Projection‐Based Statistical Inference in Linear Structural Models with Possibly Weak Instruments

It is well known that standard asymptotic theory is not applicable or is very unreliable in models with identification problems or weak instruments. One possible way out consists of using a variant of the Anderson–Rubin ((1949), AR) procedure. The latter allows one to build exact tests and confidence sets only for the full vector of the coefficients of the endogenous explanatory variables in a structural equation, but not for individual coefficients. This problem may in principle be overcome by using projection methods (Dufour (1997), Dufour and Jasiak (2001)). At first sight, however, this technique requires the application of costly numerical algorithms. In this paper, we give a general necessary and sufficient condition that allows one to check whether an AR‐type confidence set is bounded. Furthermore, we provide an analytic solution to the problem of building projection‐based confidence sets from AR‐type confidence sets. The latter involves the geometric properties of “quadrics” and can be viewed as an extension of usual confidence intervals and ellipsoids. Only least squares techniques are needed to build the confidence intervals.     

The knowledge of caring: revisiting the need for knowledge support of carers

Foster carers' knowledge of caring for abused and neglected children is a largely under-researched area. We know very little about the nature of carers' knowledge in relation to caring for children who have been abused or neglected. This paper reports on an exploratory study which examined the knowledge of caring. Qualitative data were analysed based on in-depth interviews with 10 foster carers in Queensland, Australia. A range of knowledge was identified showing an interaction of both personalized and formal understandings in the caring response. Given the breadth of knowledge recognized from the analysis, this paper presents one dimension of their knowing: theory and abuse-indicated understandings. Participants' responses in these areas were at times sound, but many struggled to provide convincing and well-formed explanations of topics, such as attachment, harm and child development which may suggest that their understandings are not what they could be. Although further research is needed on a larger scale, this study does highlight the necessity to re-examine processes and strategies for carer knowledge support, so as to strengthen their understanding of these issues.     

Dynamic Global Games of Regime Change: Learning,Multiplicity, and the Timing of Attacks

Global games of regime change—coordination games of incomplete information in which a status quo is abandoned once a sufficiently large fraction of agents attack it—have been used to study crises phenomena such as currency attacks, bank runs, debt crises, and political change. We extend the static benchmark examined in the literature by allowing agents to take actions in many periods and to learn about the underlying fundamentals over time. We first provide a simple recursive algorithm for the characterization of monotone equilibria. We then show how the interaction of the knowledge that the regime survived past attacks with the arrival of information over time, or with changes in fundamentals, leads to interesting equilibrium properties. First, multiplicity may obtain under the same conditions on exogenous information that guarantee uniqueness in the static benchmark. Second, fundamentals may predict the eventual fate of the regime but not the timing or the number of attacks. Finally, equilibrium dynamics can alternate between phases of tranquility—where no attack is possible—and phases of distress—where a large attack can occur—even without changes in fundamentals.     

Bounds in Competing Risks Models and the War on Cancer

In 1971, President Nixon declared war on cancer. Thirty years later, many declared this war a failure: the age‐adjusted mortality rate from cancer in 2000 was essentially the same as in the early 1970s. Meanwhile the age‐adjusted mortality rate from cardiovascular disease fell dramatically. Since the causes that underlie cancer and cardiovascular disease are likely dependent, the decline in mortality rates from cardiovascular disease may partially explain the lack of progress in cancer mortality. Because competing risks models (used to model mortality from multiple causes) are fundamentally unidentified, it is difficult to estimate cancer trends. We derive bounds for aspects of the underlying distributions without assuming that the underlying risks are independent. We then estimate changes in cancer and cardiovascular mortality since 1970. The bounds for the change in duration until death for either cause are fairly tight and suggest much larger improvements in cancer than previously estimated.     

UK Wage Inequality: An Industry and Regional Perspective

Abstract. This paper looks at male wage inequality in the UK across industries and regions over a 15 year period. After controlling for the heterogeneity of productivity characteristics across the population, that part of wage inequality which cannot be explained by observable worker characteristics is examined. This is undertaken at both the industry and regional level to assess the key themes dominant in the literature capable of explaining within‐group wage inequality, namely: technology; globalization; female participation; immigration; shifts in the supply of relative education across cohorts; and falling unionization.     

A WHITER SHADE OF PALE: ON THE POLITICAL ECONOMY OF REGULATORY INSTRUMENTS

We consider an intertemporal policy game between changing governments that differ in their attitudes towards a particular feature of market outcomes, exemplified with environmental pollution. When in power, a government will choose policy instruments and set strictness of regulation with a view to influencing the policy of future, possibly different, governments. We demonstrate that a “brown” government favours emission quotas over effluent taxes, as quotas establish property rights that are costly to reverse. Conversely, a “green” government prefers to regulate by taxes, in order to limit the incentives of future brown governments to ease regulations. Strategic behaviour tends to exaggerate policy differences (making green governments greener and brown governments browner) compared to when such strategic considerations were not an issue. (JEL: D81, D9, H23, L51, Q28, Q38)     

PRICING RISK IN ECONOMIES WITH HETEROGENEOUS AGENTS AND INCOMPLETE MARKETS

Habit formation has been proposed as a possible solution to the equity premium puzzle. This paper extends the class of models that support the habits explanation in order to account for heterogeneity in earnings, wealth, habits, and consumption. I find that habit formation does indeed increase the equity premium. However, contrary to earlier results, the habit hypothesis does not imply a price for risk as largeas the one measured in the data. There are three reasons for this. First, households in a habits economy modify their consumption/savings decision. Second, they modify their portfolio choice. These two changes in behavior diminish the consumption fluctuations faced by households. Third, the composition of the set of agents pricing risk in the economy changes so that relatively better self‐insured households end up pricing risk. (JEL: D52, G12, E21, C68)     

Customer Behavior Modeling in Revenue Management and Auctions: A Review and New Research Opportunities

Customer behavior modeling has been gaining increasing attention in the operations management community. In this paper we review current models of customer behavior in the revenue management and auction literatures and suggest several future research directions.