Spatial units typically vary over many of their characteristics, introducing potential unobserved heterogeneity which invalidates commonly used homoskedasticity conditions. In the presence of unobserved heteroskedasticity, standard methods based on the (quasi-)likelihood function generally produce inconsistent estimates of both the spatial parameter and the coefficients of the exogenous regressors. A robust generalized method of moments estimator as well as a modified likelihood method have been proposed in the literature to address this issue. The present paper constructs an alternative indirect inference approach which relies on a simple ordinary least squares procedure as its starting point. Heteroskedasticity is accommodated by utilizing a new version of continuous updating that is applied within the indirect inference procedure to take account of the parametrization of the variance-covariance matrix of the disturbances. Finite sample performance of the new estimator is assessed in a Monte Carlo study and found to offer advantages over existing methods. The approach is implemented in an empirical application to house price data in the Boston area, where it is found that spatial effects in house price determination are much more significant under robustification to heterogeneity in the equation errors.
We test the game-theoretic foundations of common-pool resources using an individual-level dataset of groundwater usage that accounts for 3% of US irrigated agriculture. Using necessary and sufficient revealed preference tests for dynamic games, we find: (i) a rejection of the standard game-theoretic arguments based on strategic substitutes, and instead (ii) support for models building on reciprocity-like behavior and strategic complements. By estimating strategic interactions directly, we find that reciprocity-like interactions drive behavior more than market and climate trends. Taken together, we take a step toward developing more realistic models to understand groundwater usage, and related issues pertaining to tragedy of the commons and commons governance.
Abstract
Founded in 1932 by a newspaper heir disillusioned by the failure of forecasters to predict the Great Crash, the Cowles Commission promoted the use of formal mathematical and statistical methods in economics, initially through summer research conferences in Colorado and through support of the Econometric Society (of which Alfred Cowles was secretary-treasurer for decades). After moving to the University of Chicago in 1939, the Cowles Commission sponsored works, many later honored with Nobel Prizes but at the time out of the mainstream of economics, by Haavelmo, Hurwicz and Koopmans on econometrics, Arrow and Debreu on general equilibrium, Yntema and Mosak on general equilibrium in international trade theory, Arrow on social choice, Koopmans on activity analysis, Klein on macroeconometric modelling, Lange, Marschak and Patinkin on macroeconomic theory, and Markowitz on portfolio choice, but came into intense methodological, ideological and personal conflict with the emerging “Chicago school.” This conflict led the Cowles Commission to move to Yale in 1955 as the Cowles Foundation, directed by James Tobin (who had declined to move to Chicago to direct it). The Cowles Foundation remained a leader in the more technical areas of economics, notably with Tobin’s “Yale school” of monetary theory, Scarf’s computable general equilibrium, Shubik in game theory, and later Phillips and Andrews in econometric theory but as formal methods in economic theory and econometrics pervaded the discipline of economics, Cowles (like the Econometric Society) became less distinct from the rest of economics. This entry is part of an archivally-based history of the Cowles Commission and Foundation commissioned by the Cowles Foundation.
This paper is the entry on “The Cowles Commission and Foundation for Research in Economics” in The New Palgrave Online https://link.springer.com/referencework/10.1057/978-1-349-95121-5 and is included as a Cowles Foundation Discussion Paper by the kind permission of Springer Nature.
Commitment to the behaviorist approach to utility theory, to the usefulness of mathematics in economic analysis and to equalization of the marginal utility of income as a principle of just taxation brought Irving Fisher and Ragnar Frisch to attempt to measure the marginal utility of income, and led them to collaborate in forming the Econometric Society and sponsoring the establishment of the Cowles Commission, institutions advancing economic theory in connection to mathematics and statistics.
To be presented at a symposium at the University of Oslo, December 3, 2019, honoring the 50th anniversary of the award to Ragnar Frisch of the Royal Bank of Sweden Prize in Economic Science in Memory of Alfred Nobel and the 30th anniversary of the award of that prize to Trygve Haavelmo.