Ranking Sets of Objects

We provide a survey of the literature on ranking sets of objects. The interpretations of those set rankings include those employed in the theory of choice under complete uncertainty, rankings of opportunity sets, set rankings that appear in matching theory, and the structure of assembly preferences. The survey is prepared for the Handbook of Utility Theory, vol. 2, edited by Salvador Barberà, Peter Hammond, and Christian Seidl, to be published by Kluwer Academic Publishers. The chapter number is provisional.

Inflation Targeting Under Asymmetric Preferences

This paper develops and estimates a game-theoretical model of inflation targeting where the central banker's preferences are asymmetric around the targeted rate. In particular, positive deviations from the target can be weighted more, or less, severely than negative ones in the central banker's loss function. It is shown that some of the previous results derived under the assumption of symmetry are not robust to the generalization of preferences. Estimates of the central banker's preference parameters for Canada, Sweden, and the United Kingdom are statistically different from the ones implied by the commonly used quadratic loss function. Econometric results are robust to different forecasting models for the rate of unemployment but not to the use of measures of inflation broader than the one targeted.

Organizational Design of R&D Activities

This paper addresses the question of whether R&D should be carried out by an independent research unit or be produced in-house by the firm marketing the innovation. We define two organizational structures. In an integrated structure, the firm that markets the innovation also carries out and finances research leading to the innovation. In an independent structure, the firm that markets the innovation buys it from an independent research unit which is financed externally. We compare the two structures under the assumption that the research unit has some private information about the real cost of developing the new product. When development costs are negatively correlated with revenues from the innovation, the integrated structure dominates. The independent structure dominates in the opposite case.

Rationalizability of Choice Functions on General Domains without Full Transitivity

The rationalizability of a choice function by means of a transitive relation has been analyzed thoroughly in the literature. However, not much seems to be known when transitivity is weakened to quasi-transitivity or acyclicity. We describe the logical relationships between the different notions of rationalizability involving, for example, the transitivity, quasi-transitivity, or acyclicity of the rationalizing relation. Furthermore, we discuss sufficient conditions and necessary conditions for rational choice on arbitrary domains. Transitive, quasi-transitive, and acyclical rationalizability are fully characterized for domains that contain all singletons and all two-element subsets of the universal set.

Efficiency in Uncertain Cooperative Games

A contingent contract in a transferable utility game under uncertainty specifies an outcome for each possible state. It is assumed that coalitions evaluate these contracts by considering the minimal possible excesses. A main question of the paper concerns the existence and characterization of efficient contracts. It is shown that they exist if and only if the set of possible coalitions contains a balanced subset. Moreover, a characterization of values that result in efficient contracts in the case of minimally balanced collections is provided.

Logique et tests d'hypotheses: reflexions sur les problemes mal poses en econometrie

Dans ce texte, nous analysons les développements récents de l’économétrie à la lumière de la théorie des tests statistiques. Nous revoyons d’abord quelques principes fondamentaux de philosophie des sciences et de théorie statistique, en mettant l’accent sur la parcimonie et la falsifiabilité comme critères d’évaluation des modèles, sur le rôle de la théorie des tests comme formalisation du principe de falsification de modèles probabilistes, ainsi que sur la justification logique des notions de base de la théorie des tests (tel le niveau d’un test). Nous montrons ensuite que certaines des méthodes statistiques et économétriques les plus utilisées sont fondamentalement inappropriées pour les problèmes et modèles considérés, tandis que de nombreuses hypothèses, pour lesquelles des procédures de test sont communément proposées, ne sont en fait pas du tout testables. De telles situations conduisent à des problèmes statistiques mal posés. Nous analysons quelques cas particuliers de tels problèmes : (1) la construction d’intervalles de confiance dans le cadre de modèles structurels qui posent des problèmes d’identification; (2) la construction de tests pour des hypothèses non paramétriques, incluant la construction de procédures robustes à l’hétéroscédasticité, à la non-normalité ou à la spécification dynamique. Nous indiquons que ces difficultés proviennent souvent de l’ambition d’affaiblir les conditions de régularité nécessaires à toute analyse statistique ainsi que d’une utilisation inappropriée de résultats de théorie distributionnelle asymptotique. Enfin, nous soulignons l’importance de formuler des hypothèses et modèles testables, et de proposer des techniques économétriques dont les propriétés sont démontrables dans les échantillons finis.

Les cycles économiques et la science économique

Cette communication situe la théorie des grands cycles économiques dans le contexte général des économies de marché. Il y est postulé que le cycle financier et économique international de longue période (50-60 ans) n'est pas une aberration statistique, mais est le résultat de conditions institutionnelles, politiques, financières et économiques récurrentes dans l'économie mondiale. Il y est proposé comme hypothèse que la source des cycles financiers et économiques de longue durée origine d'un déréglement monétaire, lequel met en marche un processus auto-généré de sur-endettement, d'inflation des actifs financiers, de sur-investissement généralisé dans les équipements et de sur-production. Ce processus se résorbe par une liquidation des dettes, une déflation monétaire et par une contraction de l'activité économique, pouvant résulter en une récession alongée ou une dépression économique. L'information imparfaite et l'asymétrie dans l'information expliquent les erreurs de décisions des firmes à différentes périodes du grand cycle économique. Les chocs qui provoquent ces erreurs peuvent être géopolitiques (guerres), économiques, monétaires ou financiers. Les guerres sont des facteurs déclencheurs du grand cycle d'inflation-désinflation-déflation. (Communication pour le 53ème congrès de l'Association Internationale des économistes de langue française AIELF, Athènes mai 2003)

