TImag08-fall2003 by Tinbergen Institute

tinbergen institute

magazine 8

Fall 2003

Practical auctioneering Enough work for motivated economists An interview with Robert Dur Weak instruments and empirical economics

Tinbergen Magazine is published by

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Institute,

the

Institute for economic research of Erasmus Universiteit Rotterdam, Universteit van Amsterdam and Vrije Universiteit Amsterdam.

www.tinbergen.nl tinbergen institute

magazine 8

In this issue

Fall 2003

Practical auctioneering

In depth

Enough work for motivated economists An interview with Robert Dur Weak instruments and empirical economics

Tinbergen Magazine is published by

Tinbergen

Institute,

In depth

the

Institute for economic research of Erasmus Universiteit Rotterdam, Universteit van Amsterdam and Vrije Universiteit Amsterdam.

Practical Auctioneering

Highlighting ongoing research at Tinbergen Institute for policymakers and scientists.

Jacob K. Goeree & Theo Offerman

“Enough work for motivated economists” An interview with Robert Dur Robert Mosch

Weak instruments and empirical economics Frank Kleibergen

Jury

Jury report, Tinbergen Prize 2003 In short

In short

Papers in Journals

Discussion papers

Theses

References

Theses, Papers in Journals and books published by TI fellows

and discussion papers that have appeared in the last half year

Tinbergen Prize 2003 This issue of Tinbergen Magazine features articles written by the winners of the Tinbergen Prize 2003, Jacob Goeree and Frank Kleibergen. Jacob Goeree’s piece, “Practical auctioneering” (on page 3), is co-authored with Theo Offerman. “Weak instruments and empirical economics” (on page 11) is the title of the article by Frank Kleibergen.

Practical Auctioneering ●

Jacob K. Goeree and Theo Offerman

●●

●

Jacob Goeree is a Research Fellow of the Alfred P. Sloan Foundation and the Tinbergen Institute, and Professor of Economics at the Universiteit van Amsterdam, where he received his Ph.D. in 1997. In April 2003 he was the joint winner of the Tinbergen Prize for the scientifically most successful alumnus. ●●

Theo Offerman is a Research Fellow of the Royal Netherlands Academy of Arts and Sciences (KNAW) and the Tinbergen Institute, and Associate Professor of Economics at the Universiteit van Amsterdam, where he received his Ph.D. in 1996.

Auctions provide a familiar and simple method for reallocating resources from sellers to buyers. They have been used in the sale of a variety of goods since antiquity, and with the recent advent of the Internet, the range and number of goods sold in auctions have reached enormous proportions.1 Auctions have also been increasingly applied in the transfer of assets from the public sector to the private sector. A particularly prominent example is the sale of spectrum for telecommunication purposes. Following the successful auctions in the US in 1994, many countries decided to auction their spectrum as well. In the summer of 2000, these UMTS auctions raised over 100 billion Euros across Europe.

The modern approach to auctions started with William Vickrey’s seminal paper in the March 1961 issue of the Journal of Finance. Vickrey was the first to analyse auctions in the context of Bayesian games of incomplete information (e.g. bidders for a painting know how much it is worth to them, but they don’t know rivals’ valuations). Vickrey studied the familiar first-price auction, in which the high bidder wins and pays her own bid, and introduced a novel format, the second-price or “Vickrey auction,” where the winner pays the highest losing bid. He showed that the revenues a seller obtains from employing a first- or second-price auction are identical– a result that has since been generalised to other formats. Vickrey’s

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celebrated revenue equivalence theorem now forms one of the cornerstones of modern auction theory, as acknowledged by the Nobel Prize committee in 1996. Auction theory has since become an active area of research, and the assumptions underlying the revenue equivalence theorem have been relaxed considerably. In the last three decades, economists have investigated the efficiency and revenue-generating properties of different auction formats in the presence of risk aversion, correlation of information, budget constraints, etc. Other factors, such as interdependent valuations and asymmetries between bidders, have surfaced in the literature only recently, probably due to the computational complexities they create. These factors are critically important for the success of an auction, however, and many selling mechanisms observed in real life exhibit sensible ways to deal with them. This article describes some recent developments in “practical auctioneering”: the interplay between formal economic modelling and practical auction design.

The Amsterdam auction Large asymmetries between bidders can have devastating consequences for the profitability of certain auction formats. Consider, for instance, the case of a real-estate auction, where speculators out for a bargain compete with buyers that have a genuine interest in the house. For concreteness, suppose that speculators are willing to pay $200,000 for a house. They may be able to sell it for more on the market, but they have to take into account transaction costs, taxes, the effort of finding a buyer, etc. To make a decent profit, they therefore won’t bid more than $200,000. Several of these speculators compete against a newly married couple whose (unknown) value for the house lies somewhere between $400,000 and $500,000. When a standard ascending (or English) auction is employed, the price will rise to $200,000, after which all speculators drop out and the auction stops. So the house goes to the newlyweds for a price of $200,000. Also in the first-price auction, revenues will be only $200,000 – even though the house is worth at least twice as much to the newlyweds.

tinbergen magazine 8, fall 2003

An intriguing and practical solution to the problem of bidder asymmetries is provided by “premium auctions,” where the highest losing bidder receives some prize amount. Premium auctions are regularly used to sell land, boats, machinery, and equipment, and many Belgian and Dutch towns have their own variant, some dating back to medieval times (Sikkel, 2001). Actual premium auctions are rich in institutional details. Goeree and Offerman (2003a) consider a stylised premium auction with the essential features shared by all premium auctions. Since Amsterdam is the most prominent city holding premium auctions, we refer to this auction as the “Amsterdam auction.”2 Amsterdam auctions consist of two stages. In the first stage, the auctioneer raises the price until all but two bidders have dropped out of the auction. The level at which the last bidder exits in the first stage, the “bottom price,” acts as a reserve price in the second stage. In this stage, the two finalists submit a sealed bid no less than the bottom price, the highest bidder gets the object, and both receive a premium proportional to the difference between the lowest sealed bid of the second stage and the bottom price of the first stage (say 20% of this difference). Finally, the winner pays the lowest sealed bid of the second stage.3 The revenue-enhancing effects of the Amsterdam auction can be illustrated in the context of the above example where several speculators compete against a single “stronger” bidder (i.e. the newly married couple). First, note that the newlyweds have no reason to bid below their value, which lies somewhere between $400,000 and $500,000. If they would, they might lose the auction at a price they would have preferred to win, and they might forgo a possible premium. The speculators, who realise that the newlyweds will not bid below their value, now have an incentive to remain in the auction even if the price exceeds $200,000. Indeed, suppose all other speculators drop out at $300,000; it then pays for one speculator to stay in the auction a little longer, say to $301,000, in order to win the premium. In the second stage this speculator can simply bid $399,000 to make sure the house is won by the newlyweds, and cashes in on the premium: 10% of $98,000, or $9.800. Of course, all speculators face the same situation, and none will want to drop out before $400,000. Once the price level exceeds this amount, however, the incentives of speculators change, as there is some chance that the newlyweds drop out.4 For this reason, a speculator who makes it to the second stage may find it optimal to bid $400,000 in this stage as well, in which case no premium has to be awarded (since the

lowest price of the second stage and the bottom price of the first stage coincide). In other words, the Amsterdam auction provides a cheap way (i.e. no premium) for the seller to double the revenues (from $200,000 to $400,000) without having to discriminate between bidders or having to gather information about which reserve prices or bidding credits to choose. In a series of experiments using both symmetric and asymmetric settings, Goeree and Offerman (2003a) compare the performance of standard first-price and English auctions with that of the Amsterdam auction. Figure 1 shows a histogram of revenues in an asymmetric bidding environment like the one in the above example. Note that the Amsterdam auction clearly outperforms the standard first-price and English auctions. The latter format is not robust in this environment, since it produces low revenues (sometimes close to zero) at a high variance.

Figure 1. Revenue histogram for the different auction formats.

Inefficiencies in auctions It seems fair to say that sellers of real estate are mainly concerned with the revenue of the auction. In contrast, when a government decides to privatise public assets by means of an auction, they may be especially interested in the efficiency of the resulting allocation. The recent European UMTS auctions, for instance, were motivated mainly by efficiency arguments (“put licenses in the hands of those that value them the most”), rather than as a means to alleviate governments’ budget deficits. Until recently, auctions were assumed to always yield 100% efficient allocations. This belief partly resulted from the common classification of auctions into one of two categories. In private-value auctions, bidders know their own value for the commodity with certainty, but are unsure about the valuations of others. The sale of a painting is often used to illustrate this type of auction. In contrast, common-value auctions pertain to situations in which the object for sale is

moderate private value and an overly optimistic estimate of the common value may outbid a rival with a superior private value but more realistic conjectures about the common value. In their analysis of auctions with private- and common-value elements, Goeree and Offerman (2002, 2003b) show that more uncertainty about the common value implies a higher level of expected inefficiency. When the uncertainty about the common value is so large as to override the private-value information, auctions are no more efficient than a random allocation rule. In the other extreme (when there is no uncertainty about the common value at all), the auction is reduced to an efficient private-value auction.

