Eduardo Zambrano

Testable Implications of Subjective Expected Utility Theory

I show that the predictive content of the hypothesis of subjective expected utility maximization critically depends on what the analyst knows about the details of the problem a particular decision maker faces. When the analyst does not know anything about the agent´s payoffs or beliefs and can only observe the sequence of actions taken by the decision maker any arbitrary sequence of actions can be implemented as the choice of an agent that solves some intertemporal utility maximization problem under uncertainty.

Formal Models of Authority: Introduction and Political Economy Applications

Talcot Parsons suggested in 1963 that there are basically three kinds of authority: utilitarian authority, coercive authority, and persuasive authority. In this paper, I show that the models developed by Gibbons and Rutten (1997), Hirshleifer (1991), Skaperdas (1992), Akerlof (1976) and Basu (1986) can be viewed as models where issues such as authority, power, influence and ideology, in the sense of Parsons, can be formally discussed. I also show the existence of an interesting difficulty in providing a contractarian interpretation of the State under the Parsonian view of governmental authority discussed in this paper.

Epistemic Conditions for Rationalizability

In this paper I present conditions, not involving common knowledge of rationality, that lead to (correlated) rationalizability. The basic observation is that, if the actual world belongs to a set of states where the set Z of action profiles is played, everyone is rational and it is mutual knowledge that the action profiles played are in Z, then the actions played at the actual world are rationalizable actions. Alternatively, if at the actual world the support of the conjecture of player i is Di, there is mutual knowledge of: (i) the game being played, (ii) that the players are rational, and (iii) that for every i the support of the conjecture of player i is contained in Di, then every strategy in the support of the conjectures is rationalizable. The results do not require common knowledge of anything and are valid for games with any number of players.

The ‘Troubling Tradeoffs’ Paradox and a Resolution: The ‘Troubling Tradeoffs’ Paradox and a Resolution

Ravallion ([Ravallion, M., 2012a]) argues that the Human Development Index (HDI) embeds questionable tradeoffs between the dimensions used to compute the index. To alleviate these problems he proposes the adoption of one of the indices developed by Chakravarty ([Chakravarty, S., 2003]). In this paper I identify the following paradox: while the Chakravarty indices clearly exhibit more sensible tradeoffs than the HDI, the HDI produces more sensible rankings than the Chakravarty indices. To solve the paradox I identify the axioms behind each methodology responsible for the unintuitive tradeoffs and rankings and illustrate how to develop an index with these questionable axioms removed. This approach can result in methodologies that exhibit more intuitive tradeoffs by design, as it seeks inputs from the public as to what those tradeoffs ought to be, and produces rankings that are more in line with what the HDI wishes to measure: human development and capabilities, as conceptualized by Sen ([Sen, A., 1985]).

Solving the Kidney Shortage via the Creation of Kidney Donation Co-operatives

Many people object to the creation of a market for kidneys on the grounds that such reform would hurt those patients unable to afford the market price of a kidney and that donors do not understand the risks they are taking when donating. In this paper, we propose a mechanism, the kidney co-operative, designed to provide sufficient incentives to alleviate the kidney shortage while at the same time addressing the concerns regarding the potential losers from reform. We show that it is reasonable to expect that the number of transplants will be larger under the kidney co-operative mechanism than under either the status quo or a conventional market mechanism.

Should a Central Bank Transfer Its Profits to the Treasury

ABSTRACT:In this paper we show how two seemingly irrelevant accounting principles for central banks—namely, the choice of the unit of account for its balance sheet and the method of inventory valuation of foreign currency reserves—can overstate or understate profits transferred to the treasury and how this can threaten the ability of central banks to control inflation. We show the first point through Monte Carlo experiments calibrated for the Venezuelan economy and the second point in an infinitely lived representative agent model that illustrates the problem of the joint determination of the level of central bank assets and the size of profits transferred to the treasury when the objective of the central bank is to eliminate the possibility of hyperinflation.Numeraire choice is often deemed a problem of purely analytical convenience. In this paper I show that there is more to numeraire selection than meets the eye for the formulation of monetary policy in countries with weak fiscal institutions. I show how (a) improper numeraire choice can dramatically overstate or understate Central Bank profits and (b) how this can threaten the ability of a Central Bank to keep inflation under control. I show point (a) in the context of Monte Carlo experiments calibrated for the Venezuelan economy and point (b) in an infinitely lived representative agent model that illustrates the problem of joint determination of the ideal level of foreign currency reserves and of the desired level of transfers of Central Bank profits to the Treasury when the objective is to eliminate the possibility of a hyperinflation. JEL codes: O230, E500.

