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Publication Open Access A comparison of game-theoretic models for parallel trade(World Scientific Publishing, 2018) Gnecco, Giorgio; Pammolli, Fabio; Department of Economics; Alpanda, Berna Tuncay; Faculty Member; Department of Economics; College of Administrative Sciences and EconomicsWithin the EU Single Market for medicines, differences in drug prices, regulations, and transaction costs may create, under suitable conditions, arbitrage opportunities well before patent expiration, giving an incentive to the occurrence of parallel trade. When this is permitted, parallel traders may obtain a profit from buying drugs in a country where prices are lower, then re-selling them in a country where prices are higher. This phenomenon may came inefficiencies from a global welfare perspective, and reduce the manufacturers' incentive to invest in Research and Development (R & D). Given this framework, in this paper, we investigate the efficiency (expressed in terms of the price of anarchy) of the subgame-perfect Nash equilibria associated with five dynamic noncooperative game-theoretic models for the parallel trade of pharmaceuticals. We also compare such models with regard to the manufacturer's incentive to invest in R & D. More specifically, first we find in closed form the optimal value of the global welfare of two countries, which is obtained by solving a suitable quadratic optimization problem modeling the decision-making process of a global planner. Then, we use such a result. to evaluate and compare the prices of anarchy of five games modeling the interaction between a manufacturer in the first country and a potential parallel trader in the second country. The first three games refer, respectively, to the cases of no parallel trade threat, parallel trade threat, and parallel trade occurrence at equilibrium. Then, we investigate two modifications of the third game, in which its transfer payment from the potential parallel trader to the manufacturer is, respectively, removed/determined by Nash bargaining. For completeness, we also consider a decision-theoretic model of no parallel trade threat. For what concerns the incentive for the manufacturer to invest in R & D, the results of our numerical comparison show that the decision-theoretic model of no parallel trade threat is always the one with the highest incentive, whereas the two game-theoretic models of parallel trade threat/occurrence that do not include the transfer payment provide typically the lowest incentives. Moreover, the latter two models have the highest prices of anarchy (i.e., their equilibria have the lowest efficiencies). From a policy-making perspective, improvements are obtained if suitable countermeasures are taken to help the manufacturer recover from the costs of R & D, such as the inclusion of a transfer payment in the model.
Publication Metadata only Adaptive stochastic search(Elsevier, 2019) Aguiar, Victor H.; Department of Economics; Kimya, Mert; Faculty Member; Department of Economics; College of Administrative Sciences and Economics; N/AWe characterize Simon's (1955) search and satisficing model with an adaptive threshold and random search (SM-AT). The decision maker (DM) consistent with the SM-AT is endowed with a utility function, a random search distribution, and a deterministic but menu-dependent threshold. On any given trial, the DM searches the menu and stops whenever she finds an item with a utility level that is above the threshold. This simple choice procedure accommodates the well-known compromise and attraction effects. The SM-AT is more general than the random utility model and allows for systematic departures from regularity. Its characterization lets us differentiate adaptive satisficing behavior from random preference maximization in a (limited) standard stochastic choice data set.Publication Open Access Market selection and the information content of prices(Wiley, 2021) Ekmekçi, Mehmet; Department of Economics; Atakan, Alp Enver; Faculty Member; Department of Economics; College of Administrative Sciences and Economics; 39383We study information aggregation when n bidders choose, based on their private information, between two concurrent common-value auctions. There are k(s) identical objects on sale through a uniform-price auction in market s and there are an additional k(r) objects on auction in market r, which is identical to market s except for a positive reserve price. The reserve price in market r implies that information is not aggregated in this market. Moreover, if the object-to-bidder ratio in market s exceeds a certain cutoff, then information is not aggregated in market s either. Conversely, if the object-to-bidder ratio is less than this cutoff, then information is aggregated in market s as the market grows arbitrarily large. Our results demonstrate how frictions in one market can disrupt information aggregation in a linked, frictionless market because of the pattern of market selection by imperfectly informed bidders.Publication Metadata only On the network topology of variance decompositions: measuring the connectedness of financial firms(Elsevier Science Sa, 2014) Diebold, Francis X.; Department of Economics; Yılmaz, Kamil; Faculty Member; Department of Economics; College of Administrative Sciences and Economics; 6111We propose several connectedness measures built from pieces of variance decompositions, and we argue that they provide natural and insightful measures of connectedness. We also show that variance decompositions define weighted, directed networks, so that our connectedness measures are intimately related to key measures of connectedness used in the network literature. Building on these insights, we track daily time-varying connectedness of major US financial institutions' stock return volatilities in recent years, with emphasis on the financial crisis of 2007-2008.Publication Metadata only On the network topology of variance decompositions: measuring the connectedness of financial firms (Reprinted from Journal of Econometrics, Vol 182, Issue 1, September 