Affiliation and Dependence in Economic Models
Affiliation has been a prominent assumption in the study of economic models with statistical dependence. Despite its large number of applications, especially in auction theory, affiliation has limitations that are important to be aware of. This paper shows that affiliation is a restrictive condition and the intuition usually given for its adoption may be misleading. Also, other usual justifications for affiliation are not compelling. Moreover, some implications of affiliation do not generalize to other definitions of positive dependence. These results show the need to consider alternatives to affiliation. The results of this paper suggest new directions for the study of dependence in economics. The main result classifies economic models of information and proves the existence of a minimally informative random variable that makes types conditionally independent. If this variable is known, then all results that are valid under independence are also valid for these models with statistically dependent types. Complementing this result, we describe a method to study general forms of dependence using grid distributions, which are distributions whose densities are constant in squares. This method allows a comprehensive investigation on the revenue ranking of auctions under general dependence.
|Date of creation:||30 Sep 2009|
|Contact details of provider:|| Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014|
Web page: http://www.kellogg.northwestern.edu/research/math/
More information through EDIRC
|Order Information:|| Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Van Zandt, Timothy & Vives, Xavier, 2007.
"Monotone equilibria in Bayesian games of strategic complementarities,"
Journal of Economic Theory,
Elsevier, vol. 134(1), pages 339-360, May.
- Van Zandt, Timothy & Vives, Xavier, 2003. "Monotone Equilibria in Bayesian Games of Strategic Complementarities," CEPR Discussion Papers 4103, C.E.P.R. Discussion Papers.
- Bergin, James, 2001.
"Common Knowledge with Monotone Statistics,"
Econometric Society, vol. 69(5), pages 1315-32, September.
- Hubbard, Timothy P. & Li, Tong & Paarsch, Harry J., 2011.
"Semiparametric Estimation in Models of First-Price, Sealed-Bid Auctions with Affiliation,"
CEI Working Paper Series
2010-10, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
- Hubbard, Timothy P. & Li, Tong & Paarsch, Harry J., 2012. "Semiparametric estimation in models of first-price, sealed-bid auctions with affiliation," Journal of Econometrics, Elsevier, vol. 168(1), pages 4-16.
- Olivier Gossner & Ehud Kalai & Robert Weber, 2009.
"Information Independence and Common Knowledge,"
- Olivier Gossner & Ehud Kalai & Robert Weber, 2007. "Information Independence and Common Knowledge," Discussion Papers 1453, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Olivier Gossner & Ehud Kalai & Robert Weber, 2009. "Information Independence and Common Knowledge," Discussion Papers 1476, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Paul Klemperer, 2004.
"Auctions: Theory and Practice,"
2004-W09, Economics Group, Nuffield College, University of Oxford.
- Castro, Luciano I. De & Paarsch, Harry J., 2009. "Testing Affiliation in Private-values Models of First-price Auctions Using Grid Distributions," CEI Working Paper Series 2009-11, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
- John McMillan, 1994. "Selling Spectrum Rights," Journal of Economic Perspectives, American Economic Association, vol. 8(3), pages 145-162, Summer.
- Castro, Luciano I. de, 2007. "Affiliation, equilibrium existence and the revenue ranking of auctions," UC3M Working papers. Economics we074622, Universidad Carlos III de Madrid. Departamento de Economía.
- Monteiro, Paulo Klinger & Moreira, Humberto, 2006. "First-price auctions without affiliation," Economics Letters, Elsevier, vol. 91(1), pages 1-7, April.
When requesting a correction, please mention this item's handle: RePEc:nwu:cmsems:1479. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Fran Walker)
If references are entirely missing, you can add them using this form.