• Optimal and Robust Disclosure of Public Information
  Takashi Ui

  Abstract

  A policymaker discloses public information to interacting agents who also acquire costly private information. More precise public information reduces the precision and cost of acquired private information. Considering this effect, what disclosure rule should the policymaker adopt? We address this question under two alternative assumptions using a linear-quadratic-Gaussian game with arbitrary quadratic material welfare and convex information costs. First, the policymaker knows the cost of private information and adopts an optimal disclosure rule to maximize the expected welfare. Second, the policymaker is uncertain about the cost and adopts a robust disclosure rule to maximize the worst-case welfare. Depending on the elasticity of marginal cost, an optimal rule is qualitatively the same as in the case of either a linear information cost or exogenous private information. The worst-case welfare is strictly increasing if and only if full disclosure is optimal under some information costs, which provides a new rationale for central bank transparency.

   

  Introduction

  Consider a policymaker (such as a central bank) who discloses public information to interacting agents (such as firms and consumers) who also acquire costly private information. The policymaker’s concern is social welfare, including the agents’ cost of information acquisition. When the policymaker provides more precise public information, the agents have less incentive to acquire private information, reducing its precision and cost. This effect of public information is referred to as the crowding-out effect (Colombo et al., 2014). Less private information can be harmful to welfare, but less information cost is beneficial; that is, the welfare implication of the crowding-out effect is unclear. Then, what disclosure rule should the policymaker adopt?

   

  WP039

  2022.03

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• Robust Voting under Uncertainty
  Satoshi NakadaShmuel NitzanTakashi Ui

  Abstract

  This paper proposes normative criteria for voting rules under uncertainty about individual preferences to characterize a weighted majority rule (WMR). The criteria stress the significance of responsiveness, i.e., the probability that the social outcome coincides with the realized individual preferences. A voting rule is said to be robust if, for any probability distribution of preferences, the responsiveness of at least one individual is greater than one-half. This condition is equivalent to the seemingly stronger condition requiring that, for any probability distribution of preferences and any deterministic voting rule, the responsiveness of at least one individual is greater than that under the deterministic voting rule. Our main result establishes that a voting rule is robust if and only if it is a WMR without ties. This characterization of a WMR avoiding the worst possible outcomes provides a new complement to the well-known characterization of a WMR achieving the optimal outcomes, i.e., efficiency in the set of all random voting rules.

   

  Introduction

  Consider the choice of a voting rule on a succession of two alternatives (such as “yes” or “no”) by a group of individuals. When a voting rule is chosen, the alternatives to come in the future are unknown, and the individuals are uncertain about their future preferences. An individual votes sincerely being concerned with the probability that the outcome agrees with his or her preference, which is referred to as responsiveness (Rae, 1969). More specifically, an individual prefers a voting rule with higher responsiveness because he or she can expect that a favorable alternative is more likely to be chosen. For example, if an individual has a von NeumannMorgenstern (VNM) utility function such that the utility from the passage of a favorable issue is one and that of an unfavorable issue is zero, then the expected utility equals the responsiveness.

   

  WP038

  2022.01

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• Imprecise Information and Second-Order Beliefs
  Norio TakeokaTakashi Ui

  Abstract

  A decision problem under uncertainty is often given with a piece of objective but imprecise information about the states of the world such as in the Ellsberg urn. By incorporating such information into the smooth ambiguity model of Seo (2009), we characterize a class of smooth ambiguity representations whose second-order beliefs are consistent with the objective information. As a corollary, we provide an axiomatization for the second-order expected utility, which has been studied by Nau (2001), Neilson (2009), Grant, Polak, and Strzalecki (2009), Strzalecki (2011), and Ghirardato and Pennesi (2019). In our model, attitude toward uncertainty can be disentangled from a perception about uncertainty and connected with attitude toward reduction of compound lotteries.

   

  Introduction

  Choice under uncertainty is an important aspect of decision making. Since Ellsberg’s seminal work, it is admitted that a decision maker’s behavior may be inconsistent with a probabilistic belief (or a subjective probability measure) about the states of the world. Such a situation is called ambiguity and has been studied by several models of decision making, such as the Choquet expected utility (Schmeidler [31]), the maxmin expected utility (Gilboa and Schmeidler [12]), and the smooth ambiguity model (Klibanoff, Marinacci, and Mukerji [22] and Seo [33]).

   

  WP037

  2021.12

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• Going Cashless: Evidence from Japan’s Point Reward Program
  Toshiaki ShojiToshitaka SekineTsutomu Watanabe

  Abstract

  In October 2019, the Japanese government started a unique program that offered points (discounts) for cashless payments. Using credit card transaction data, we compare credit card usage at restaurants that participated in this program and those that did not. Our main findings are as follows. First, the number of card users was 9- 12 percent higher in participating than in non-participating restaurants. Second, the positive impact of the program on the number of card users persisted even after the program ended in June 2020, indicating that the program had a lasting effect to promote cashless payments. Third, the impact of the program was significantly larger at restaurants that started accepting credit cards more recently, since the share of cash users at those restaurants was larger just before the program started. Finally, two-thirds of the difference between participating and non-participating restaurants disappeared during the first surge of COVID-19 in April 2020, suggesting that customers switched from cash to cashless payments to reduce the risk of infection both at participating and non-participating restaurants, but the extent to which customers switched was larger at non-participating restaurants with a larger share of cash users just before the pandemic.

   

  Introduction

  The share of payments using cashless methods is much lower in Japan than many other countries. BIS statistics, for example, show that total payments via cashless means such as credit cards, debit cards, and e-money in Japan amounted to 74 trillion yen or 24 percent of household final consumption expenditure in 2018. This percentage is considerably lower than the 40 percent or more in other developed countries such as the United States, the United Kingdom, and Singapore. The social cost of relying on cash payments is substantial. For instance, using data for several European countries, Schmiedel et al. (2012) show that the unit cost of cash payments is higher than that of debit card payments. In addition, Rogoff (2015) argues that cash makes transactions anonymous, which potentially facilitates underground or illegal activities and leads to law-enforcement costs.

  WP036

  2021.11

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• