pricing frills and customer ratings this paper explores whether and how a firm should adapt its strategy in view of consumer use of prior customer ratings specifically we consider optimal pricing and whether the firm should offer an unexpected frill to early customers to enhance their product experiences we show that if price history is unobserved by consumers a forward looking firm should always modify its strategy from single period optimal one but it may be optimal to do so by lowering price by lowering price and offering frills or by raising price and offering frills depending on the market growth rate specifically the last strategy becomes optimal when market growth rate is high enough the results are similar when the price history is observed by consumers except that no deviation from single period profit maximization choices is optimal when market growth is low enough we also analyze whether the firm should prefer that the price information be stated in or left out of consumer reviews in addition in considering the effects of consumer heterogeneity we conclude that the optimal firm s effort to affect ratings is higher when the idiosyncratic part of consumer uncertainty is larger

econometric developments in agricultural and resource economics the first 100 years this article reviews the major contributions of agricultural and resource economists in the area of econometrics over the past 100 years early on a number of agricultural economists were in on the ground floor in terms of developing new econometric methods over time as the economics profession became more empirically oriented agricultural and resource economists increasingly assumed the role of early adopters of new econometric methods even so agricultural and resource economists continue to make useful modifications to econometric techniques in order to adapt the methods to the unique nature of the problems and applications that we study

an economic analysis of acting white this paper formalizes a widely discussed peer eect entitled acting white acting white is modeled as a two audience signaling quandary signals that induce high wages can be signals that induce peer group rejection without peer eects equilibria involve all ability types choosing dierent levels of education acting white alters the equilibrium dramatically the possibly empty set of lowest ability individuals and the set of highest ability individuals continue to reveal their type through investments in education ability types in the middle interval pool on a common education level only those in the lower intervals are accepted by the group the model s predictions t many stylized facts in the anthropology and sociology literatures regarding social interactions among minority group members

generalizing the bayesian vector autoregression approach for regional interindustry employment forecasting the bayesian vector autoregression bvar employment forecasting approach is generalized using data for the state of georgia this study advances previous regional bvar approaches by a incorporating regional input output coefficients instead of national coefficients b using the coefficients both to specify the prior means in one model and to weight the variances of a minnesota type prior in a second model and c including final demand effects and links to national and world economies out of sample forecasts produced by the generalized bvar models are compared to forecasts produced from an autoregressive model an unconstrained var model and a minnesota bvar model

commodity price forecasting with large scale econometric models and the futures market this paper compares the accuracy of major commercial price forecasts for corn wheat soybeans soybean oil soybean meal cotton live cattle and hogs the price forecasting information in futures prices is evaluated by comparison the results among commercial forecasters are mixed but futures prices perform relatively better on average although not universally so these results have important implications for operational risk management

an expository note on individual risk without aggregate uncertainty abstract in economies where agents bear some risk the analysis would often be facilitated by the assumption that the risks are i i d and disappear in the aggregate a formal appeal to the law of large numbers requires the consideration of a sequence of finite economies in an economy with a continuum of agents there are countable families of sets for which it is impossible for a law of large numbers to be valid with countably many agents and a finitely additive measure independence is compatible with the law of large numbers

the accuracy of oecd forecasts of the international economy balance of payments abstract this paper examines the accuracy of forecasts of the international economy made by the oecd our large data set comprising some 5500 pairs of forecasts and outcomes includes one two and three step ahead semi annual forecasts of eight components of the balance of payments for the g7 economies over a 20 year period there is considerable variation in the accuracy of these forecasts although they are generally superior to naive and time series predictions there are some marked exceptions particularly as the forecast horizon lengthens forecasting error is overwhelmingly non systematic however our study reveals numerous instances of forecasts which could be improved by a simple linear correction or by incorporating information contained in known recent forecast errors the oecd s forecasts of services and private transfers and official transfers are cause for particular concern the accuracy of these forecasts is low often below that of corresponding time series forecasts and rationality tests indicate that they are most prone to inefficiency and inconsistency

predicting turning points through the integration of multiple models a new method for forming composite turning point or other qualitative forecasts is proposed rather than forming composite forecasts by the standard bayesian approach with weights proportional to each model s posterior odds weights are assigned to the individual models in proportion to the probability of each model s having the correct turning point prediction these probabilities are generated by logit models estimated with data on the models past turning point forecasts an empirical application to gross national product gross domestic product forecasting of 18 organization for economic cooperation and development countries demonstrates the potential benefits of the procedure

learning tastes through social interaction abstract this paper offers an information based model of social interaction and analyzes optimal investment and pricing of services that facilitate interaction in a duopoly agents have uncertainty over their preferences but are aware that they are correlated with others so there exists an incentive to communicate with others in the population when a firm s good can be bundled with a coordination mechanism for its consumers its value is endogenously determined due to a consumption externality although this mechanism increases total surplus it is underprovided and consumer surplus decreases

