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Counterfactual Identification and Latent Space Enumeration in Discrete Outcome Models

13 July 2025

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

29 June 2025

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.

Endogenous clustering and analogy-based expectation equilibrium

26 June 2025

Philippe Jehiel and Giacomo Weber

Normal-form two-player games are categorized by players into K analogy classes so as to minimize the prediction error about the behavior of the opponent. This results in Clustered Analogy-Based Expectation Equilibria in which strategies are analogy-based expectation equilibria given the analogy partitions and analogy partitions minimize the prediction errors given the strategies.

Bargaining Foundations for the Outside Option Principle

26 June 2025

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.

Auctions with Frictions: Recruitment, Entry, and Limited Commitment

15 June 2025

Stephan Lauermann and Asher Wolinsky

Auction models are convenient abstractions of informal price-formation processes that arise in markets for assets or services. These processes involve frictions like bidder recruitment costs for sellers, participation costs for bidders, and limitations on sellers’ commitment abilities. This paper develops an auction model that captures such frictions.

Search Direction: Position Externalities and Position Auction Bias

15 June 2025

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

9 June 2025

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.