Matching Function Equilibria with Partial Assignment: Existence, Uniqueness and Estimation

In this paper, we argue that models coming from a variety of fields share a common structure that we call matching function equilibria with partial assignment. This structure revolves around an aggregate matching function and a system of nonlinear equations. This encompasses search and matching models, matching models with transferable, non-transferable and imperfectly transferable utility, and matching with peer effects. We provide a proof of existence and uniqueness of an equilibrium as well as an efficient algorithm to compute it. We show how to estimate parametric versions of these models by maximum likelihood. We also propose an approach to construct counterfactuals without estimating the matching functions for a subclass of models. We illustrate our estimation approach by analyzing the impact of the elimination of the Social Security Student Benefit Program in 1982 on the marriage market in the United States

Pricing Weather Derivatives

This paper presents a general method for pricing weather derivatives. Specification tests find that a temperature series for Fresno, California follows a mean-reverting Brownian motion process with discrete jumps and ARCH errors. Based on this process, we define an equilibrium pricing model for cooling degree day weather options. Comparing option prices estimated with three methods: a traditional burn-rate approach, a Black-Scholes-Merton approximation, and an equilibrium Monte Carlo simulation reveals significant differences. Equilibrium prices are preferred on theoretical grounds, so are used to demonstrate the usefulness of weather derivatives as risk management tools for California specialty crop growers.derivative, jump-diffusion process, mean-reversion, volatility, weather, Demand and Price Analysis,

How did the Sovereign debt crisis affect the Euro financial integration? A fractional cointegration approach.

This paper examines financial integration among stock markets in the Eurozone using the prices from each stock index. Monthly time series are constructed for four major stock indices for the period between 1998 and 2016. A fractional cointegrated vector autoregressive model is estimated at an international level. Our results show that there is a perfect and complete Euro financial integration. Considering the possible existence of structural breaks, this paper also examines the fractional cointegration within each regime, showing that Euro financial integration is very robust. However, in the financial and sovereign debt crisis regime, IBEX 35 appears to be the weak link in Euro financial integration, unless Euro financial integration recovers when this period ends

Estimating Sequential-move Games by a Recursive Conditioning Simulator

Sequential decision-making is a noticeable feature of strategic interactions among agents. The full estimation of sequential games, however, has been challenging due to the sheer computational burden, especially when the game is large and asymmetric. In this paper, I propose an estimation method for discrete choice sequential games that is computationally feasible, easy-to-implement, and e¢ cient, by modifying the Geweke-Hajivassiliou-Keane (GHK) simulator, the most widely used probit simulator. I show that the recursive nature of the GHK simulator is easily dovetailed with the sequential structure of strategic interactions.

Hedonic Prices and Implicit Markets: Estimating Marginal Willingness to Pay for Differentiated Products Without Instrumental Variables

The hedonic model of Rosen (1974) has become a workhorse for valuing the characteristics of differentiated products despite a number of well-documented econometric problems. For example, Bartik (1987) and Epple (1987) each describe a source of endogeneity in the second stage of Rosen's procedure that has proven difficult to overcome. In this paper, we propose a new approach for recovering the marginal willingness-to-pay function that altogether avoids these endogeneity problems. Applying this estimator to data on large changes in violent crime rates, we find that marginal willingness-to-pay increases by ten cents with each additional violent crime per 100,000 residents.

Recent developments in empirical IO: dynamic demand and dynamic games

Empirically studying dynamic competition in oligopoly markets requires dealing with large states spaces and tackling difficult computational problems, while handling heterogeneity and multiple equilibria. In this paper, we discuss some of the ways recent work in Industrial Organization has dealt with these challenges. We illustrate problems and proposed solutions using as examples recent work on dynamic demand for differentiated products and on dynamic games of oligopoly competition. Our discussion of dynamic demand focuses on models for storable and durable goods and surveys how researchers have used the "inclusive value" to deal with dimensionality problems and reduce the computational burden. We clarify the assumptions needed for this approach to work, the implications for the treatment of heterogeneity and the different ways it has been used. In our discussion of the econometrics of dynamics games of oligopoly competition, we deal with challenges related to estimation and counterfactual experiments in models with multiple equilibria. We also examine methods for the estimation of models with persistent unobserved heterogeneity in product characteristics, firms’ costs, or local market profitability. Finally, we discuss different approaches to deal with large state spaces in dynamic games.Industrial Organization; Oligopoly competition; Dynamic demand; Dynamic games; Estimation; Counterfactual experiments; Multiple equilibria; Inclusive values; Unobserved heterogeneity.

Estimating Risk Preferences in the Field

We survey the literature on estimating risk preferences using field data. We concentrate our attention on studies in which risk preferences are the focal object and estimating their structure is the core enterprise. We review a number of models of risk preferences—including both expected utility (EU) theory and non-EU models—that have been estimated using field data, and we highlight issues related to identification and estimation of such models using field data. We then survey the literature, giving separate treatment to research that uses individual-level data (e.g., property insurance data) and research that uses aggregate data (e.g., betting market data). We conclude by discussing directions for future research