macroeconomic forecasting using pooled international data it has long been recognized that national economies are economically interdependent see e g burns and mitchell 1946 for evidence of comovements of business activity in several countries and zarnowitz 1985 for a summary of recent evidence recognition of such interdependence raises the question can such interdependence be exploited econometrically to produce improved forecasts of countries macroeconomic variables such as rates of growth of output and so forth this is the problem that we address in this article using annual and quarterly data for a sample of european economic community eec countries and the united states

a comparison of autoregressive univariate forecasting procedures for macroeconomic time series the actual performance of several automated univariate autoregressive forecasting procedures applied to 150 macroeconomic time series are compared the procedures are the random walk model as a basis for comparison long autoregressions with three alternative rules for lag length selection and a long autoregression estimated by minimizing the sum of absolute deviations the sensitivity of each procedure to preliminary transformations data periodicity forecast horizon loss function employed in parameter estimation and seasonal adjustment procedures is examined the more important conclusions are that akaike s lag length selection criterion works well in a wide variety of situations the modeling of long memory components becomes important for forecast horizons of three or more periods and linear combinations of forecasts do not improve forecast quality appreciably

evaluating prior beliefs in a demand system the case of meat demand in canada an almost ideal demand system for meats is estimated using canadian data a bayesian approach is used to impose inequality restrictions on substitution elasticities via monte carlo integration and importance sampling in order to conform with prior beliefs about curvature and monotonicity restrictions and substitution relationships results are more consistent with the concavity and monotonicity restrictions from demand theory than with the added restriction that all meats are substitutes

bifurcation analysis of zellner s marshallian macroeconomic model the marshallian macroeconomic model in zellner and israilevich 2005 provides a novel way to examine sectoral dynamics through the introduction of a dynamic entry exit equation in addition to the usual demand and supply functions found in models of this class in this paper we examine the possibility of cyclical behavior in the marshallian macroeconomic model and investigate the existence of a hopf bifurcation with respect to the parameter in the entry exit equation

bayesian composite qualitative forecasting hog prices again a new method for forming composite qualitative forecasts is presented a set of qualitative forecasts is evaluated using auxiliary logit models to predict the probability of each forecast s correctness individual model forecasts are then combined on the basis of normalized values of these probabilities this method is demonstrated with three sets of forecasts on the direction of change in hog prices up or down the application shows that without any information on the manner in which the individual forecasts are generated this method can form a composite forecast that is superior according to a variety of metrics for evaluating qualitative forecasts

entrepreneurship social mobility and income redistribution in south india development economists have been preoccupied with the problem of increasing the size of the gnp pie to the relative neglect of its distribution despite the recent disenchantment with the viewpoint that all classes share in the benefits of industrial growth empirical data on the distribution of income business opportunity and economic power are in short supply many of the studies on entrepreneurship and economic development when they are not apologetics for ruthless capitalist exploitation as paul baran suggests extol the achievements of the capitalist entrepreneur without examining class origins and monopoly advantage joseph schumpeter sees entrepreneurs irrespective of class origin as heroic figures with the dream and will to found a private kingdom to conquer adversity to achieve success for its own sake and to experience the joy of creation for gustav papanek 1967 the private entrepreneur who is frugal diligent far sighted remarkably able and willing to take political risks is in large part responsible for the success of pakistan in achieving rapid industrialization

using bayesian techniques for data pooling in regional payroll forecasting this article adapts to the regional level a multicountry technique recently used by garcia ferrer highfield palm and zellner 1987 and extended by zellner and hong 1987 to forecast the growth rates in gross national product across nine countries this forecasting methodology is applied to the regional level by modeling payroll formation in seven ohio metropolitan areas we compare the forecasting performance of these procedures with that of a ridge estimator and find that the ridge estimator produces forecasts equal to or better than those from the newly proposed estimators we conclude that the ridge estimator which does not reference the pooled data information introduced by the newly proposed techniques may serve as a benchmark against which to judge the relative importance of this kind of information in improving forecasts

this is what the leading indicators lead we propose an optimal filter to transform the conference board composite leading index cli into recession probabilities in the us economy we also analyse the cli s accuracy at anticipating us output growth we compare the predictive performance of linear var extensions of smooth transition regression and switching regimes probit non parametric models and conclude that a combination of the switching regimes and non parametric forecasts is the best strategy at predicting both the nber business cycle schedule and gdp growth this confirms the usefulness of cli even in a real time analysis copyright 2002 john wiley sons ltd

