Economics, Department of

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Paying for Express Checkout: Competition and Price Discrimination in Multi-Server Queuing Systems

Peer reviewed: 
Yes, item is peer reviewed.
Date created: 
2014-03-25
Abstract: 

We model competition between two firms selling identical goods to customers who arrive in the market stochastically. Shoppers choose where to purchase based upon both price and the time cost associated with waiting for service. One seller provides two separate queues, each with its own server, while the other seller has a single queue and server. We explore the market impact of the multi-server seller engaging in waiting cost-based-price discrimination by charging a premium for express checkout. Specifically, we analyze this situation computationally and through the use of controlled laboratory experiments. We find that this form of price discrimination is harmful to sellers and beneficial to consumers. When the two-queue seller offers express checkout for impatient customers, the single queue seller focuses on the patient shoppers thereby driving down prices and profits while increasing consumer surplus.

Document type: 
Article
File(s): 

Measuring the Distribution of Spitefulness

Peer reviewed: 
Yes, item is peer reviewed.
Date created: 
2012
Abstract: 

Spiteful, antisocial behavior may undermine the moral and institutional fabric of society, producing disorder, fear, and mistrust. Previous research demonstrates the willingness of individuals to harm others, but little is understood about how far people are willing to go in being spiteful (relative to how far they could have gone) or their consistency in spitefulness across repeated trials. Our experiment is the first to provide individuals with repeated opportunities to spitefully harm anonymous others when the decision entails zero cost to the spiter and cannot be observed as such by the object of spite. This method reveals that the majority of individuals exhibit consistent (non-)spitefulness over time and that the distribution of spitefulness is bipolar: when choosing whether to be spiteful, most individuals either avoid spite altogether or impose the maximum possible harm on their unwitting victims.

Document type: 
Article

Inference for the Sharpe Ratio Using a Likelihood-Based Approach

Peer reviewed: 
Yes, item is peer reviewed.
Date created: 
2012
Abstract: 

The Sharpe ratio is the prominent risk-adjusted performance measure used by practitioners. Statistical testing of this ratio using its asymptotic distribution has lagged behind its use. In this paper, highly accurate likelihood analysis is applied for inference on the Sharpe ratio. Both the one- and two-sample problems are considered. The methodology has O(n-3/2) distributional accuracy and can be implemented using any parametric return distribution structure. Simulations are provided to demonstrate the method's superior accuracy over existing methods used for testing in the literature.

Document type: 
Article

Methodology for a New Microeconomics: The Critical Foundations

Author: 
Peer reviewed: 
Yes, item is peer reviewed.
Date created: 
1993
Abstract: 

This book offers a critical examination of the neoclassical model which typically fails to include an explicit stability analysis. The author demonstrates that much of the sophisticated theoretical literature over the last thirty years can be understood as ad hoc attempts to overcome the deficiencies of models that are limited by the absence of stability analysis. At the end of the book the author explains what we must do to update undergraduate theory, and above all, to develop a truly individualist version of microeconomics that is both complete and consistent with the methodological principles of all neoclassical models.

Document type: 
Book

The Foundations of Economic Method

Author: 
Peer reviewed: 
Yes, item is peer reviewed.
Date created: 
1992
Abstract: 

My argument in this book is rather straightforward. I shall argue that every neoclassical research program is designed (1) to be consistent with acceptable ways of dealing with the Problem of Induction, and (2) to provide a methodological individualist explanation of economic behavior of the economy, that is, one which is based on the methodological prescription that allows only individuals to be posited as the locus of decision-making. With this in mind, I shall argue that neoclassical economists have thereby made their research program an impossible task because the Problem of Induction cannot, and need not, be solved. They compound this difficulty with psychologism, that is, by erroneously identifying individuals with psychological states. I will not press the additional point that the Conventionalist view of methodology (viz., that an individual’s view of methodology does not matter) is inconsistent with a neoclassical theory which is supposed to see the individual as the center of everything – but this point does show that usual reluctance to discuss methodology might lead to certain inconsistencies.