Auctioning of licenses to operate in a market

worth the same to everyone, but bidders have different private information about its true value. A well-known example where the common-value set-up applies is the auctioning of oil drilling rights – since the amount of oil is the same no matter who wins the auction. Most real-world auctions, however, are not exclusively common value or private value. For instance, when a painting is auctioned to a private collector, it may be resold in the future, and the resale price will be the same for all bidders. This adds a commonvalue component to the auction. And in the oil-drilling example, private-value differences may arise when a superior technology enables some firms to exploit the rights better than others. Efficiency is not an issue in (pure) private- or common-value auctions. In the private-value context, Vickrey (1961) had already shown that optimal bids are increasing in bidders’ values, and hence, that the object is awarded to the bidder who values it the most. And in common-value auctions, all bidders value the object the same, so any allocation rule is (trivially) efficient. However, inefficiencies should be expected when bidders possess both private- and common-value information. The intuition for this result is straightforward: a bidder with a

The observation that more uncertainty about the object’s value results in more inefficiency has important implications for the auctioning of licenses to operate in a market. There, the cost structure of bidding firms constitutes a private-value element, while the uncertain demand for consumer products actually introduces a common-value aspect. The added value of using auctions as a means of assigning licenses is greater when the uncertainty about the common-value aspect is small than when it is large. For instance, vendor locations at fairs are often auctioned on an annual basis, which enables bidders to accumulate information about demand over time. Consequently, the common value of the location can be determined more precisely, thereby reducing possible efficiency losses in license auctions. In contrast, the recent UMTS auctions provide an example in which the uncertainty about the common-value aspect was likely to be large. First, these auctions are held infrequently. Second, estimating demand is complicated in an emerging market (such as the market for mobile phones). As a result, efficiency losses may be more pronounced.5

Outlook The study of auctions has matured considerably since Vickrey’s original paper. Theoretical and experimental research in this area is booming, with many spillovers to other fields (e.g. the analysis of litigation systems, lobbying, fund-raising, and optimal taxation; see references). However, recent license auctions conducted across Europe clearly revealed the limitations in our current understanding. These “natural field experiments” will undoubtedly serve as a catalyst for new avenues of research, as they uncovered important issues such as signalling, information and payoff externalities, preemptive bidding, collusion, etc. Some license

tinbergen magazine 8, fall 2003

auctions, such as the one planned for wireless-local-loop frequencies, suggest a completely novel and complex design. These developments form a great impetus for “practical auctioneering,” and move research on auctions beyond the realm of mere academic interest.

Notes 1 Objects sold on the largest Internet auction site, eBay, include collectibles, electronics, software, travel services, art, wine, etc. In 2002, the Northern Californian town Bridgeville was put up for sale through eBay (“own your own ZIP code: 95526”), and sold at $1.8 million just seconds before the auction closed.

References

2 In the Netherlands these auctions are called

Goeree, J.K. (2002) Retiring rich, in Essays in Honor

“plokgeld veilingen,” while in Belgium they are

of Claus Weddepohl, C. Hommes et al., eds., Berlin:

known as “veilingen met het recht van verdieren,”

Springer-Verlag, 197-207.

which is old Dutch for “auctions with the right to

Goeree, J.K. (2003) Bidding for the future: Signaling

make more expensive.”

in auctions with an aftermarket, Journal of

3 Goeree and Offerman (2003a) also consider the

Economic Theory, 108(2), 345-364.

case in which the winner pays the highest sealed

Goeree, J.K. and T. Offerman (2002) Efficiency in

bid in the second stage. We use the terminology

auctions with private and common values: An

“first-price Amsterdam auction” to distinguish this

experimental study, American Economic Review,

format from the “second-price Amsterdam auction”

92(3), 625-643.

described in the main text.

Goeree, J.K. and T. Offerman (2003a) The

4 In the actual premium auction used in Amsterdam,

Amsterdam auction, Econometrica, forthcoming.

bidders who participate only to win the premium

Goeree, J.K. and T. Offerman (2003b) Competitive

are known as “premium hunters.” In a typical ses-

bidding in auctions with private and common val-

sion of the Amsterdam auction, which is held bi-

ues, Economic Journal, 113 (489), 598-613

weekly, there will be about ten premium hunters

Goeree, J.K. and T. Offerman (2003c) Winner’s curse

present. When a premium hunter ends up winning

without overbidding, European Economic Review,

the house for sale, he is called a “hanger.” In our

47, 625-644.

experiments, hangers could incur a loss and possi-

Onderstal, S. (2002) Essays in auction theory, Ph.D.

bly go bankrupt, which meant that they had to

thesis, Tilburg University.

leave the experiment without receiving any money.

Sikkel, M. (2001) Plokken en mijnen, Parool, April 3, 2.

In former times, the consequences of being a hang-

Vickrey, W. (1961) Counterspeculation, auctions,

er in the actual Amsterdam auction could be much

and sealed tenders, Journal of Finance, 16, 8-37.

more severe: if a hanger could not pay for the house he won, he would be sent to prison for one or two months. If it happened twice, he would be tortured (Sikkel, 2001). 5 Goeree and Offerman (2002, 2003b) also evaluate policies to enhance efficiency and revenues. Our study shows that governments should (i) invest in gathering and providing information about the licenses that are sold and (ii) stimulate entry into the auction, e.g. by having no participation fee (or even reimbursing bidders for their opportunity costs).

tinbergen magazine 8, fall 2003

Up close

Enough work for motivated economists

By Robert Mosch

An interview with Robert Dur Robert Dur is post-doctoral researcher at the Erasmus Universiteit Rotterdam. In 2000, he was the youngest laureate to receive a NWO Vernieuwingsimpuls Research Grant for his project on “Intrinsic motivation and extrinsic rewards”.

The Dutch Scientific Organisation (NWO) subsidises your research on “intrinsic motivation and extrinsic rewards” with 650,000 euro for five years. What is your intrinsic motivation to do this research? My interest in this topic is a direct result of the research I did for my Ph.D. thesis, which explored political economics. One of the basic assumptions in political economics is that politicians are no angels. They are self-interested and behave opportunistically– to ensure, for instance, that they win the next election. Elections can be seen as a selection procedure in which voters select the politicians who seem to be the most competent, to have the right policy preferences,

tinbergen magazine 8, fall 2003

and to have the best motivation to do their job. Regarding this motivation, there seem to be two extremes. The first, which can be found in most of the political economics literature, views politicians as motivated only by their narrow self-interest. They take bribes and do not hesitate to abuse their position. Sometimes, this can be rather subtle. As there is an information asymmetry between politicians and citizens, politicians can decide to withhold information, if it is not to their advantage. This could be the case, for example, if a certain policy conducted by an administration proves to be a failure and should be replaced by a new policy. Such a new policy would, however, signal to the voters that the original policy had somehow fallen short. This would damage the politician’s reputation and lower his chance of re-election. The politician therefore decides to stick to his earlier inefficient policy. At the other extreme in motivation is the view of government in the public economics literature, where a social planner acts in the interest of society. Of course, most people are somewhere in between these extremes. It is important to take this into account when thinking about political institutions. If institutions are designed merely to deal with politicians with a ‘bad’ motivation, then people with a ‘good’ motivation may be discouraged from striving for a political career. In a recent working paper, you start with the observation that economic models of worker behaviour typically assume that people dislike working. Do you dislike working? No, certainly not. That paper flows out of my second research interest, labour and personnel economics. When an employer is looking for a new employee, he is interested not only in the diplomas of the applicants, but also in their motivation, how they would fit in the team, etc. The traditional theories on workers’ behaviour assume that all workers are lazy and greedy. What we try to do is to think more realistically about people’s preferences. On the one hand, workers can be motivated by the pride they take (or the fun they have) in their work, and therefore exert more effort. On the other hand, workers can be distracted from doing their work by inherent ‘bad’ habits or character traits, like envy, anger, vanity, and so on. What contribution do these sins and virtues make to the traditional analysis? Well, consider envy as an intrinsic motivation for workers, a topic that I’m working on with Ami Glazer. When it is assumed that workers are risk-neutral, the employer should pay the full marginal product so that the interests of the employer and employee are in line with each other. So, no problems. But what about when workers are risk9

averse? Traditional analysis says that the less risk-averse employer should take over some of the risks, which means that workers receive weaker monetary incentives. But when a worker puts in more effort in this situation, part of the extra rents go to his boss, which leads to envy. As a result, the envious worker puts in less effort. Envy also means that the effect of incentives increases. Besides the usual effect that effort becomes more rewarding, higher incentive pay means that the boss gains less from his effort, which promotes worker effort. With this point in mind, consider the empirical puzzle that monetary incentives in the public sector are lower than in the private sector. This puzzle could be explained using the analysis above if the workers in the public sector have less reason to be envious than their private sector colleagues. That is not a strange thought, because the rents in the public sector are for the society in general, while the rents in the private sector end up in the hands of (already rich) shareholders. Does this imply that workers who are better motivated (for example, because they are not envious or take pride in their work) get punished in the form of lower salaries? Yes, but you could also argue that since they are already so lucky as to have a good motivation, it is no problem to take some rents from them. However, competition between employers for the best-motivated workers will drive up their wages. Only when this competition is lacking (for instance, as a result of government regulation) may employers take advantage of workers’ motivation. In a recent paper with Josse Delfgaauw, we showed that this extraction of workers’ motivational rents might be an alternative explanation for weak incentives in public sector jobs. Weak incentives in public sector jobs can be seen as an implicit tax on motivation.

