in order to implement any desired outcome the disutility of this effort enters the decision maker s goal function in an additively separable way a particular disutility function yielding the multinomial logit as a special case is characterized axiomatically the present approach naturally leads to a normalization of the achieved utility with respect to the number of alternatives the approach also applies to continuum choice sets in euclidean spaces and provides a microeconomic foundation for logit type quantal response models in game theory

persistent deficits and the market value of government debt summary this paper investigates whether postwar canadian public financial policy satisfies a borrowing constraint direct tests of the present value relation suggested by this constraint shed light on the sustainability of current policy we examine monthly data on canadian federal government finances using tests for cointegration the finding is that the joint behaviour of real debt and real surpluses is inconsistent with intertemporal budget balance for the government one interpretation of this finding is that the government is systematically paying real returns to bondholders by issuing further debt alternatively bondholders may expect the government to finance future interest payments from a source other than primary surpluses e g the sale of physical assets much empirical macroeconomics is concerned with the effects of public financial policies numerous studies have examined whether such policies affect interest rates inflation or national income and its components these examinations raise the question of the efficacy of government budget deficits they generally assume that a borrowing constraint holds in the public finances some positive theories of public debt creation also make this assumption examples include barro s 1979 history of us federal deficits and sargent s 1986 rationalizations of recent us budgetary policy lucas and stokey s 1983 discussion of optimal taxation also involves this assumption hansen roberds and sargent 1987 outline the testable implications of present value budget balance and hamilton and flavin 1986 investigate the feasibility of recurring deficits by directly testing the us federal government s borrowing constraint such tests seem natural given both the recent boom is testing more complicated first order difference equations in macroeconomics and the widespread discussion of current deficits this paper tests the present value borrowing constraint using recently constructed data on the market value of outstanding canadian federal government debt we use monthly rather than annual as in hamilton and flavin data and conduct tests of univariate integration and of bivariate cointegration to investigate the joint time series properties of debt and deficits one finding is that real debt and real surpluses are integrated processes evidence of their cointegration is mixed and point estimates of the cointegrating vector suggest that the expected real rate of return on debt is negative moreover the surplus measured to include interest payments as government spending is nonstationary these findings are inconsistent

the survival of new plants start up conditions and post entry evolution abstract this paper examines the longevity of entrants we find size to be an important determinant of the chances of survival this being particularly relevant to de novo entrants as compared with entry by established firms current size is also found to be a better predictor of failure than initial size moreover our findings indicate that after controlling for size differences past growth matters for survival suggesting a partial adjustment process for firm size in the post entry period finally new plants are more likely to live longer if they enter growing industries or industries with little entry activity