Sequential Testing with Uniformly Distributed Size

Sequential procedures of testing for structural stability do not provide enough guidance on the shape of boundaries that are used to decide on acceptance or rejection, requiring only that the overall size of the test is asymptotically controlled. We introduce and motivate a reasonable criterion for a shape of boundaries which requires that the test size be uniformly distributed over the testing period. Under this criterion, we numerically construct boundaries for most popular sequential tests that are characterized by a test statistic behaving asymptotically either as a Wiener process or Brownian bridge. We handle this problem both in a context of retrospecting a historical sample and in a context of monitoring newly arriving data. We tabulate the boundaries by …tting them to certain exible but parsimonious functional forms. Interesting patterns emerge in an illustrative application of sequential tests to the Phillips curve model.Structural stability; sequential tests; CUSUM; retrospection; monitoring; boundaries; asymptotic size

Individually Rational, Balanced-Budget Bayesian Mechanisms and the

We investigate the issue of implementation via individually rational ex-post budget-balanced Bayesian mechanisms. We demonstrate that all social choice rules that generate a nonnegative ex-ante surplus, including ex-post efficient ones, can generically be implemented via such mechanisms for any profile of the utility functions. The aggregate expected surplus in these mechanisms can be distributed in an arbitrary way. Also generically, any ex-post efficient social choice rule can be implemented in an informed principal framework, i.e. when the mechanism is offered by one of the informed parties. Only ex-post efficient social choice rules that allocate all surplus to the party designing the mechanism are both sequential equilibrium outcomes and neutral optima, i.e. outcomes that can never be blocked. This result implies that even an informed principal can extract all surplus from players in a Bayesian mechanismmechanism design, individual rationality, ex-post budget balancing, surplus allocation, informed principal.

Public markets tailored for the cartel - Favoritism in procurement auctions -

In this paper, we investigate interaction between two firms, which are engaged in a repeated procurement relationship modelled as a multiple criteria auction, and an auctioneer (a government employee) who has discretion in devising the selection criteria. A first result is that, in a one-shot context, favoritism turns the asymmetric information (private cost) procurement auction into a symmetric information auction (in bribes) for a common value prize. In a repeated setting we show that favoritism substantially facilitates collusion. It increases the gains from collusion and contributes to solving basic implementation problems for a cartel of bidders that operates in a stochastically changing environment. A most simple allocation rule where firms take turn in winning independently of stochastic government preferences and firms'costs achieves full cartel efficiency including price, production and design efficiency. In each period the selection criteria is fine-tailored to the in-turn winner: the "environment" adapts to the cartel. This result holds true when the expected punishment is a fixed cost. When the cost varies with the magnitude of the distortion of the selection criteria (compared with the true government's preferences), favoritism only partially shades the cartel from the environment. We thus find that favoritism generally facilitates collusion at a high cost for society. Our analysis suggests some anti-corruption measures that can be effective to curb favoritism and collusion in public markets. It also shows that the rotation of officials is not one of them.auction ; collusion ; favoritism ; procurement

Limits of Acquisition in Price Competing Industry

It is well known that under di¤erentiated product monopolistic competition any merger always increases the total pro…t of the merged entity. Because of this one might expect complete monopolization of a price competing industry provided that there are no (legal) barriers to acquisition (merger). In this paper we show that this is not always true. The industry may not get monopolized because the value of a fringe firm is getting higher when the concentration of the industry gets higher. This creates strategic incentives for a fringe firm to be last in the line of those who sell their businesses. Sometimes this type of incentive prevents industry monopolization.

Public Markets Tailored for the Cartel- Favoritism in Procurement Auctions

In this paper, we investigate interaction between two firms engaged in a repeated procurement relationship modelled as a multiple criteria auction, and an auctioneer (a government employee) who has discretion in devising the selection criteria. A first result is that, in a one-shot context, favoritism turns the asymmetric information (private cost) procurement auction into a symmetric information auction (in bribes) for a common value prize. In a repeated setting we show that favoritism increases the gains from collusion and contributes to solving basic implementation problems for a cartel of bidders that operates in a stochastically changing environment. A most simple allocation rule where firms take turn in winning independently of stochastic government preferences and firms’ costs is optimal. In each period the selection criteria is fine-tailored to the in-turn winner: the "environment” adapts to the cartel. This result holds true when the expected punishment is a fixed cost. When the cost varies with the magnitude of the distortion of the selection criteria (compared with the true government’s preferences), favoritism only partially shades the cartel from the environment. Nevertheless, even in this case favoritism greatly simplifies matters for the cartel. We thus find that favoritism generally facilitates collusion at a high cost for society. Some policy implications of the analysis are suggested.auction, collusion, favoritism, procurement

On the Empirical Content of Quantal Response Equilibrium

The quantal response equilibrium (QRE) notion of McKelvey and Palfrey (1995) has recently attracted considerable attention, due in part to its widely documented ability to rationalize observed behavior in games played by experimental subjects. However, even with strong a priori restrictions on unobservables, QRE imposes no falsifiable restrictions: it can rationalize any distribution of behavior in any normal form game. After demonstrating this, we discuss several approaches to testing QRE under additional maintained assumptions.quantal response equilibrium, falsifiability, testable restrictions, regular quantal response equilibrium, rank-cumulative probabilities, Block-Marschak polynomials

On the Empirical Content of Quantal Response Equilibrium

The quantal response equilibrium (QRE) notion of McKelvey and Palfrey (1995) has recently attracted considerable attention, due in part to its widely documented ability to rationalize observed behavior in games played by experimental subjects. However, even with strong a priori restrictions on unobservables, QRE imposes no falsifiable restrictions: it can rationalize any distribution of behavior in any normal form game. After demonstrating this, we discuss several approaches to testing QRE under additional maintained assumptions.Quantal response equilibrium, Falsifiability, Testable restrictions, Regular quantal response equilibrium, Rank-cumulative probabilities, Block-Marschak polynomials

On the Empirical Content of Quantal Response Equilibrium

The quantal response equilibrium (QRE) notion of McKelvey and Palfrey (1995) has recently attracted considerable attention, due in part to its widely documented ability to rationalize observed behavior in games played by experimental subjects. However, even with strong a priori restrictions on unobservables, QRE imposes no falsifiable restrictions: it can rationalize any distribution of behavior in any normal form game. After demonstrating this, we discuss several approaches to testing QRE under additional maintained assumptions