Weak incentives in public sector jobs can be seen as an implicit tax on motivation But ‘if you pay them peanuts, you get monkeys’? That is more the competence story instead of the motivation story. For instance, if you want to attract politicians with high abilities, you have to pay them well. From the motivation side, however, you have to be careful not to pay too much, because a higher salary gives stronger incentives to stay in office. This means stronger incentives for ‘bad’ or ‘dishonest’ politicians to fool voters

A bad political culture may be self-reinforcing: behaving dishonestly may become the only way to

motivations are stable, behaviour may be different, depending on the institutional environment. This is in line with the outcry of many ex-politicians that the system forces you to act in specific ways.

survive in politics. in order to be (re)elected. When salaries are low, ‘good’ or ‘honest’ politicians can signal to the voters that they are intrinsically motivated to take the job. I am working with Klaas Beniers to try to put this in a formal framework. Elections can be modelled as tournaments in which politicians compete for prizes. The politicians have different motivations on a continuum of honest to dishonest. Both the politicians and voters have beliefs about the shape of this distribution. This forms the political culture of a country. This political culture influences the behaviour of politicians and voters. For example, if an honest politician believes that his colleagues are also honest, he might be willing to honestly admit that an earlier decision on a certain topic was wrong and to change that policy in line with his new insights. However, if the honest politician believes that most of the other politicians are more or less dishonest, he might fear – with reason – losing his chances of re-election after admitting a mistake. Higher remuneration for politicians might strengthen everybody’s incentive to behave dishonestly, which would in turn make dishonest behaviour more attractive. So, even when the

What are the future perspectives for this research field? The first aim is, of course, to explain the world. Why do political cultures differ? What is the role of institutions? What motivates people’s behaviour? After this, we can consider the implications for institutional design. As a matter of fact, economists put a stamp on society, sometimes far more than scientists from other disciplines. However, the traditional view of economists regarding the behaviour of human beings, the homo economicus, is too narrow and therefore not free of danger. Giving economic advice with this narrow view in mind could result in the design of institutions with negative implications for people with good, not purely selfinterested intentions and motivations. It is therefore important to extend the traditional models and make them more realistic – in line with behaviour of ‘real’ people. Insights from the field of psychology are helpful in this regard, while economics could help psychology by offering a research method with clear assumptions and modelling. Although this has already led to some very interesting papers, we are still far away from modelling emotions. In other words, motivated economists will still find plenty of work to do in this field.

tinbergen magazine 8, fall 2003

Weak instruments and empirical economics Frank Kleibergen

●

Frank Kleibergen is professor

of economics at Brown University and associate professor in econometrics at the Universiteit van Amsterdam. He is the joint winner of the Tinbergen Prize and is sponsored by a NWO Vernieuwingsimpuls research grant. His research interests include instrumental variable methods and Bayesian econometrics.

Use of a large data set automatically implies that the empirical validation of an economic model is conducted in a statistically sound manner. That was the common thinking – until recently. The large sample validity of statistical inference is often a misconception for economic models that contain endogenous variables. Endogeneity is a commonality of many economic variables, and results from their joint determinedness. Prices and quantities are jointly determined in markets, for instance; earnings and the length of education are jointly determined by a person’s ability, since more intelligent people go to school longer and earn higher wages. Because endogenous variables are determined simultaneously, we need to ensure that empirical relationships do not represent properties arising from other background variables. This leads to the use of “instrumental variables”, or instruments that affect only one of the involved endogenous variables. Instrumental variables allow one to determine the sole effect of one endogenous variable on the other. With regard to the example of the return on education for earnings, the instruments should be related to the length of education, but not to wages or intelligence. Examples of such instruments

are proximity-to-school variables (used by Card, 1995), and date-of-birth-related variables (used by Angrist and Krueger, 1991). Angrist and Krueger (1991) use quarterof-birth-related variables as instruments to determine the return on education for earnings. Quarter-of-birth-related variables can serve as instruments, since the quarter of birth is randomly distributed over the population and is thus not related directly to intelligence or earnings. Because of the age at which a person enters school, and US state-dependent compulsory school attendance laws, the quarter of birth does indeed affect educational attainment. The degree to which the quarter of birth explains the educational attainment is rather minor, however, and the quarter of birth is therefore a weak instrument. Staiger and Stock (1997) show that many statistical procedures are unreliable in case of weak instruments– even when the number of observations is large. Bound, Jaeger and Baker (1995) show that similar empirical results are obtained for the Angrist and Krueger data when artificially generated random variables are used as instruments instead of quarter-of-birth variables. Hence, although the dataset of Angrist and Krueger (1991) has more than 300,000 observations,

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their empirical results are affected by weak instruments, and must be interpreted with caution. Weak instruments commonly arise in empirical analyses of economic models that contain endogenous variables. It is thus important to have statistical procedures that remain trustworthy when the instruments are weak. Economic models with endogenous variables are prominent and have a longstanding research tradition in econometrics (see Hood and Koopmans, 1953). An extensive literature has therefore appeared on the behaviour of estimators and statistical tests in small samples that are used for statistical inference in these models (for a review of the literature, see Phillips, 1983). This extensive literature has, however, hardly influenced the empirical analysis of economic models with endogenous variables. The reason for this neglect is twofold. First, it was thought that the convenient large sample theory of estimators and statistical tests could be safely used in large datasets. Second, the small sample theory is highly mathematical, and is not geared towards applications. It is surprising, for example, that this literature contains no statistical test that remains trustworthy in case of weak instruments developed after Anderson and Rubin (1949). The awareness of the pervasiveness of weak instruments since Angrist and Krueger (1991), and the

lack of statistical procedures that are robust to them inspired a rebirth of research on instrumental variable procedures. Kleibergen (2002) and Moreira (2003) recently developed two test procedures that remain trustworthy when instruments are weak. For a long time, the only statistical test procedure robust to weak instruments was the Anderson-Rubin statistic developed by Anderson and Rubin (1949), which tests both the validity of the economic model and the value of the parameters of the endogenous variables. Usually, we are interested in testing only one of these two hypotheses. When we then use the Anderson-Rubin statistic to test this hypothesis, we always have to test the other hypothesis alongside, which comes with a loss of discriminatory power. Hence, there was room for improvement on the Anderson-Rubin statistic in the construction of a test that focuses on only one of the hypotheses involved in the Anderson-Rubin statistic. This goal was met through the two novel test procedures that test only the value of the parameters of the endogenous variables. Kleibergenâ&#x20AC;&#x2122;s (2002) test procedure, based on the score or Lagrange multiplier principle, has an asymptotic distribution that does not depend on the quality of the instruments. The asymptotic distribution therefore also adequately reflects the behaviour of the test procedure in small samples. Moreiraâ&#x20AC;&#x2122;s (2003) test procedure is based on the likelihood ratio principle and has a conditional asymptotic distribution that depends on an estimable parameter. Both tests remain trustworthy in case of weak instruments, and test only the value of the parameters of the endogenous variables. They have typically more discriminatory power, therefore, than the Anderson-Rubin statistic. Empirical analyses using statistics that remain trustworthy in case of weak instruments can lead to vastly different conclusions. Kleibergen (2002) analyses the AngristKrueger data using such statistics, and constructs 95% confidence sets for the return on education. He shows that for some specifications of the model used by Angrist-Krueger (1991), the 95% confidence set contains every possible value for the return on education. These confidence sets indicate that the instruments are weak. The amount of information in the instruments is then meagre, and does not help to determine the return on education. Hence, any value for the return on education can result, which is reflected by the 95% confidence set that contains all possible values. Angrist and Krueger (1991) use statistics that are not trustworthy in case of weak instruments, and their 95% confidence sets are always finite. Given that there is little information in the instruments, these 95% confidence sets erroneously imply that some-

References Anderson, T.W. and H. Rubin (1949). Estimators of the parameters of a single equation in a complete set of stochastic equations. Annals of Mathematical Statistics, 21:570-582. Angrist, J.D. and A.B. Krueger (1991). Does compulsory school attendance affect schooling and earnings? Quarterly Journal of Economics, 106:9791014. Bound, J., D.A. Jaeger and R. Baker (1995). Problems with instrumental variables estimation when the correlation between the instruments and the endogenous explanatory variable is weak. Journal of the American Statistical Association, 90:443-450. Card, D. (1995). Using geographic variation in college proximity to estimate the return to schooling. L.N. Christofides, E.K. Grant and R. Swidinsky, eds., Aspects of Labour Market Behaviour: Essays in Honor of John Vanderkamp, pages 201-222. University of Toronto Press, Toronto, Canada. (NBER Working Paper 4483 (1993)).

thing can be said about the return on education. Kleibergen (2002) also obtains 95% confidence sets for the return on education for a number of specifications that are finite and centred around plausible values. For these specifications, there is information about the return on education in the instruments. The possibility of an unbounded confidence set therefore helps to discriminate between specifications in which the instruments are weak (and contain little information) and specifications that are properly identified (so the instruments do contain information on the return on education). The study of weak instruments is currently an active research environment. This research progresses along two lines. The first seeks to extend the statistical test procedures of Kleibergen (2002) and Moreira (2003). These procedures were developed for joint tests on all parameters in linear economic models with endogenous variables. Extensions can therefore be made towards tests on subsets of the parameters (see e.g. Kleibergen, 2003a) and towards a generalized methods-of-moments setting that allows for non-linear models (see Kleibergen, 2003b). Another line of research focuses on applying the statistical test procedures in empirical work. The weak instrument literature has been motivated, to a large extent, by the return on education study of Angrist and Krueger (1991). The occurrence of weak instruments is not restricted to quarter-ofbirth variables, however. Use of statistical test procedures that are robust to weak instruments could also have profound consequences in the empirical analysis of other economic models such as stochastic discount factor models (Stock and Wright, 2000, and Kleibergen, 2003b), and factor models (Kan and Zhang, 1999a,b).

