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A priori knowledge usually enables us to decide that some coefficients must be zero in the particular equation, while they assume non-zero values in other equations of the system. We said that identification of an equation is based on variables not included (not appearing) in it. To be identifiable an equation must be independent of one or more important variables, which are included in other equations of the system. Such excluded variables, if operative during the sample period, will generate shifts in the other equations of the model, which will in turn identify the particular equation from which they are absent (i.e. in which they appear with zero coefficient).
Based on the a priori information a list can be prepared, which should be as complete as possible, of the factors which are relevant to the phenomenon being studied. The list can help us decide which of these factors would normally appear in each relationship. For example, assume that we want to study the demand for an agricultural product. The demand equation belongs to a system of equations describing the market mechanism.
Two people are engaged in a joint project. If each person i puts in the effort xi, the outcome of the project is worth f(x1, x2). Each person’s effort level xi is a number between
A proxy bidder represents the interests of a bidder not physically gift at the auction. Typically, the bidder can inform his proxy of the most quantity he's willing to pay, and als
Game Theory: (prisoner's dilemma) Consider the following 2 x 2 pricing game, where rms choose whether to price High or Low simultaneously. Find the equilibrium in dominant s
A payoff offerd as a bequest for someone partaking in some activity that doesn't directly provide her with profit. Often, such incentives are given to beat the ethical hazard drawb
Consider the Cournot duopoly model in which two firms, 1 and 2, simultaneously choose the quantities they will sell in the market, q1 and q2. The price each receives for each unity
1. Find all NE of the following 2×2 game. Determine which of the NE are trembling-hand perfect. 2. Consider the following two-person game where player 1 has three strategie
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GAME PLAYING IN CLASS There are several games that are appropriate for use on the first or second day of class. These games are simple but can be used to convey important poin
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