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Counterfactual Identification and Latent Space Enumeration in Discrete Outcome Models

Jiaying Gu, Thomas M. Russell, and Thomas Stringham

This paper provides a unified framework for studying the identification of counterfactual parameters in a general class of discrete outcome models, allowing for endogenous regressors and multidimensional latent variables, all without parametric distributional assumptions. Our main theoretical result is that, when the covariates are discrete, the infinite-dimensional latent variable distribution can be replaced with a finite-dimensional version that is equivalent from an identification perspective.

Quantifying the Benefits of Labor Mobility in a Currency Union

Christopher L. House, Christian Proebsting, and Linda L. Tesar

Unemployment differentials are greater between countries in the euro area than between U.S. states. In both regions, net migration responds to unemployment differentials, though the response is smaller in the euro area compared to the United States. We use a multi-country DSGE model with cross-border migration to quantify Mundell’s hypothesis that labor mobility could substitute for independent monetary policy in a currency union.

Bargaining Foundations for the Outside Option Principle

Dilip Abreu and Mihai Manea

We study a bargaining game in which a seller can trade with one of two buyers, who have values h and l (h > l). The outside option principle (OOP) predicts that the seller trades with the high-value buyer with probability converging to 1 at a price converging to max(h/2, l) as players become patient. While this prediction is supported by the Markov perfect equilibrium (MPE), a wide range of trading outcomes may emerge in subgame perfect equilibria (SPEs): in the patient limit, the seller can obtain any price in the interval [h/2, h] (and no other); moreover, allocative inefficiency and costly delay are possible.

Search Direction: Position Externalities and Position Auction Bias

Simon P. Anderson and Régis Renault

We formulate a tractable model of pricing under directed search with heterogeneous firm demands. Demand characteristics drive bids in a position auction and enable us to bridge insights from the ordered search literature to those in the position auction literature. Equilibrium pricing implies that the marginal consumer’s surplus decreases down the search order, so consumers optimally follow the firms’ position ordering. A firm suffers from “business stealing” by firms that precede it and “search appeal” from subsequent firms.

Revisiting the Non-Parametric Analysis of Time-Inconsistent Preferences

Federico Echenique and Gerelt Tserenjigmid

We revisit the recent revealed preference analysis of sophisticated quasi-hyperbolic consumers by Blow, Browning, and Crawford (2021) (BBC). We show that BBC’s revealed preference test is too lax. There are non-rationalizable data that would pass their test. A basic problem with their test is that it requires finding a certain endogenous elasticity, without regard to the rationalizing utility. Their approach motivates a more stringent test, also based on first-order conditions, that would connect the endogenous elasticity and utility: We show that this test is also too lax.

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"We prove a CLT for strategic network formation with homophilous agents. This enables inference on statistics derived from a single large network. We discuss practical procedures."

New Paper by Leung & Moon:

https://www.restud.com/normal-approximation-in-large-network-models/

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"A new theory on how regional shocks affect aggregate welfare—applied to US highway network improvements—unpacking how and why it deviates from the Fogel/Hulten characterization."

New paper by @MiyauchiYuhei, @EricDonald, & Fukui:

https://www.restud.com/unpacking-aggregate-welfare-in-a-spatial-economy/

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New paper by Campos-Mercade, Goette, Graeber, Kellogg, and Sprenger:

https://www.restud.com/de-gustibus-and-disputes-about-reference-dependence/

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New paper by Le Grand, Martin-Baillon & Ragot:

https://www.restud.com/should-monetary-policy-care-about-redistribution-optimal-monetary-and-fiscal-policy-with-heterogeneous-agents/

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