Hood, W.C. and T.C. Koopmans (1953). Studies in Econometric Method, Volume 14 of Cowles Foundation Monograph. Wiley (New York). Kan, R. and C. Zhang (1999a). Two-pass tests of asset pricing models with useless factors. Journal of Finance, 54:203-235. Kan, R. and C. Zhang (1999b). GMM tests of stochastic discount factor models with useless factors. Journal of Financial Economics, 54:103-127. Kleibergen, F. (2002). Pivotal statistics for testing structural parameters in instrumental variables regression. Econometrica, 70:1781-1803. Kleibergen, F. (2003a). Pivotal statistics for testing subsets of structural parameters in the IV regression model. Review of Economics and Statistics, forthcoming. Kleibergen, F. (2003b). Testing parameters in GMM without assuming that they are identified. Tinbergen Institute Discussion Paper TI 2001-67/4, 2003b. Moreira, M.J. (2003). A conditional likelihood ratio test for structural models. Econometrica. Forthcoming. Phillips, P.C.B. (1983). Exact small sample theory in the simultaneous equations model. In Z. Griliches and M.D. Intrilligator, eds., Handbook of Econometrics, vol. 1. North-Holland Publishing Co., Amsterdam. Staiger, D. and J.H. Stock (1997). Instrumental variables regression with weak instruments. Econometrica, 65:557-586. Stock, J.H. and J.H. Wright (2000). GMM with weak identification. Econometrica, 68:1055â&#x20AC;&#x201D;1096.

tinbergen magazine 8, fall 2003

Tinbergen Prize

Jury report, Tinbergen Prize 2003 The jury awarding the Tinbergen Prize 2003, honouring the scientifically most successful TI alumnus, had no easy time choosing this yearâ&#x20AC;&#x2122;s winner among the many outstanding researchers at Tinbergen Institute. To focus our search, we finally decided that only alumni with full-length publications in top journals (the AA-list of the Tinbergen Institute) could qualify as potential recipients of the Tinbergen Prize. This view reflects our conviction that quality matters more than quantity, and that peer review by the profession is an adequate way to distinguish the excellent from the good. The selection criterion left us with a short-list of four candidates. We then proceeded to read the major publications of the candidates on the short-list, and narrowed down the list of contenders to two. Choosing between the remaining two contenders, both excellent researchers with rapidly growing reputations in their own fields, turned out to be difficult. Comparison between their respective contributions proved complicated because their fields of expertise are disparate. The jury therefore decided to award the Tinbergen Prize to the two candidates jointly, noting that each is an outstanding researcher and would have deserved to be sole winner of the prize. The joint winners of the Tinbergen Prize 2003 are Jacob Goeree and Frank Kleibergen. Jacob Goeree, currently Professor of Economics at the Universiteit van Amsterdam, received his Ph.D. from Tinbergen Institute in 1997. His research work ranges widely across different aspects of economics. His work is characterised by a common approach that combines a sure grasp of economic theory with rigorous experimental techniques. His research, which has been carried out with a number of different collaborators here in the Netherlands and abroad, has yielded interesting results about the functioning of specific mechanisms such as auctions, and has provided us with rich insights into human behaviour in strategic situations, more generally. In the best traditions of scientific work, his efforts highlight the limits of our existing theories and point to avenues for promising research. Frank Kleibergen graduated from Tinbergen Institute in 1994, and is now Associate Professor of Econometrics at the Universiteit van Amsterdam. He has made important contributions in a number of different areas of econometric theory, including the development of a complete Bayesian framework for co-integration analysis, pivotal statistics for testing structural parameters in instrumental variables regression, vector error correction analysis, and econometric inference in the presence of weak instruments only. These topics are all timely, and Frankâ&#x20AC;&#x2122;s work shows a deep understanding of the topics he addresses and the way they are related. In the best tradition of the subject, his work combines statistics, classical econometrics and Bayesian econometrics at the highest level. Rotterdam, April 11, 2003 The jury for the Tinbergen Prize Arie Kapteyn (chair) Sanjeev Goyal Jan Willem Gunning Jan Kiviet Jan van Ours

tinbergen magazine 8, fall 2003

most of the autocorrelation in absolute returns. The forecasts from the new model are better than those from ARFIMA models, particularly when extreme events are considered.

Philip Hans Franses, Marco van der Leij and Richard Paap (EUR) 2002, Modelling and forecasting

papers in journals

level shifts in absolute returns, Journal of Applied Econometrics, 17(5), 601-616.

Modelling and forecasting level shifts in absolute returns A well-known feature of stock market returns is that they exhibit volatility clustering: the tendency of outliers to come in sequences. Therefore, a measure of volatility, such as absolute returns, may experience temporary level shifts. Absolute returns may thus be high in some periods, and low in others. Closely related to this feature is the persistent autocorrelation in absolute returns. While existing models (such as the ARMA and ARFIMA models for absolute returns, and the GARCH models for common returns) focus on the autoregressive behaviour of volatility, this paper focuses on the feature of temporary level shifts in absolute returns. For this purpose we propose a switching-regime censored latent effect autoregression (SR-CLEAR) model. The model assumes that a censored latent variable drives up the volatility in some periods, while it is absent in others. Further, it takes into account the leverage effect, since bearish markets tend to exhibit higher volatility.

The anatomy of unemployment dynamics This paper develops a model to examine how individual unemployment duration and incidence are affected by time-varying macroeconomic conditions. The model analyzes aggregate unemployment incidence and duration data (quarterly French data over the period 1982-1994). Calendar time effects are allowed to act on the exit probabilities for all currently unemployed, and the composition of the inflow into unemployment depends on calendar time at the moment of inflow.

ing unemployment are shown to depend negligibly on the date he entered unemployment. These findings contrast with theories that predict that the composition of the inflow will be particularly unfavourable in bad times because of the restructuring efforts of firms. Our results show, in contrast, that female cohorts entering at the top of the cycle are more sizable than their male counterparts, and have relatively short unemployment spells. The paper thus provides a mixed explanation for the decline in the rate of leaving unemployment, relative to the time spent in unemployment. Heterogeneity in exit probabilities, as well as the induced deteriorating quality of workers surviving in unemployment, explain the negative duration dependence in the first six quarters of unemployment. However, diminishing individual opportunities (e.g. because of stigma effects) seem to be important at higher durations.

Jaap H. Abbring (VU), Gerard J. van den Berg (VU) & Jan C. van

The incidence and duration of unemployment among males is shown to be rather large in bad economic times, and a maleâ&#x20AC;&#x2122;s chances of leav-

Ours (UvT), 2002, The anatomy of unemployment dynamics, European Economic Review, 46, 1785-1824.

discussionpapers Auctions as collusion devices One of the most debated questions concerning the recent wave of spectrum auctions held around the world is whether auctions give rise to higher prices in the market after the auction. Firms stress that they have to recover the money they spend on obtaining a license and therefore set higher prices when auction revenues are high. Economists regard payments during an auction as a sunk cost at the moment firms compete in the marketplace, so that there is no relation between auction revenues and market prices. Recent experiments show, however, that auctioning rights to compete in the market does lead to higher market prices. This paper develops an economic argument relating auctions to high market prices. At the core of the argument is the claim that market competition and bidding in an auction should be analyzed as part of one big game. Bidding behavior in the auction may signal a firmâ&#x20AC;&#x2122;s intention of setting high prices at the market stage. More formally, the only equilibrium consistent with the logic of forward induction is one in which firms bid an amount (almost) equal to the profits of the cooperative market outcome, and subsequently set high market prices.

By Maarten C.W. Janssen (EUR), Auctions as collusion devices TI03-017/1

The new model was estimated for nine stock market returns. The censored latent variable is able to explain

tinbergen magazine 8, fall 2003

A new approach to modeling economic convergence

Pricing phenomena and the switch to the euro

This paper develops a new approach to modeling economic convergence, and applies it to per capita gross domestic product for five EU members: Germany, France, Italy, Spain and the Netherlands. The new approach is based on multivariate time series models with unobserved components that have dynamic converging properties. Various forms of convergence are introduced into the model via mechanisms that allow for gradual reductions in the ranks of covariance matrices associated with the disturbance vectors driving the unobserved components. This makes it possible to identify various types of convergence, including convergence in growth rates, in cyclical behavior, and in overall volatility.