 

If my argument concerning the design of neoclassical economics and its reliance on psychologism is correct, then it will be seen that most of the leading theoretical problems are impossible to solve. However, I shall also attempt to show that the essential individualist spirit of neoclassical economics can be preserved if the Problem of Induction is rejected and the concept of individualism is freed of its usual psychologism. All of this is a matter of fundamental methodology and thus for theoretical reasons we need to examine the foundations ofeconomic method.

Document type: 
Book

The Methodology of Economic Model Building: Methodology after Samuelson

Author: 
Peer reviewed: 
Yes, item is peer reviewed.
Date created: 
2000
Abstract: 

Does testability of a model really matter in economics? How would one know whether testability can ever matter? Why should testability matter to a model builder? These are the key questions addressed in this book. They involve the lofty concerns of methodology as well as the more mundane matters of model building itself.

Document type: 
Book

Testing Identification Strength

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2012
Abstract: 

We consider models defined by a set of moment restrictions that may be subject to weak identification. Following the recent literature, the identification of the structural parameters is characterized by the Jacobian of the moment conditions. We unify several definitions of identification that have been used in the literature, and show how they are linked to the consistency and asymptotic normality of GMM estimators. We then develop two tests to assess the identification strength of the structural parameters. Both tests are straightforward to apply. In simulations, our tests are well-behaved when compared to contenders, both in terms of size and power.

Document type: 
Report

Policy Implications of Alternative Economic Paradigms: Some Surprises from Endogenous Technological Changes

Author: 
Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2012
Abstract: 

One of the most neglected issues in modern economics concerns the consequences of technological change that is ubiquitous and endogenous. To address these we need to model technology as more than a scalar value in an aggregate production function, dealing with technological change in its messy micro economic details. This paper illustrates these points by considering the policy implications of some alternative economic theories that treat technology differently. The first section contrasts the policy implications of neoclassical and evolutionary economics with respect to the evaluation of the efficiency of the price system, policies with respect to 'distortions,' policies to discourage monopolies, to encourage economic growth in general, and infant industries and specific technological advances in particular. The second section contrasts New Classical and various versions of Keynesian economics with respect to micro behavioural underpinnings of macro relations, the place of technology as a driving force of economic change, and aggregate demand as both a source of fluctuations and a variable to be manipulated by policy makers.

Document type: 
Report

Rules, Rule-Following, and Cooperation

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2012
Abstract: 

Rules are thought to persist to the extent that the direct benefits of having them (e.g. reduced transactions costs) exceed the costs of enforcement and of occasional misapplications. We argue that a second crucial role of rules is as screening mechanisms for identifying cooperative types. Thus we underestimate the social value of rules when we consider only their instrumental value in solving a particular problem. We demonstrate experimentally that costly rule-following can be used to screen for conditional cooperators. Subjects participate in a rule-following task in which they may incur costs to follow an arbitrary written rule in an individual choice setting. Without their knowledge, we sort them into groups according to their willingness to follow the rule. These groups then play repeated public goods or trust games. Rule-following groups sustain high public goods contributions over time, but in rule-breaking groups cooperation decays. Rulefollowers also reciprocate more in trust games. However, when individuals are not sorted by type, we observe no differences in the behavior of rule-followers and rule-breakers.

Document type: 
Report

Land Markets and Inequality: Evidence from Medieval England

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2012
Abstract: 

The 13th century witnessed a substantial increase in inequality in the distribution of peasant landholdings relative to the distribution of the late 11th century. Innovations in property rights over land in 12th century England induced peasants to include the trading of small parcels of land as part of their risk coping strategy. We argue that these events are related. Recent theoretical work in development economics has explored the relationship between inequality and asset markets. When agents are able to trade productive assets to manage risk, the resulting dynamics may generate increasing inequality over time. We employ a simulation strategy to analyze the impact of land markets in generating inequality in 13th century landholdings. We find that the dominant factor contributing to the unequal distribution of land was the interaction between emerging land markets and population growth driven by high fertility rates in households with large landholdings.

Document type: 
Report