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on Discrete Choice Models |
| By: | Ingrid Lo; Stephen G. Sapp |
| Abstract: | Dealers trading in a limit order market must choose both the order aggressiveness and the quantity for their orders. We empirically investigate how dealers jointly make these decisions in the foreign exchange market using a unique simultaneous equations model. The model uses an ordered probit model to account for the discrete nature of order aggressiveness and a censored regression model to capture the clustering of orders placed at the smallest available quantity, $1 million. We find evidence of a clear trade-off between order aggressiveness and quantity: more aggressive orders tend to be smaller in size. The increased competition (demand) suggested by increased depth on the same (opposite) side of the market leads to less (more) aggressive orders in smaller (larger) size. This holds for the depths at both the best and off-best prices, even though off-best depths are not observable to dealers. |
| Keywords: | Exchange rates; Financial markets |
| JEL: | G14 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:07-23&r=dcm |
| By: | Reint Gropp; Marco Lo Duca; Jukka Vesala |
| Abstract: | This paper analyses cross-border contagion in a sample of European banks from January 1994 to January 2003. We use a multinomial logit model to estimate the number of banks in a given country that experience a large shock on the same day (“coexceedances”) as a function of variables measuring common shocks and coexceedances in other countries. Large shocks are measured by the bottom 95th percentile of the distribution of the first difference in the daily distance to default of the bank. We find evidence in favour of significant cross-border contagion. We also find some evidence that since the introduction of the euro cross-border contagion may have increased. The results seem to be very robust to changes in the specification. |
| JEL: | G21 F36 G15 |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:fra:franaf:175&r=dcm |
| By: | Le-Yu Chen (Institute for Fiscal Studies and University College London) |
| Abstract: | <p>This paper presents new identification results for the class of structural dynamic optimal stopping time models that are built upon the framework of the structural discrete Markov decision processes proposed by Rust (1994). We demonstrate how to semiparametrically identify the deep structural parameters of interest in the case where the utility function of an absorbing choice in the model is parametric but the distribution of unobserved heterogeneity is nonparametric. Our identification strategy depends on availability of a continuous observed state variable that satisfies certain exclusion restrictions. If such excluded variable is accessible, we show that the dynamic optimal stopping model is semiparametrically identified using control function approaches.</p> |
| Keywords: | Structural dynamic discrete choice models, semiparametric identification, optimal stopping |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:cemmap:06/07&r=dcm |
| By: | Egil Matsen (Department of Economics, Norwegian University of Science and Technology); Bjarne Strøm (Department of Economics, Norwegian University of Science and Technology) |
| Abstract: | This paper examines data from the Norwegian television game show Joker, where contestants make well-specified choices under risk. The game involves very large stakes, randomly drawn contestants, and ample opportunities for learning. Expected utility (EU) theory gives a simple prediction of choice under weak conditions, as one choice is always first-order stochastically dominating. We document frequent, systematic and costly violations of dominance. Most alternative theories fail to add explanatory power beyond the EU benchmark, but many contestants appear to have a systematic expectation bias that can be related to Tversky and Kahneman?s (1973) "availability heuristic". In addition, there seems to be a stochastic element in choice that is well captured by the so-called Fechner model. |
| Keywords: | Risky choice; stochastic dominance; choice models; stakes; game show |
| JEL: | C9 C93 D81 |
| Date: | 2006–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:nst:samfok:8307&r=dcm |
| By: | Marciano Siniscalchi |
| Abstract: | This paper analyzes sophisticated dynamic choice for ambiguity-sensitive decision makers. It characterizes Consistent Planning via axioms on preferences over decision trees. Furthermore, it shows how to elicit conditional preferences from prior preferences. The key axiom is a weakening of Dynamic Consistency, deemed Sophistication. The analysis accommodates arbitrary decision models and updating rules. Hence, the results indicate that (i) ambiguity attitudes, (ii) updating rules, and (iii) sophisticated dynamic choice are mutually orthogonal aspects of preferences. As an example, a characterization of prior-by-prior Bayesian updating and Consistent Planning for arbitrary maxmin-expected utility preferences is presented. The resulting sophisticated MEU preferences are then used to analyze the value of information under ambiguity; a basic trade-off between information acquisition and commitment is highlighted. |
| URL: | http://d.repec.org/n?u=RePEc:nwu:cmsems:1430&r=dcm |
| By: | Eric Ruto (University of Newcastle); Guy Garrod (University of Newcastle); Riccardo Scarpa (University of Waikato) |
| Abstract: | In an effort to improve productivity and profits many farmers have replaced traditional livestock breeds with higher yielding alternatives. While such changes may bring about short-term economic gains, the loss of traditional livestock breeds could result in the loss of an important genetic resource as a variety of important genetic traits adapted to local conditions gradually become less common in the population. This is a particular problem in Africa, where livestock make a substantial contribution to human livelihoods. Using the example of cattle in Kenya’s pastoral livestock markets this study uses a choice experiment approach to investigate buyers’ preferences for indigenous breeds such as the Maasai Zebu. The analysis employs a latent class approach to characterize heterogeneity in valuations both within and across respondents buying cattle for breeding, slaughter or resale. The results show that there are at least three classes of buyers with distinct preferences for cattle traits and that most buyers favor exotic rather than indigenous breeds. Such preferences have implications for the conservation of indigenous cattle in Kenya and in other developing countries and suggest that some form of intervention may be required to ensure the preservation of this important animal genetic resource. |
| Keywords: | animal genetic resources; economic valuation; choice experiments; latent class models;indigenous livestock; Maasai Zebu cattle |
| JEL: | N5 O13 C25 Q26 |
| Date: | 2007–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:wai:econwp:07/05&r=dcm |