This paper explores two well-known pricing phenomena: Prices tend to cluster at round numbers (such as 10, 20, 30 etc., and to a lesser extent 5, 15, 25, etc.), and prices pass round numbers less frequently than other numbers (round-number price barriers). Although these effects are small, they are robust (documented in various markets) and defy any strict definition of the efficient market theory. In an attempt to explain these phenomena, this paper tests two competing hypotheses, using data from the Dutch stock market during 19902001. After January 1, 1999, stock prices were listed in euros, while guilders were still the currency of daily life until 2002. According to the aspiration-level hypothesis, investors will have target prices for the stocks they own. This hypothesis predicts that round-number effects in guilders will disappear only slowly. The oddprice hypothesis, which originates from cognitive psychology and marketing, maintains that humans tend to compare numbers digitby-digit from left to right, and therefore consider an odd price of 19.90 as considerably less than 20.00. This hypothesis predicts an abrupt change in roundnumber effects after January 1, 1999. The results reject the aspiration-level hypothesis and confirm the oddprice hypothesis.

The empirical results indicate that both the slope and cycle components associated with Italy, Spain and the Netherlands began converging towards components in common with Germany and France around the time of the introduction of the Exchange Rate Mechanism in 1979. Spain’s growth converged to the common growth components by the time it joined the EU in 1986. The cyclical components for Italy, Spain and the Netherlands converged to the common cycle components by the inception of the Common Market in 1993. Finally, the results indicate substantial convergence of the common variance, which is still in the process of converging.

By Joep Sonnemans (UvA), Price clustering and natural resistance points in the dutch stock market:

By Rob Luginbuhl, and Siem Jan

A natural experiment,

Koopman (VU),

TI03-043/1

Convergence in European GDP Series TI03-031/4

The benefits of being Professor A (not Z)

The measurement of academic output has become a profession in itself. Explicit factors that affect an academic’s performance and thereby her rewards are the number, length, and impact of publications. Another explicit factor determining an academic’s position is the number of co-authors on a given paper. Most of the “accounting systems” divide research output by n+1, where n is the number of authors. An implicit factor that is widely believed to affect individual academic performance is name ordering amongst the authorship. Name-order selection for multi-authored papers in leading economics journals and its effect on individual productivity is the topic of this study. The study distinguishes two name-ordering strategies: alphabetic and non-alphabetic. The investigation centres on two questions (1) What are the determinants of an author group’s name ordering strategy? And (2) is scientific output affected by the relative alphabetic position of an academic’s last name (given the dominant usage of alphabetic name ordering in our profession)? We find

that author groups clearly take the advantages of being first author into account when positioning their members. Economists are correct in perceiving name ordering as a deliberate decision. This is supported by the answer to our second question: Is scientific reputation higher for authors whose names rank first in the alphabet? Indeed, career prospects seem to be better for academic economists whose names are more likely to appear first in a group. This effect does not become visible at the beginning of an economist’s career, but later on, when her career is more advanced, and reputation and visibility already established.

By C. Mirjam van Praag and Bernard M.S. van Praag (UvA), First-author determinants and the benefits of being Professor A (not Z): An empirical analysis, TI03-045/3

tinbergen magazine 8, fall 2003

theses

Partner selection in business markets - A structural embeddedness perspective The attitudes, behaviour and performance of individuals are a function of the larger social network in which the actors are embedded. This thesis substantiates empirically the structural embeddedness effects on marketing contexts. By diffusing information and by curtailing opportunistic behaviour, social networks are shown to positively influence the market performance of individual players. The thesis examines the first effect by considering the pharmaceutical industry, which consists of hundreds of firms, each with specific competencies. Firms gain access to these competencies through alliances. Firms that actively manage their portfolio of alliances by collaborating with other firms having different technological competences are better able to develop radically new drugs.

How to protect the environment when we know so little Technological change, it is generally known, profoundly influences the natural environment. The direction and the size of this influence are surrounded by uncertainties, however, which substantially complicate environmental policymaking. An illustration is the current state of affairs with the 1997 Kyoto agreement on limiting greenhouse gas emissions. Several countries that at the time signed the agreement now reject or postpone its ratification. One of the reasons they give is uncertainty about the benefits of emission reductions. This thesis uses game-theoretical models to study environmental policymaking under (technology-related) uncertainty. From a positive point of view, the analysis proposes explanations for environmental policies in modern democracies. The degree of environmental policy activism in a country, for example, may be influenced by uncertainty about policy consequences and uncertainty about the future policymaker’s preferences. From a normative point of view, the analysis recommends ways to improve environmental policy. Thus, under uncertainty about the costs of technological advances in pollution control, a direct regulation instrument of environmental policy may perform better than market-based instruments. Direct regulation offers the policymaker a commitment possibility that hinders the negative consequences of firms’ strategic behaviour.

Thesis: ‘Environmental policy and environment-saving technologies. Economic aspects of policymaking under uncertainty’ by Ioulia Ossokina. Published in the Tinbergen Institute Research Series #311

The thesis approaches the second effect through the buyer-seller relationship. When the actors are embedded in a network of mutual contacts, the behaviour of opportunistic individuals is limited. A buyer firm may counter any attempts at opportunistic behaviour on the part of a vendor by “spreading the word”, thereby damaging the vendor’s reputation as a trustworthy exchange partner.

Thesis: ‘Partner selection in business markets - A structural embeddedness perspective’ by Stefan Wuyts. Published in the Tinbergen Institute Research Series #309

310 HENRI DEKKER (26/03/03), Control of Interorganizational Relationships: The Effects of Appropriation Concerns, Coordination Requirements and Social Embeddedness. 311 IOULIA OSSOKINA (20/06/03), Environmental Policy and Environment-saving Technologies. Economic Aspects of Policy Making under Uncertainty. 312 DIRK BROUNEN (13/06/03), Real Estate Securitization and Corporate Strategy. From Bricks to Bucks.

Theses 313 JAN DE KOK (26/06/03), Human Resource 296 LUCIO VINHAS DE SOUZA (03/04/03), Beyond

Management within Small- and Medium-sized

Transition: Essays on the Monetary Integration of

Enterprises.

the Accession Countries in Eastern Europe. 314 TIBERT VERHAGEN (25/09/03), Towards 305 GERWIN GRIFFIOEN (03/03/03), Technical

Understanding Online Purchase Behavior.

Analysis in Financial Markets. 315 RUTGER HOEKSTRA (01/10/03), Structural 306 IRENE LAMMERS (20/05/03), In Conflict: een

Change of the Physical Economy. Decomposition

Geschiedenis van Kennismanagement.

Analysis of Physical and Hybrid-unit Input-Output Tables.

307 OVIDIU LISTES (12/06/03), Stochastic Programming Approaches for Strategic Logistics

316 RUTA AIDIS (14/05/03), By Law and by Custom:

Problems.

Factors affecting Small- and Medium-sized Enterprises during the Transition in Lithuania.

308 ARIANNE DE BLAEIJ (03/04/03), The Value of a Statistical Life in Road Safety; Stated Preference

317 SEBASTIANO MANZAN (06/06/03), Non-linear

Methodologies and Empirical Estimates for the

Prediction of Financial Data and Models.

Netherlands. 318 KATRIN OLTMER (22/05/03), Agricultural 309 STEFAN WUYTS (27/03/03), Partner Selection in

Policy, Land Use and Environmental Effects -

Business Markets - A Structural Embeddedness

Studies in Quantitative Research Synthesis.

Perspective. 319 JOB HORBEEK (26/06/03), The Elastic Work Floor; About the Implementation of Internal Flexibility Arrangements.

Papers in Journals and books published by TI fellows Abbring, J.H., G.J. van den Berg and J.C. van Ours,

Beetsma, R.M.W.J. and A.L. Bovenberg, 2003,

2002, The anatomy of unemployment dynamics,

Strategic debt accumulation in a heterogeneous

European Economic Review, 46(10), 1785-1824.

monetary union, European Journal of Political Economy, 19(1), 1-15.

Abbring, J.H., 2002, Stayers versus defecting movers, A note on the identification of defective

Beetsma, R.M.W.J. and H. Jensen, 2003, Why money

duration models, Economics Letters, 74(3), 327-31.

talks and wealth whispers: Monetary uncertainty and mystique: Comment, Journal of Money, Credit

Adam, C.S. and J.W. Gunning, 2002, Redesigning the

and Banking, 35(1), 129-36.

aid contract: Donorsâ&#x20AC;&#x2122; use of performance indicators in Uganda, World Development, 30(12), 2045-56.

Berg, G.J., van den, A. Holm and J.C. van Ours, 2002, Do stepping-stone jobs exist? Early career

Albrecht, J.W., P.A. Gautier and S.B. Vroman, 2003,

paths in the medical profession, Journal of

Matching with multiple applications, Economics

Population Economics, 15(4), 647-65.

Letters, 78(1), 67-70. Bergh, J.C.J.M., van den, and J.M. Gowdy, 2003, The Anderson, S.P., J.K. Goeree and C.A. Holt, 2002, The

microfoundations of macroeconomics: An evolu-

logit equilibrium: A perspective on intuitive behav-

tionary perspective, Cambridge Journal of

ioral anomalies, Southern Economic Journal, 69(1),

Economics, 27(1), 65-84.

