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Contents

Contributors

Preface

CHAPTER 1 Sorting, Education, and Inequality

1. INTRODUCTION

2. SORTING INTO NEIGHBORHOODS

2.1. Multicommunity Models: The Economics of Sorting

2.2. The Efficiency of Local Provision of Education

2.3. Comparing Systems of Financing Public Education: Dynamic Considerations

3. SORTING INTO SCHOOLS

4. HOUSEHOLD SORTING

5. CONCLUDING REMARKS

ACKNOWLEDGMENTS

References

CHAPTER 2 Wage Equations and Education Policy

1. INTRODUCTION

2. INTERPRETING WAGE EQUATIONS

2.1. The Wage Equation in a Competitive Model

2.2. The Wage Equation in the Burdett–Mortensen Equilibrium Search Model

2.3. The Schooling Coefficient

2.4. A Brief Digression: Estimating the Schooling Coefficient by Using Natural Experiments

3. EXTENSIONS OF THE COMPETITIVE SKILL MARKET EQUILIBRIUM MODEL

3.1. Willis and Rosen

3.2. Heckman and Sedlacek

3.3. Keane and Wolpin

4. USE OF STRUCTURAL ESTIMATION OF SCHOOLING CHOICE MODELS FOR THE EVALUATION OF EDUCATION POLICIES

4.1. Graduation Bonuses

4.2. Tuition Effects

4.3. Relaxing Borrowing Constraints

5. GENERAL EQUILIBRIUM

6. CONCLUSIONS

ACKNOWLEDGMENTS

References

Empirical and Theoretical Issues in the Analysis of Education Policy

1. INTRODUCTION

2. SORTING, EDUCATION, AND INEQUALITY

3. WAGE EQUATIONS AND EDUCATION POLICY

4. CONCLUSION

ACKNOWLEDGMENTS

References

CHAPTER 3 Toward a Theory of Competition Policy

1. INTRODUCTION

2. PRICE-FIXING AGREEMENTS

2.1. Fighting Collusion Per Se

2.1.1. Fighting Collusion in a Static Setting

2.1.2. Fighting Collusion in a Dynamic Setting

2.2.Fighting Facilitating Practices

2.2.1. Communication Devices

2.2.2. Resale Price Maintenance

3. MERGER CONTROL

3.1. The Efficiency–Market Power Trade-Off

3.2. Assessing the Collusion Concern: The Role of Capacity Constraints

3.2.1. A Simple Model

3.2.2. Alpha-Equilibria

4. RESEARCH AGENDA

4.1. Procedures and Control Rights

4.2. Timing of Oversight

4.3. Information Intensiveness and Continued Relationship

4.4. Independence vis-à-vis the Political Environment

ACKNOWLEDGMENTS

References

CHAPTER 4 Identification and Estimation of Cost Functions Using Observed Bid Data