| By: | Arntz, Melanie |
| Abstract: | By examining the destination choice patterns of heterogenous labor, this paper tries to explain the skill composition of internal job matching flows in Germany. Estimates from a nested logit model of destination choice suggest that spatial job matching patterns by high-skilled individuals are mainly driven by interregional income differentials, while interregional job matches by less-skilled individuals are much more affected by regional differentials in job opportunities. Regional differentials in non-pecuniary assets slightly contribute to spatial sorting processes in Germany. Such differences in destination choices by skill level are partly modified by different spatial patterns of job-to-job matches and job matches after unemployment. Simulating job matching patterns in a scenario of economic convergence between eastern and western Germany demonstrates that wage convergence is the most effective means of attracting human capital to eastern Germany. |
| Keywords: | interregional job matches, destination choice, human capital |
| JEL: | C35 J61 R23 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:5456&r=dcm |
| By: | Bougette, Patrice; Turolla, Stéphane |
| Abstract: | This paper aims to build and empirically evaluate a discrete choice model of merger remedies as a basis for policy analysis. The database consists of 229 merger cases accepted in Phase I or Phase II of the European merger process between 1990 and 2005. We focus on the following question: Which merging firms' characteristics lead the European Commission to decide whether to require conditional acceptance? Although a lot of empirical studies have been carried out these last years, ours is distinguished by at least two original features. First, we explore determinant factors of the Commission's decisions with a neural network model differentiating cases accepted with or without remedies (either structural or behavioral). Secondly, we implement three multinomial logit models. We find that variables related to high market power lead more frequently to a remedy outcome, whatever the phase. Innovative industries such as energy, transportation and communications positively affect the probability of a behavioral remedy. Lastly, former Competition Commissioner Mario Monti's policy appears to be pro-remedy, i.e. seeking concessions from merging parties. |
| Keywords: | Merger Remedies ; Antitrust ; European Commission ; Discrete Choice Models ; Self-Organizing Maps |
| JEL: | L40 K21 D78 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:2461&r=dcm |
| By: | Nebiyou Tilahun; David Levinson (Nexus (Networks, Economics, and Urban Systems) Research Group, Department of Civil Engineering, University of Minnesota) |
| Abstract: | Understanding how reliability is valued is important because it provides insight to how aims of policies that aspire to provide better transport options can be more fully integrated with user expectations. In this study we derive a choice model for work commute trips that trades off alternatives based on the most frequent experience that users had on that route and the possibility of late or early arrival if they use a particular route. The idea of reliability is incorporated by how far the expected lateness or early arrival is from the most frequent experience on that route. We find that on route decisions the mode travel time is valued at $7.43 per hour while reduction from the magnitude of average lateness (thereby increasing the reliability of the route) is valued at $6.91 per hour. |
| Keywords: | Travel time reliability, Stated preference, Late Penalty, Early Penalty |
| JEL: | R40 R48 D10 D8 C91 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:nex:wpaper:momentoftime&r=dcm |
| By: | Federica Saliola (The World Bank); Antonello Zanfei (Department of Economics, Università di Urbino "Carlo Bo") |
| Abstract: | This paper combines insights from different streams of literature to develop a more comprehensive framework for the analysis of technology transfer via value chain relationships. We integrate the existing literature in three ways. First, we consider value chain relationships as a multi-facet process of interaction between buyers and suppliers, involving different degrees of knowledge transmission and development. Second, we assess whether and to what extent value chain relationships are associated with the presence of multinationals and with their embeddedness in the host economy. Third, we take into account the capabilities of local firms to handle the technology as a factor influencing knowledge transfer through value chain relationships. Using data on 1385 firms active in Thailand in 2001-2003, we apply a multinomial logit model to test how the nature and intensity of multinational presence and the competencies of local firms affect the organisation of international technology transfer. We find that knowledge intensive relationships, which are characterized by a significant transmission of technology along the value chains, are positively associated with the presence of global buyers in the local market, with the efforts of MNCs to adapt technology to local contexts, and with the technical capabilities of domestic firms. By contrast, the age of subsidiaries and the share of inputs purchased locally appear to increase the likelihood of value chain relationships with a lower technological profile. Key words: Global value chain, multinationals, technology transfer, knowledge spillovers |
| Keywords: | Global value chain, multinationals, technology transfer, knowledge spillovers |
| JEL: | F10 F23 O33 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:urb:wpaper:07_10&r=dcm |
| By: | Martin Salm (Mannheim Research Institute for the Economics of Aging (MEA)) |
| Abstract: | This study investigates how subjective mortality expectations and heterogeneity in time and risk preferences affect the consumption and saving behavior of the elderly. Previous studies find that the large wealth disparities observed among the elderly cannot be explained by differences in preferences. In contrast, this study identifies a strong relationship between answers to survey questions about time and risk preferences and consumption and saving behaviors. This paper uses data on information about preferences and subjective mortality expectations from the Health and Retirement Study merged with detailed consumption data from two waves of the Consumption and Activities Mail Survey. The main results are: 1) consumption and saving choices vary with subjective mortality rates in a way that is consistent with the life cycle model; 2) different answers to survey questions about time and risk preferences reflect differences in actual saving and consumption behavior; and 3) there is substantial heterogeneity in estimated time discount rates and risk aversion parameters. |
| Date: | 2006–12–31 |
| URL: | http://d.repec.org/n?u=RePEc:mea:meawpa:06111&r=dcm |