21-47.

tinbergen magazine 8, fall 2003

Berk, J.M., 2002, Banca centrale e innovazione

Claessens, S., 2002, A European VAT on financial

finanziaria. Una rassegna della letteratura recente.

services? A discussion, Economic Policy: A European

(Centr. banking and financial innovation: A survey

Forum, 0(35), 526-30.

of the modern literature. With English summary.) Moneta e Credito, 55(220), 345-85.

Davis, J.B., 2002, The emperor’s clothes, Journal of the History of Economic Thought, 24(2), 141-54.

Berk, J.M., 2002, Central banking and financial innovation: A survey of the modern literature, Banca Nazio-

Davis, J.B., 2002, Capabilities and personal identity:

nale del Lavoro Quarterly Review, 55(222), 263-97.

Using Sen to explain personal identity in Folbre’s ‘Structures of Constraint’ analysis, Review of

Beukering, P.J.H., van, H.S.J. Cesar and M.A. Janssen,

Political Economy, 14(4), 481-96.

2003, Economic valuation of the Leuser National Park on Sumatra, Indonesia, Ecological Economics,

Davis, J.B, 2003, Regional economic integration, the

44(1), 43-62.

environment and community: East Asia and APEC, International Review of Applied Economics, 17(1),

Bijl, P.W.J., de, and S. Goyal, 2002, Market integration

69-83.

and technological change, Netnomics, 4(1), 19-37. Davis, J.B., 2002, Gramsci, Sraffa, Wittgenstein: Black, W.R., P. Nijkamp, eds, 2002, Social change

Philosophical linkages, European Journal of the

and sustainable transport, Bloomington, Indiana

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University Press, xiii, 306. Dijk, F., van, J. Sonnemans and F. van Winden, 2002, Bloemen, H.G., 2002, The relations between wealth

Social ties in a public good experiment, Journal of

and labour market transitions: An empirical study

Public Economics, 85(2), 275-99.

for the Netherlands, Journal of Applied Econometrics, 17(3), 249-68.

Diks, C. and S. Manzan, 2002, Tests for serial independence and linearity based on correlation inte-

Boone, J. and R.A. de Mooij, 2003, Tax policy in a

grals, Studies in Nonlinear Dynamics and

matching model with training, Oxford Economic

Econometrics, 6(2), art. 2.

Papers. 55(1), 121-47. Fase, M.M.G. and R.C.N. Abma, 2003, Financial enviBoswijk, H.P. and A. Lucas, 2002, Semi-nonparamet-

ronment and economic growth in selected Asian coun-

ric cointegration testing, Journal of Econometrics,

tries, Journal of Asian Economics, 14(1), 11-21.

108(2), 253-80. Ferrer-i-Carbonell, A. and B.M.S. van Praag, 2002, Brink, R., van den, 2002, The Apex power measure

The subjective costs of health losses due to chronic

for directed networks, Social Choice and Welfare,

diseases: An alternative model for monetary

19(4), 845-67.

appraisal, Health Economics. 11(8), 709-22.

Brito, M.P., de, and R. Dekker, 2003, Modelling prod-

Florax, R.J.G.M.; P. Nijkamp and K.G. Willis, eds,

uct returns in inventory control- exploring the

2002, Comparative environmental economic assess-

validity of general assumptions, International

ment, Cheltenham, U.K. and Northampton, MA,

Journal of Production Economics, 81-82(0), 225-41.

Elgar; distributed by American International Distribution Corporation, Williston, VT., xxi, 362.

Canton, E.J.F., H.L.F. de Groot and R. Nahuis, 2002, Vested interests, population ageing and technology

Fong, K. and M. Martens, 2002, Overnight futures

adoption, European Journal of Political Economy,

trading: Now even Australia and US have common

18(4), 631-52.

trading hours, Journal of International Financial Markets, Institutions and Money, 12(2), 167-82.

Carree, M.A., 2003, Technological progress, structural change and productivity growth: A comment,

Forsyth, P., K. Button and P. Nijkamp, eds, 2002,

Structural Change and Economic Dynamics, 14(1),

Elgar Reference Collection. Classics in Transport

109-15. Analysis, vol. 2. Cheltenham, U.K. and Northampton, Carsoule, F. and P.H. Franses, 2003, A note on moni-

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sion, Metrika, 57(1), 51-62. Francois, J. and W. Martin, 2003, Formula approachClaessens, S., S. Djankov and L. Klapper, 2003,

es for market access negotiations, World Economy,

Resolution of corporate distress in East Asia,

26(1), 1-28.

Journal of Empirical Finance, 10(1-2), 199-216. Garderen, K.J. van and C. Shah, 2002, Exact interClaessens, S., et al., 2002, Disentangling the incen-

pretation of dummy variables in semilogarithmic

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equations, Econometrics Journal, 5(1), 149-59.

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Goeree, J.K., 2003, Bidding for the future: Signaling

Kleibergen, F., 2002, Pivotal statistics for testing

in auctions with an aftermarket, Journal of

structural parameters in instrumental variables

Economic Theory, 108(2), 345-64.

regression, Econometrica, 70(5), 1781-1803.

Gondzio, J., R. Kouwenberg, and A.C.F. Vorst, 2003,

Kleibergen, F. and R. Paap, 2002, Priors, posteriors

Hedging options under transaction costs and

and Bayes factors for a Bayesian analysis of cointe-

stochastic volatility, Journal of Economic Dynamics

gration, Journal of Econometrics. 111(2), 223-49.

and Control. 27(6), 1045-68. Kleibergen, F. and E. Zivot, 2003, Bayesian and clasGooijer, J.G., de, and A. Vidiella-i-Anguera, 2003,

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Nonlinear stochastic inflation modelling using

sion, Journal of Econometrics, 114(1), 29-72.

SEASETARs insurance, Mathematics and Economics, 32(1), 3-18.

Kluitman, R. and P.H. Franses, 2002, Estimating volatility on overlapping returns when returns are

Hamelink, Foort, et al., 2002, A comparison of UK

autocorrelated, Applied Mathematical Finance, 9(3),

equity and property duration, Journal of Property

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Research, 19(1), 61-80. Koopman, S.J. and A. Harvey, 2003, Computing Hart, J., van der, E. Slagter and D. van Dijk, 2003,

observation weights for signal extraction and filter-

Stock selection strategies in emerging markets,

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Hartog, J., 2002, Desperately seeking structure;

Koopman, S.J. and E.H. Uspensky, 2002, The

Sherwin Rosen (1938-2001), Economic Journal,

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Hinloopen, J., 2003, Innovation performance across Europe, Economics of Innovation and New

Kovenock, D. and C.G. de Vries, 2002, Fiat exchange

Technology, 12(2), 145-61.

in finite economies, Economic Inquiry, 40(2), 147-57.

Hochguertel, S., 2003, Precautionary motives and

Kuosmanen, T. and G.T. Post, 2002, Nonparametric

portfolio decisions, Journal of Applied Econometrics,

efficiency analysis under price uncertainty: A first-

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Hommes, C.H., R. Ramer and C.A. Withagen, eds., 2002, Equilibrium, markets and dynamics: Essays in

Laan, G., van der, and R. van den Brink, 2002, A

honour of Claus Weddepohl, Heidelberg and New

Banzhaf share function for cooperative games in

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Janssen, M.C.W. and V.A. Karamychev, 2002, Cycles

Lundbergh, S., T. Terasvirta and D. van Dijk, 2003,

and multiple equilibria in the market for durable

Time-varying smooth transition autoregressive

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Kaashoek, J.F. and H.K. van Dijk, Neural network pruning applied to real exchange rate analysis,

Martens, M., 2002, Measuring and forecasting S&P

Journal of Forecasting, 2002, 21(8), 559-77.

500 Index-futures volatility using high-frequency data, Journal of Futures Markets, 22(6), 497-518.

Kawasaki, Y. and P.H. Franses, 2003, Detecting seasonal unit roots in a structural time series model,

Martens, M., Y.C. Chang and S.J. Taylor, 2002, A

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Neugart, M. and J. Tuinstra, 2003, Endogenous fluc-

Ubbels, B., P. Rietveld and P. Peeters, 2002,

tuations in the demand for education, Journal of

Environmental effects of a kilometre charge in road

Evolutionary Economics. 13(1), 29-51.

transport: An investigation for the Netherlands, Transportation Research: Part D: Transport and

Offerman, T., J. Potters and J. Sonnemans, 2002,

Environment, 7(4), 255-64.

Imitation and belief learning in an oligopoly experiment, Review of Economic Studies. 69(4), 973-97.

Verwaal, E. and B. Donkers, 2002, Firm size and export intensity: Solving an empirical puzzle, Journal

Pels, E., P. Nijkamp and P. Rietveld, 2003, Access to

of International Business Studies, 33(3), 603-13.

and competition between airports: A case study for the San Francisco Bay Area, Transportation

Viaene, J.M., 2002, Delocation and European integra-

Research: Part A: Policy and Practice. 37(1), 71-83.

tion: Is structural spending justified? Discussion, Economic Policy: A European Forum, 0(35), 353-54.