1. INTRODUCTION

2. IDENTIFYING MARGINAL COST FUNCTIONS FROM BIDS AND MARKET PRICES AND QUANTITIES

3. MODELS OF BEST-RESPONSE BIDDING AND BEST-RESPONSE PRICING

4. RECOVERING COST FUNCTION ESTIMATES FROM BEST-RESPONSE PRICES

5. RECOVERING COST FUNCTION ESTIMATES FROM BEST-RESPONSE BIDDING

6. OVERVIEW OF NEM1

6.1. Market Structure in NEM1

6.2. Market Rules in NEM1

7. RECOVERING IMPLIED MARGINAL COST FUNCTIONS AND HEDGE CONTRACT QUANTITIES

8. IMPLICATIONS FOR MARKET MONITORING AND DIRECTIONS FOR FUTURE RESEARCH

ACKNOWLEDGMENTS

References

CHAPTER 5 Liquidity, Default, and Crashes

1. LIQUIDITY CRISES

2. DEFAULT AND ENDOGENOUS CONTRACTS

3. DEFAULT AND COLLATERAL

3.1. Contracts with Collateral

3.2. Production

4. COLLATERAL EQUILIBRIUM

4.1. The Budget Set

4.2. Equilibrium

4.3. The Orderly Function of Markets

4.4. Endogenous Contracts

4.5. Margins and Liquidity

4.6. Collateral and Default

4.7. Constrained Efficiency

5. VOLATILITY

5.1. Natural Buyers, the Marginal Buyer, and the Distribution of Wealth

5.2. Volatility and Incomplete Markets

5.3. Volatility II: Asset Values and Margin Requirements

5.4. Why Margin Requirements Get Tougher

6. ENDOGENOUS COLLATERAL WITH HETEROGENOUS BELIEFS: A SIMPLE EXAMPLE

6.1. The Marginal Buyer

6.2. Endogenous Margin Requirement

6.3. Margin Feedback Effects

6.4. Endogenous Default

6.5. Efficiency Versus Constrained Efficiency

7. CRASHES

7.1. What Caused the Crash? Feedback

7.2. Why Did the Margin Increase?

7.3. Liquidity and Differences of Opinion

7.4. Profits After the Crash and Cautious Speculators

8. THE LIQUIDITY SPREAD

9. SPILLOVERS

9.1. Correlated Output

9.2. Independent Outputs and Correlated Opinions

9.3. Cross-Collateralization and the Margin Requirement

9.4. Rational Expectations and Liquidity Risk

10. TWO MORE CAUSES OF LIQUIDITY CRISES

11. A DEFINITION OF LIQUIDITY AND LIQUID WEALTH

References

CHAPTER 6 Trading Volume

1. INTRODUCTION

2. A DYNAMIC EQUILIBRIUM MODEL

2.1. The Economy

2.2. Discussion, Notation, and Simplifications

2.3.The Equilibrium

2.4. Implications for Trading and Returns

2.4.1. Trading Activity

2.4.2. Stock Returns

2.4.3. Volume-Return Relations

2.4.4. Merton’s ICAPM

3. THE DATA

3.1. Volume Measures

3.1.1. A Numerical Example

3.1.2. Defining Individual and Portfolio Turnover

3.1.3. Time Aggregation

3.2. MiniCRSP Volume Data

3.3. Turnover Indexes

4. CROSS-SECTIONAL CHARACTERISTICS OF VOLUME

4.1. Theoretical Implications for Volume

4.2. The Cross Section of Turnover

4.2.1. Cross-Sectional Regressions

4.2.2. Tests of (K +1)-Fund Separation

5. DYNAMIC VOLUME-RETURN RELATION

5.1. Theoretical Implications for a Volume-Return Relation

5.2. The Impact of Asymmetric Information

5.3. Empirical Evidence

6. TRADING VOLUME AND TRANSACTIONS COSTS

6.1. Equilibrium Under Fixed Transactions Costs

6.2. Volume Under Fixed Transactions Costs

6.3. A Calibration Exercise

7. TECHNICAL ANALYSIS

7.1. Automating Technical Analysis

7.2. Statistical Inference

7.3. Empirical Results

8. CONCLUSIONS

APPENDIX

ACKNOWLEDGMENTS

References

A Discussion of the Papers by John Geanakoplos and by Andrew W. Lo and Jiang Wang

1. INTRODUCTION

2. THE GEANAKOPLOS PAPER

3. THE LO AND WANG PAPER

4. CONCLUDING REMARKS

References

CHAPTER 7 Inverse Problems and Structural Econometrics

1. INTRODUCTION

2. FUNCTIONAL STRUCTURAL ECONOMETRICS AND INVERSE PROBLEMS

3. LINEAR INVERSE PROBLEMS

4. ILL-POSED LINEAR INVERSE PROBLEMS

5. RELATION BETWEEN ENDOGENOUS VARIABLES

6. IV ESTIMATION

7. ASYMPTOTIC THEORY FOR TIKHONOV REGULARIZATION OF ILL-POSED LINEAR INVERSE PROBLEMS

8. CONCLUSIONS

ACKNOWLEDGMENTS

References

CHAPTER 8 Endogeneity in Nonparametric and Semiparametric Regression Models

1. INTRODUCTION

1.1. Structural Equations

1.2. Parameters of Interest

2. NONPARAMETRIC ESTIMATION UNDER ALTERNATIVE STOCHASTIC RESTRICTIONS

2.1. Instrumental Variables Methods

2.1.1. The Linear Model

2.1.2. Extensions to Additive Nonparametric Models

2.1.3. The Ill-Posed Inverse Problem

2.1.4. Consistent Estimation Methods

2.1.5. Nonadditive Models

2.1.6. Fitted-Value Methods

2.2. Control Function Methods

2.2.1. The Linear Model

2.2.2. Extensions to Additive Nonparametric Models

2.2.3. Nonadditive Models

2.2.4. Support Restrictions

3. BINARY RESPONSE LINEAR INDEX MODELS

3.1. Model Specification and Estimation Approach

3.1.1. The Semiparametric Estimator of the Index Coefficients

3.1.2. The Partial-Mean Estimator of the ASF

4. COHERENCY AND ALTERNATIVE SIMULTANEOUS REPRESENTATIONS

5. AN APPLICATION

5.1. The Data

5.2. A Model of Participation in Work and Other Family Income

5.3. Empirical Results

5.4. The Coherency Model

6.SUMMARY AND CONCLUSIONS

ACKNOWLEDGMENTS

References

Endogeneity and Instruments in Nonparametric Models

1. NONLINEAR IMPLICIT STRUCTURAL EQUATIONS

1.1. Discrete Case

1.2. Testing for Overidentification and Underidentification

2. CONTROL FUNCTIONS AND INSTRUMENTAL VARIABLES

2.1. Additive Errors

2.2. Discrete Choice

References

Name Index