forecasting accuracy of alternative techniques a comparison of u s macroeconomic forecasts 1986 forecasting accuracy of alternative techniques a comparison of u s macroeconomic forecasts journal of business economic statistics vol 4 no 1 pp 5 15

learning from neighbours when payoffs from different actions are unknown agents use their own past experience as well as the experience of their neighbours to guide their decision making in this paper we develop a general framework to study the relationship between the structure of these neighbourhoods and the process of social learning we show that in a connected society local learning ensures that all agents obtain the same payoffs in the long run thus if actions have different payoffs then all agents choose the same action and social conformism obtains we develop conditions on the distribution of prior beliefs the structure of neighbourhoods and the informativeness of actions under which this action is optimal in particular we identify a property of neighbourhood structures local independencewhich greatly facilitates social learning simulations of the model generate spatial and temporal patterns of adoption that are consistent with empirical work

word of mouth communication and social learning this paper studies the way that word of mouth communication aggregates the information of individual agents we find that the structure of the communication process determines whether all agents end up making identical choices with less communication making this conformity more likely despite the players naive decision rules and the stochastic decision environment word of mouth communication may lead all players to adopt the action that is on average superior these socially efficient outcomes tend to occur when each agent samples only a few others i introduction economic agents must often make decisions without knowing the costs and benefits of the possible choices given the frequency with which such situations arise it is understandable that agents often choose not to perform studies or experiments but instead rely on whatever information they have obtained via casual word of mouth communication reliance on this sort of easily obtained information appears to be common in circumstances ranging from consumers choosing restaurants or auto mechanics to business managers evaluating alternative organizational structures this paper studies two related environments in arguing that individuals reliance on word of mouth communication has interesting implications for their aggregate behavior first motivated by the diffusion of new technologies we consider a choice between two competing products with unequal qualities or payoffs and show that the structure of communication is important in determining whether the population as a whole is likely to learn to use the superior product second we consider a choice between two products or practices that are equally good and ask whether consumers are likely to herd onto a single choice or whether diversity will obtain even in the long run we explore the implications of word of mouth communication in a simple nonstrategic environment there is a large population of identical players each of whom repeatedly chooses between two possible actions each player s payoff is determined by his own

macroeconomic forecasting using pooled international data in a recent article garcia ferrer highfield palm and zellner 1987 used pooling techniques to forecast annual output growth rates in nine countries examining various model specifications they found that among the fixed parameter models investigated a third order autoregressive ar model with leading indicators ar 3 li produces the best forecasts overall a reexamination using state space methods shows that a more parsimonious fixed parameter model which does not have an autoregressive part leads generally to better forecasts than the fixed parameter ar 3 li model

learning from the behavior of others conformity fads and informational cascades learning by observing the past decisions of others can help explain some otherwise puzzling phenomena about human behavior for example why do people tend to converge on similar behavior why is mass behavior prone to error and fads the authors argue that the theory of observational learning and particularly of informational cascades has much to offer economics business strategy political science and the study of criminal behavior

design innovation and fashion cycles a model of fashion cycles is developed in which designs are used as a signaling device in a dating game a monopolist periodically creates a new design over time the price of the design falls as it spreads across the population once sufficiently many consumers own the design it is profitable to create a new design and thereby render the old design obsolete this paper gives conditions under which all consumers would be better off by banning the use of fashion competition among designers may lead to less frequent changes in fashion and to higher prices than monopoly copyright 1995 by american economic association

pooling in dynamic panel data models an application to forecasting gdp growth rates in this article we analyze issues of pooling models for a given set of n individual units observed over t periods of time when the parameters of the models are different but exhibit some similarity pooling may lead to a reduction of the mean squared error of the estimates and forecasts we investigate theoretically and through simulations the conditions that lead to improved performance of forecasts based on pooled estimates we show that the superiority of pooled forecasts in small samples can deteriorate as the sample size grows empirical results for postwar international real gross domestic product growth rates of 18 organization for economic cooperation and development countries using a model put forward by garcia ferrer highfield palm and zellner and hong among others illustrate these findings when allowing for contemporaneous residual correlation across countries pooling restrictions and criteria have to be rejected when formally tested but generalized least squares gls based pooled for

an econometric model of cattle inventories dynamic regression equations are estimated for each beef cattle breeding herd and beef cattle inventories at two levels of aggregation the u s and montana the analysis for montana was utilized as a guide for specification of the national equation to reduce the inference problem associated with letting the sample data help specify the model rational lags on average price received by farmers for calves and the ratio of fed beef to corn prices at omaha constitute the primary explanatory variables the equations perform exceedingly well over the sample period 1950 80 and in post sample forecasts with the sample truncated back to 1970