Perotti, E., 2002, Lessons from the Russian meltdown: The economics of soft legal constraints,

Wagener, F.O.O., 2003, Skiba points and Heteroclinic

International Finance. 5(3), 359-99.

bifurcations, with applications to the Shallow Lake System, Journal of Economic Dynamics and Control.

Perotti, E.C. and E.L. von Thadden, 2003, Strategic

27(9), 1533-61.

transparency and informed trading: Will capital market integration force convergence of corporate

M. Wedel, 2002, Profile construction in experimen-

governance?, Journal of Financial and Quantitative

tal choice designs for mixed logit models,

Analysis. 38(1), 61-85.

Marketing Science, 21(4), 455-75.

Perotti, E.C. and J. Suarez, 2002, Last bank standing: What do I gain if you fail?, European Economic Review. 46(9), 1599-1622. Pradhan, M., D.E. Sahn and S.D. Younger, 2003, Decomposing world health inequality, Journal of Health Economics, 22(2), 271-93. Pradhan, M. and M. Ravallion, 2003, Who wants safer streets? Explaining concern for public safety in Brazil, Journal of Economic Psychology. 24(1), 17-33. Pradhan, M., L.B. Rawlings, 2002, The Impact and Targeting of Social Infrastructure Investments: Lessons from the Nicaraguan Social Fund, World Bank Economic Review. 16(2), 275-95. Ranasinghe, A. and J. Hartog, 2002, Free education in Sri Lanka: Does it eliminate the family effect?, Economics of Education Review, 21(6), 623-33. Rouwendal, J., et al, 2002, A stochastic model of congestion caused by speed differences, Journal of Transport Economics and Policy. 36(3), 407-45. Sandor, Z. and M. Wedel, 2002, Profile construction in experimental choice designs for mixed logit models, Marketing Science, 21(4), 455-75. Schinkel, M.P., J. Tuinstra and D. Vermeulen, 2002, Convergence of Bayesian learning to general equilibrium in Mis-specified models, Journal of Mathematical Economics. 38(4), 483-508. Schipper, Y., P. Rietveld and P. Nijkamp, 2002, European airline reform: An empirical welfare analysis, Journal of Transport Economics and Policy. 36(2), 189-209. Tuinstra, J., 2003, Beliefs equilibria in an overlapping generations model, Journal of Economic Behavior and Organization. 50(2), 145-64. 21

tinbergen magazine 8, fall 2003

Discussion papers

03-058/1 Arno Riedl and Frans van Winden, CREED,

Institutions and decision processes

Universiteit van Amsterdam, Input versus Output Taxation in an Experimental International Economy

03-010/1

03-065/1

Cars Hommes, Joep Sonnemans, Jan Tuinstra, Henk

Arno Riedl, CREED, Universiteit van Amsterdam, and

van de Velden, CeNDEF, Universiteit van Amsterdam,

Jean-Robert Tyran, University of St. Gallen, Tax Liability

Coordination of Expectations in Asset Pricing

Side Equivalence in Gift-Exchange Labor Markets

Experiments 03-066/1 03-011/1

Hendrik P. van Dalen, Aico P. van Vuuren, Erasmus

Ioulia V. Ossokina, Otto H. Swank, Erasmus

Universiteit Rotterdam, Greasing the Wheels of Trade

Universiteit Rotterdam, Environmental Policy Choice under Uncertainty

03-067/1 Otto H. Swank, Bauke Visser, Erasmus Universiteit

03-017/1

Rotterdam, Do Elections Lead to Informed Public

Maarten C.W. Janssen, Erasmus Universiteit

Decisions?

Rotterdam, Auctions as Collusion Devices 03-020/1

Financial and International Markets

Cars Hommes, Joep Sonnemans, Jan Tuinstra, Henk van de Velden, Universiteit van Amsterdam, Learning

03-015/2

in Cobweb Experiments

Ruta Aidis, Universiteit van Amsterdam, Entrepreneurship and Economic Transition

03-021/1 Otto H. Swank, Bauke Visser, Erasmus Universiteit

03-016/2

Rotterdam, The Consequences of Endogenizing

Menno Pradhan, Vrije Universiteit Amsterdam and

Information for Herd Behavior

World Bank, Jakarta, Fadia Saadah, World Bank, Jakarta, and Robert Sparrow, Vrije Universiteit

03-033/1

Amsterdam, Did the Healthcard Program ensure

Maarten C.W. Janssen, Vladimir A. Karamychev, Peran

Access to Medical Care for the Poor during Indonesia’s

van Reeven, Erasmus Universiteit Rotterdam, Multi-

Economic Crisis?

Store Competition: Market Segmentation or Interlacing? 03-028/2 03-034/1

Patrick Houweling, Albert Mentink, Erasmus

Hendrik P. van Dalen, OCFEB, Erasmus Universiteit

Universiteit Rotterdam and Aegon Asset

Rotterdam, and NIDI, The Hague, Pluralism in

Management, and Ton Vorst, Erasmus Universiteit

Economics: A Public Good or a Public Bad?

Rotterdam and ABN-Amro, Valuing Euro RatingTriggered Step-Up Telecom Bonds

03-035/1 Andrea Galeotti, José Luis Moraga-, Erasmus

03-029/2

Universiteit Rotterdam, Strategic Targeted Advertising

Paul A. de Hek, Erasmus Universiteit Rotterdam, On Taxation in a Two-Sector Endogenous Growth Model

03-041/1

with Endogenous Labor Supply

Sanjeev Goyal, University of Essex and Erasmus Universiteit Rotterdam, Alexander Konovalov, and

03-030/2

José Luis Moraga- González, Erasmus Universiteit

Patrick Houweling, Albert Mentink, Ton Vorst,

Rotterdam, Hybrid R&D

Erasmus Universiteit Rotterdam, How to Measure Corporate Bond Liquidity?

03-043/1 Joep Sonnemans, Universiteit van Amsterdam, Price

03-032/2

Clustering and Natural Resistance Points in the Dutch

Leon J.H. Bettendorf, D. Peter Broer, OCFEB, Erasmus

Stock Market

Universiteit Rotterdam, Life-time Labor Supply in a Search Model of Unemployment

03-055/1 Simon Gächter, CESifo and University of St Gallen,

03-037/2

and Arno Riedl, Universiteit van Amsterdam, Moral

Albert J. Menkveld, Siem Jan Koopman and André

Property Rights in Bargaining with Infeasible Claims

Lucas, Vrije Universiteit Amsterdam, Round-the-Clock Price Discovery for Cross-Listed Stocks: US-Dutch

03-056/1 Ronald Bosman, De Nederlandsche Bank, Amsterdam, and Arno Riedl, Universiteit van Amsterdam, Emotions and Economic Shocks in a First-Price Auction

Evidence

tinbergen magazine 8, fall 2003

03-053/2

03-024/3

Jan Marc Berk, De Nederlandsche Bank and Vrije

Robert A.J. Dur and Coen N. Teulings, Erasmus

Universiteit Amsterdam, and Beata K. Bierut, Erasmus

Universiteit Rotterdam, Are Education Subsidies an

Universiteit Rotterdam, Committee Structure and its

Efficient Redistributive Device?

Implications for Monetary Policy Decision-making 03-025/3 03-054/2

Mark J. Koetse, Arno J. van der Vlist and Henri L.F.

Joseph Francois, Erasmus Universiteit Rotterdam

de Groot, Vrije Universiteit Amsterdam, Investment,

and CEPR, and Gunnar Niels, OXERA and Erasmus

Expectations and Uncertainty: Empirical Evidence on

Universiteit Rotterdam, Business Cycles, the Current

the Relevance of Firm Size

Account, and Administered Protection in Mexico 03-026/3 03-060/2

Pieter A. Gautier and Coen N. Teulings, Erasmus Uni-

Joseph Francois, Erasmus Universiteit Rotterdam

versiteit Rotterdam, How Large are Search Frictions?

and CEPR, H. van Meijl, and F. van Tongeren, LEI, Wageningen University and Research Centre, Trade

03-027/3

Liberalization and Developing Countries under the

Erik T. Verhoef and Jan Rouwendal, Vrije Universiteit

Doha Round

Amsterdam, Pricing, Capacity Choice and Financing in Transportation Networks

03-062/2 Siem Jan Koopman, AndrĂŠ Lucas, Vrije Universiteit

03-036/3

Amsterdam, Business and Default Cycles for Credit Risk

Piet Rietveld, Vrije Universiteit Amsterdam, Valuation of Travel Time and TravelIer Information

03-068/2 Chris Elbers, Jan-Willem Gunning and Bill Kinsey,

03-038/3

Vrije Universiteit Amsterdam, Growth and Risk:

Judith Y.T. Wang and Hai Yang, Hong Kong University

Methodology and Micro Evidence

of Science and Technology, and Erik T. Verhoef, Vrije Universiteit Amsterdam, Strategic Interactions of

Labour, Region and Environment

Bilateral Monopoly on a Private Highway

03-013/3

03-039/3

Carla SĂĄ, Raymond J.G.M. Florax and Piet Rietveld,

Bernadette Power, University of St. Andrews, Fife,

Vrije Universiteit Amsterdam, Determinants of the

UK, and Gavin C. Reid, University College Cork,

Regional Demand for Higher Education

Ireland, Flexibility, Firm-Specific Turbulence and the Performance of the Long-lived Small Firm