Responsibility and Cross-Subsidization in Cost Sharing

We propose two axiomatic theories of cost sharing with the common premise that agents demand comparable -though perhaps different- commodities and are responsible for their own demand. Under partial responsibility the agents are not responsible for the asymmetries of the cost function: two agents consuming the same amount of output always pay the same price; this holds true under full responsibility only if the cost function is symmetric in all individual demands. If the cost function is additively separable, each agent pays her stand alone cost under full responsibility; this holds true under partial responsibility only if, in addition, the cost function is symmetric. By generalizing Moulin and Shenker’s (1999) Distributivity axiom to cost-sharing methods for heterogeneous goods, we identify in each of our two theories a different serial method. The subsidy-free serial method (Moulin, 1995) is essentially the only distributive method meeting Ranking and Dummy. The cross-subsidizing serial method (Sprumont, 1998) is the only distributive method satisfying Separability and Strong Ranking. Finally, we propose an alternative characterization of the latter method based on a strengthening of Distributivity.

In Search of Advice for Physicians in Entry-Level Medical Markets

We consider entry-level medical markets for physicians in the United Kingdom. These markets experienced failures which led to the adoption of centralized market mechanisms in the 1960's. However, different regions introduced different centralized mechanisms. We advise physicians who do not have detailed information about the rank-order lists submitted by the other participants. We demonstrate that in each of these markets in a low information environment it is not beneficial to reverse the true ranking of any two acceptable hospital positions. We further show that (i) in the Edinburgh 1967 market, ranking unacceptable matches as acceptable is not profitable for any participant and (ii) in any other British entry-level medical market, it is possible that only strategies which rank unacceptable positions as acceptable are optimal for a physician.

Aumann-Shapley Pricing : A Reconsideration of the Discrete Case

We reconsider the following cost-sharing problem: agent i = 1,...,n demands a quantity xi of good i; the corresponding total cost C(x1,...,xn) must be shared among the n agents. The Aumann-Shapley prices (p1,...,pn) are given by the Shapley value of the game where each unit of each good is regarded as a distinct player. The Aumann-Shapley cost-sharing method assigns the cost share pixi to agent i. When goods come in indivisible units, we show that this method is characterized by the two standard axioms of Additivity and Dummy, and the property of No Merging or Splitting: agents never find it profitable to split or merge their demands.

The Ghost in the Machine: Inferring Machine-Based Strategies from Observed Behavior

We introduce a procedure to infer the repeated-game strategies that generate actions in experimental choice data. We apply the technique to set of experiments where human subjects play a repeated Prisoner's Dilemma. The technique suggests that two types of strategies underly the data.

Nearly Serial Sharing Methods

A group of agents participate in a cooperative enterprise producing a single good. Each participant contributes a particular type of input; output is nondecreasing in these contributions. How should it be shared? We analyze the implications of the axiom of Group Monotonicity: if a group of agents simultaneously decrease their input contributions, not all of them should receive a higher share of output. We show that in combination with other more familiar axioms, this condition pins down a very small class of methods, which we dub nearly serial.

Von Neumann-Morgenstern Stable Sets in Matching Problems

The following properties of the core of a one well-known: (i) the core is non-empty; (ii) the core is a lattice; and (iii) the set of unmatched agents is identical for any two matchings belonging to the core. The literature on two-sided matching focuses almost exclusively on the core and studies extensively its properties. Our main result is the following characterization of (von Neumann-Morgenstern) stable sets in one-to-one matching problem only if it is a maximal set satisfying the following properties : (a) the core is a subset of the set; (b) the set is a lattice; (c) the set of unmatched agents is identical for any two matchings belonging to the set. Furthermore, a set is a stable set if it is the unique maximal set satisfying properties (a), (b) and (c). We also show that our main result does not extend from one-to-one matching problems to many-to-one matching problems.

On Limits to the Use of Linear Markov Strategies in Common Property Natural Resource Games

We derive conditions that must be satisfied by the primitives of the problem in order for an equilibrium in linear Markov strategies to exist in some common property natural resource differential games. These conditions impose restrictions on the admissible form of the natural growth function, given a benefit function, or on the admissible form of the benefit function, given a natural growth function.

Solidarity in Choosing a Location on a Cycle

We study the implications of two solidarity conditions on the efficient location of a public good on a cycle, when agents have single-peaked, symmetric preferences. Both conditions require that when circumstances change, the agents not responsible for the change should all be affected in the same direction: either they all gain or they all loose. The first condition, population-monotonicity, applies to arrival or departure of one agent. The second, replacement-domination, applies to changes in the preferences of one agent. Unfortunately, no Pareto-efficient solution satisfies any of these properties. However, if agents’ preferred points are restricted to the vertices of a small regular polygon inscribed in the circle, solutions exist. We characterize them as a class of efficient priority rules.