testing restrictions on a model of japanese meat demand tests for quasi separability net substitutability and perfect substitutability are developed and implemented on an almost ideal demand system model of the japanese meat sector the data set satisfies both symmetry and homogeneity there is evidence of net complimentarity between chicken and dairy beef and chicken and pork the tests indicate that japanese wagyu beef is considered a separate commodity to both imported beef and dairy beef the results also indicate that fish can be treated as separable in the japanese meat demand system

a strategic model of social and economic networks we study the stability and efficiency of social and economic networks when self interested individuals can form or sever links first for two stylized models we characterize the stable and efficient networks there does not always exist a stable network that is efficient next we show that this tension persists generally to assure that there exists a stable network that is efficient one is forced to allocate resources to nodes that are not responsible for any of the production we characterize one such allocation rule the equal split rule and another rule that arises naturally from bargaining of the players

relative prices and money a vector autoregression on brazilian data recent data on brazilian agricultural prices industrial prices and money supply are analyzed in a vector autoregression the empirical findings show strong one way granger type causality from money supply to agricultural prices while feedback is observed between industrial prices and money supply under the usual monetarist ordering of contemporaneous innovation covariance agricultural prices do not adjust faster than industrial prices to a shock in the money supply

conspicuous consumption snobbism and conformism abstract we develop a model in which consumers purchase a conspicuous good in order to signal high income and thereby achieve greater social status in equilibrium the signalling value of conspicuous consumption depends in an identifiable way on the number of consumers and consumer behaviour is characterized by either snobbism or conformism the market demand curve for the conspicuous good may exhibit a positive slope if consumers are conformist we derive some unconventional policy implications concerning the taxation of luxuries and the voluntary provision of public goods

horizontal and vertical differentiation the launhardt model we show how the spatial duopoly proposed by launhardt in 1885 where firms have access to different transportation technologies allows one to model in a simple and elegant way the two major types of product differentiation i e horizontal and vertical we consider the cases where firms are located near the market end points or near the market center launhardt s analysis of price determination is then extended by allowing firms to choose strategically their transportation rates subgame perfect nash equilibria involve minimum maximum vertical product differentiation when horizontal product differentiation is large small enough

network competition i overview and nondiscriminatory pricing we develop a model of unregulated competition between interconnected networks and analyze the mature and transition phases of the industry in this deregulated environ ment networks pay negotiated or regulated access charges to each other and com pete in prices for customers we show that a competitive equilibrium may fail to exist for large access charges or for large network substitutability and that freely negotiated access charges may prevent effective competition in the mature phase of the industry and erect barriers to entry in the transition toward competition last we examine the meaning and impact of policies such as the efficient component pricing rule

veblen effects in a theory of conspicuous consumption the authors examine conditions under which veblen effects arise from the desire to achieve social status by signaling wealth through conspicuous consumption while veblen effects cannot ordinarily arise when preferences satisfy a single crossing property they may emerge when this property fails in that case budget brands are priced at marginal cost while luxury brands though not intrinsically superior are sold at higher prices to consumers seeking to advertise wealth luxury brands earn strictly positive profits under conditions that would with standard formulations of preferences yield marginal cost pricing the authors explore factors that induce veblen effects and they investigate policy implications copyright 1996 by american economic association

cointegration and stock prices the random walk on wall street revisited abstract one of the more famous and empirically regular instances of unit roots occurs in stock price series where they are consistent with rational expectations and efficient markets under certain assumptions in this paper we investigate the dynamic behavior of five stock prices over the volatile period from january 1972 through december 1979 finding that the series are cointegrated with one dominant common trend a component with an estimated root of 0 95 in addition we find a lesser trend and two complex roots in the cycle model these findings are validated by out of sample forecasts beginning in january 1980 in addition to mean squared error criteria the forecasts are evaluated nonparametrically in two separate applications of a test due to henriksson and merton

forecasting economic time series with structural and box jenkins models a case study the basic structural model is a univariate time series model consisting of a slowly changing trend component a slowly changing seasonal component and a random irregular component it is part of a class of models that have a number of advantages over the seasonal arima models adopted by box and jenkins 1976 this article reports the results of an exercise in which the basic structural model was estimated for six u k macroeconomic time series and the forecasting performance compared with that of arima models previously fitted by prothero and wallis 1976

on the informational role of quantities durable goods and consumers word of mouth communication a dynamic incomplete information game is set up to study the introduction of a durable good when consumers can learn its quality from previous buyers high sales today imply fewer potential buyers tomorrow but each buyer will have better information about the good consumers are fully rational and can update their beliefs even when they do not directly receive information in equilibrium no news is bad news a low quality firm follows a fly by night strategy randomizing over the timing of sales a high quality firm spreads out its sales more smoothly solving a stochastic dynamic programming problem copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association