03-014/3 Niels Bosma and Gerrit de Wit, EIM Business and

03-042/3

Policy Research, Zoetermeer, and Martin Carree,

Maarten Lindeboom, Vrije Universiteit Amsterdam

University of Maastricht and Erasmus Universiteit

and IZA, and Eddy van Doorslaer, Erasmus

Rotterdam, Modelling Entrepreneurship

Universiteit Rotterdam, Cut-point Shift and Index Shift in Self-reported Health

03-018/3 Bernard M.S. van Praag and Adam S. Booij,

03-044/3

Universiteit van Amsterdam, Risk Aversion and the

Henri L.F. de Groot, Gert-Jan Linders and Piet Rietveld,

Subjective Time Discount Rate: A Joint Approach

Vrije Universiteit Amsterdam, and Uma Subramanian, World Bank, Washington, The Institutional

03-019/3

Determinants of Bilateral Trade Patterns

Henri L.F. de Groot, Vrije Universiteit Amsterdam, Peter Mulder, Institute for Environmental Studies,

03-046/3

Vrije Universiteit Amsterdam, and Daan P. van Soest,

Justin van der Sluis and Mirjam van Praag,

Tilburg University, Subsidizing the Adoption of

Universiteit van Amsterdam, and Wim Vijverberg,

Energy-Saving Technologies: Analyzing the Impact of

University of Texas at Dallas and IZA,

Uncertainty, Learning and Maturation

Entrepreneurship Selection and Performance

03-022/3

03-047/3

Galit Cohen-Blankenstain, Harvard University, and

C. Mirjam van Praag, Universiteit van Amsterdam,

Peter Nijkamp, Vrije Universiteit Amsterdam, The

Gerrit de Wit and Niels Bosma, EIM, Zoetermeer,

Appreciative System of Urban ICT Policies

Initial Capital Constraints Hinder Entrepreneurial Venture Performance

03-023/3 Galit Cohen-Blankenstain, Harvard University, Peter

03-048/3

Nijkamp and Kees van Montfort, Vrije Universiteit

Marco van Herpen, University of Groningen and the

Amsterdam, Modeling ICT Perceptions and Views of

Boston Consulting Group, C. Mirjam van Praag,

Urban Front Liners

Universiteit van Amsterdam, and Kees Cools,

tinbergen magazine 8, fall 2003

University of Groningen and the Boston Consulting

03-052/4

Group, The Effects of Performance Measurement and

Siem Jan Koopman and Joao Valle e Azevedo, Vrije

Compensation on Motivation

Universiteit Amsterdam, Measuring Synchronisation and Convergence of Business Cycles

03-049/3 Kees Cools, University of Groningen, The Boston

03-057/4

Consulting Group, and C. Mirjam van Praag,

Felisa J. Vazquez-Abad, UniversitĂŠ de Montreal, and

Universiteit van Amsterdam, The Value Relevance of

Bernd Heidergott, Vrije Universiteit Amsterdam,

Disclosing a Single Corporate Target

Gradient Estimation for a Class of Systems with Bulk Services: A Problem in Public Transportation

03-050/3 C. Mirjam van Praag, Universiteit van Amsterdam,

03-069/4

Business Survival and Success of Young Small

Joao Valle e Azevedo and Siem Jan Koopman, Vrije

Business Owners

Universiteit Amsterdam, and Antonio Rua, Banco de Portugal, Lisboa, Tracking Growth and the Business

03-051/3

Cycle: a Stochastic Common Cycle Model for the

Kees Cools, Groningen University and the Boston

Euro Area

Consulting Group, C. Mirjam van Praag, Universiteit van Amsterdam, The Value Relevance of Forced Top Management Departures 03-59/3 Hendrik P. van Dalen, OCFEB, Erasmus Universiteit Rotterdam, George Groenewold and Jeanette J. Schoorl, Netherlands Interdisciplinary Demographic Institute, Out of Africa: What Drives the Pressure to Emigrate? 03-061/3 Thomas de Graaff and Piet Rietveld, Vrije Universiteit Amsterdam, ICT and Substitution between Out-of-home and At-home work; the Importance of Timing 03-063/3 Rafael Lalive, IEW, University of ZĂźrich, IZA, and CESifo, Social Interactions in Unemployment 03-064/3 Erik T. Verhoef, Vrije Universiteit Amsterdam, Speed-Flow Relations and Cost Functions for Congested Traffic: Theory and Empirical Analysis

Econometrics 03-012/4 Eric Porras Musalem and Rommert Dekker, Erasmus Universiteit Rotterdam, Controlling Inventories in a Supply Chain 03-031/4 Rob Luginbuhl and Siem Jan Koopman, Vrije Universiteit Amsterdam, Convergence in European GDP Series 03-040/4 Sanjeev Sridharan, Westat, Rockville, MD, USA, Suncica Vujic and Siem Jan Koopman, Vrije Universiteit Amsterdam, Intervention Time Series Analysis of Crime Rates

tinbergen magazine 8, fall 2003

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tinbergen magazine 8, fall 2003

Tinbergen Research Institute Four themes distinguish Tinbergen Institute’s research programme: I. Institutions and Decision Analysis II. Financial and International Markets III. Labour, Region and the Environment IV. Econometrics and Operations Research Each theme covers the whole spectrum of economic analysis, from theoretical to empirical research. Stimulating discussions on theories, methodologies and empirical results arise from the interaction of the Institute’s faculty–comprised of approximately 96 research fellows. These fellows are faculty members with excellent track records in economic research, active in organising research activities, teaching graduate courses and supervising Ph.D. students. Discussion Papers Research is pre-published in the institute’s own Discussion Paper Series. Download discussion papers at http://www.tinbergen.nl (section ‘Publications’). E-mail address for correspondence: tinbergen-magazine@tinbergen.nl Tinbergen Graduate School The Tinbergen Graduate School enrols about 115 students. Tinbergen Institute’s Master’s programme is an intensive two-year programme leading to a Master of Philosophy degree in economics. The programme is part of a fiveyear Ph.D. programme in economics, but can also serve as an excellent preparation for students who are aiming for a career in consulting or policy advice organisations. The master’s programme offers high quality academic training in economics and econometrics. The teaching staff is selected from the faculty of the three economics faculties of the participating universities. Foreign experts also teach in the programme. Core courses are offered in the following: microeconomics, macroeconomics, mathematics for economists, econometrics, advanced econometrics, and organisation. Specialised courses are offered in the following: international trade and development, monetary economics, finance, labour economics, public economics, microeconomic theory and game theory. Successful completion of the M.Phil. programme gives the student the opportunity to round off his or her studies with a Ph.D. thesis in the next three years. For information on admission requirements, application procedure, and scholarships, visit http://www.tinbergen.nl, or contact applications@tinbergen.nl. 26

Board A.G.Z. Kemna (Chair), J.-W. Gunning, J. Hartog, J.J.M. Kremers, C.G. de Vries. General Director C.N. Teulings Director of Graduate Studies M. Lindeboom Research Programme Co-ordinators Institutions and Decision Analysis: J.K. Goeree, G. van der Laan Financial Economics and International Markets: C.A.M.F. Claessens, C.G. de Vries Labour, Region and the Environment: J.C.J.M. van den Bergh, H. Oosterbeek Econometrics: R. Dekker, S.J. Koopman Scientific Council D.W. Jorgenson (Harvard University, Chair), M. Dewatripont (CORE), P. de Grauwe (Leuven University), D.F. Hendry (Oxford University), R.C. Merton (Harvard University), D. Mortensen (Northwestern University), S. Nickell (Oxford University), T. Persson (Stockholm University), L. Wolsey (CORE) Social Advisory Council C.A.J. Herkströter (Chair), R.G.C. van den Brink (ABN-AMRO), H.J. Brouwer (DNB), M.J. Cohen (Mayor of Amsterdam), F.J.H. Don (CPB), C. Maas (ING), F.A. Maljers, I.W. Opstelten (Mayor of Rotterdam), A.H.G. Rinnooy Kan (ING), H. Schreuder (DSM), R.J. in ’t Veld, P.J. Vinken, L.J. de Waal (FNV) Editorial Board Tinbergen Magazine B. Bierut, T.R. Daniëls, A Galeotti, R.H.J. Mosch, A.P.C. van der Ploeg, C.N. Teulings Previous members J.-P. Boselie, D. Brounen, M. Bun, J. Dalhuisen, B. Hof, S. Manzan, E. Mendys. How to subscribe? Address for correspondence/ subscriptions: Tinbergen Institute Rotterdam Burg. Oudlaan 50 3062 PA Rotterdam the Netherlands. E-mail: tinbergen-magazine@tinbergen.nl. Address changes may be sent to the above e-mail address.

In this issue

Practical Auctioneering

â&#x20AC;&#x153;Enough work for motivated economistsâ&#x20AC;? An interview with Robert Dur Weak instruments and empirical economics Jury report Tinbergen Prize 2003 Papers in Journals Discussion papers Theses