The ‘Troubling Tradeoffs’ Paradox and a Resolution

Ravallion (2012a) argues that the Human Development Index (HDI) embeds questionable tradeoffs between the dimensions used to compute the index. To alleviate these problems he proposes the adoption of one of the indices developed by Chakravarty (2003). In this paper I identify the following paradox: while the Chakravarty indices clearly exhibit more sensible tradeoffs than the HDI, the HDI produces more sensible rankings than the Chakravarty indices. To solve the paradox I identify the axioms behind each methodology responsible for the unintuitive tradeoffs and rankings and illustrate how to develop an index with these questionable axioms removed. This approach can result in methodologies that exhibit more intuitive tradeoffs by design, as it seeks inputs from the public as to what those tradeoffs ought to be, and produces rankings that are more in line with what the HDI wishes to measure: human development and capabilities, as conceptualized by Sen (1985).In 2010 the UNDP unveiled a new methodology for the calculation of the Human Development Index (HDI). In this paper I investigate the merits of this change by evaluating the tradeoffs between the core dimensions of wellbeing implied by the index and try to understand the extent to which those tradeoffs are problematic in light of the normative principles that the 2010 HDI is designed to satisfy. I also compare the rankings that ensue to those produced by alternatives brought forth by Ravallion (2010) building on work by Chakravarty (2003). In practice, all methodologies agree considerably in terms of how they rank countries, but when they differ, the 2010 HDI arguably produces results more consistent with what the HDI is intended to measure: human development and capabilities, as conceptualized by Sen (1985).

Authority, Social Theories of

Authority is a relation that exists between individuals, in which one does as indicated by another what he or she would not do in the absence of such indication. With this as background, the article presents the ‘premodern’ notions of authority developed by Plato, Aristotle, Machiavelli, and Weber; and then the perspective given by Arendt, according to which these notions are grounded in an ontological tradition whose time has passed. This leads to the point of view of Lukes, according to which it is unavoidable that multiple perspectives exist in the understanding of authority. These perspectives are associated with the different degrees of solidity that one can give to social composites such as culture, language, social groups, and individuals themselves. The article then presents the perspectives of Friedman, Flathman, Raz, and Zambrano. They reveal that the authority relation is as solid as the beliefs that justify individual choices that, at the interpreted level, are labeled as ‘ruling’ and ‘following.’ The article concludes by pointing out how our understanding of the authority relation may change as a consequence of recent developments in the cognitive science literature, as pioneered by Varela, regarding the nonexistence of a solid, centralized, unitary self.

A ‘Rights-Based’ Approach to Optimal Tax Policy

This paper derives the tax system and size of government implied by basic efficiency and inequality aversion principles. The optimal policy equalizes the gains individuals obtain from the governmental activity, relative to how they would fare in its absence. Because industrious individuals would fare well either way there will be limits to how much redistribution is recommended by the optimal policy. To illustrate this conclusion I investigate the tax system this approach would recommend for the United States. The resulting “fair-and-efficient” policies would redistribute income via the adoption of a substantial tax credit per household while keeping marginal tax rates constant.The appendices for this paper are available at the following URL: http://ssrn.com/abstract=2638751

'Vintage' Nash Bargaining Without Convexity

I study Nash bargaining when the utility possibility set of the bargaining problem is not convex. A simple variation of Nash’s Symmetry axiom is all that is necessary to establish a set-valued version of Nash’s solution in non-convex settings.