2014, Pages 119-134)(Elsevier Science Sa, 2023) Diebold, Francis X.; Department of Economics; Yılmaz, Kamil; Department of Economics; College of Administrative Sciences and EconomicsWe propose several connectedness measures built from pieces of variance decomposi-tions, and we argue that they provide natural and insightful measures of connectedness. We also show that variance decompositions define weighted, directed networks, so that our connectedness measures are intimately related to key measures of connectedness used in the network literature. Building on these insights, we track daily time-varying connectedness of major U.S. financial institutions' stock return volatilities in recent years, with emphasis on the financial crisis of 2007-2008.Publication Metadata only On the past, present, and future of the Diebold-Yilmaz approach to dynamic network connectedness(Elsevier Science Sa, 2023) Diebold, Francis X.; Department of Economics; Yılmaz, Kamil; Department of Economics; College of Administrative Sciences and EconomicsWe offer retrospective and prospective assessments of the Diebold-Yilmaz connected-ness research program, combined with personal recollections of its development. Its centerpiece in many respects is Diebold and Yilmaz (2014), around which our discussion is organized.Publication Metadata only On the survival of some unstable two-sided matching mechanisms(Physica-Verlag Gmbh & Co, 2005) Department of Economics; Ünver, Utku; Faculty Member; Department of Economics; College of Administrative Sciences and Economics; N/AIn the 1960s, three types of matching mechanisms were adopted in regional entry-level British medical labor markets to prevent unraveling of contract dates. One of these categories of matching mechanisms failed to prevent unraveling. Roth (1991) showed the instability of that failing category. One of the surviving categories was unstable as well, and Roth concluded that features of the environments of these mechanisms are responsible for their survival. However, Unver (2001) demonstrated that the successful yet unstable mechanisms performed better in preventing unraveling than the unsuccessful and unstable category in an artificial-adaptive-agent-based economy. In this paper, we conduct a human subject experiment in addition to short- and long-run artificial agent simulations to understand this puzzle. We find that both the unsuccessful and unstable mechanism and the successful and unstable mechanism perform poorly in preventing unraveling in the experiment and in short-run simulations, while long-run simulations support the previous Unver finding.Publication Metadata only Parameter estimation in nonlinear AR-GARCH models(Cambridge Univ Press, 2011) Saikkonen, Pentti; Department of Economics; Meitz, Mika; Faculty Member; Department of Economics; College of Administrative Sciences and Economics; N/AThis paper develops an asymptotic estimation theory for nonlinear autoregressive models with conditionally heteroskedastic errors. We consider a general nonlinear autoregression of order p (AR(p)) with the conditional variance specified as a general nonlinear first-order generalized autoregressive conditional heteroskedasticity (GARCH(1,1)) model. We do not require the rescaled errors to be independent, but instead only to form a stationary and ergodic martingale difference sequence. Strong consistency and asymptotic normality of the global Gaussian quasi-maximum likelihood (QML) estimator are established under conditions comparable to those recently used in the corresponding linear case. To the best of our knowledge, this paper provides the first results on consistency and asymptotic normality of the QML estimator in nonlinear autoregressive models with GARCH errors.Publication Metadata only Partial derivatives, comparative risk behavior and concavity of utility functions(Elsevier, 2003) N/A; Department of Economics; Lajeri-Chaherli, Fatma; Faculty Member; Department of Economics; College of Administrative Sciences and Economics; N/AWe use the comparative risk behavior of the partial derivatives to address a long standing problem in mean-variance analysis: What does the concavity of utility functions mean? It is well known that, when mean-variance preferences are derived from expected utility and normal distributions, concavity is equivalent to decreasing prudence. In this paper, we derive conditions that link concavity to prudence in a general mean-standard deviation case.Publication Metadata only Second-order backward stochastic differential equations and fully nonlinear parabolic pdes(Wiley, 2007) Cheridito, Patrick; Touzi, Nizar; Victoir, Nicolas; Department of Economics; Soner, Halil Mete; Faculty Member; Department of Economics; College of Administrative Sciences and Economics; N/AFor a d-dimensional diffusion of the form dXt = μ(X t)dt + σ(Xt)dWt and continuous functions f and g, we study the existence and uniqueness of adapted processes Y, Z, Γ, and A solving the second-order backward stochastic differential equation (2BSDE) dYt = f(t, Xt, Yt, Z t, Γt)dt + Z′t o dXt, t ∈ [0, T), dZt = Atdt + ΓtdX t, t ∈[0, T), YT = g(XT). If the associated PDE -vt(t, x) + f(t, x, v(t, x), Dv(t, x), D 2v(t, x)) = 0, (t, x) ∈ [0, 7) × ℝd, v(T, x) = g(x), has a sufficiently regular solution, then it follows directly from Itô's formula that the processes v(t, Xt), Dv(t, X t), D2v(t, Xt), ℒDv(t, Xt), t ∈ [0, T], solve the 2BSDE, where ℒ is the Dynkin operator of X without the drift term. The main result of the paper shows that if f is Lipschitz in Y as well as decreasing in Γ and the PDE satisfies a comparison principle as in the theory of viscosity solutions, then the existence of a solution (Y, Z, Γ, A) to the 2BSDE implies that the associated PDE has a unique continuous viscosity solution v and the process Y is of the form Yt = v(t, Xt), t ∈ [0, T]. In particular, the 2BSDE has at most one solution. This provides a stochastic representation for solutions of fully nonlinear parabolic PDEs. As a consequence, the numerical treatment of such PDEs can now be approached by Monte Carlo methods. © 2006 Wiley Periodicals, Inc.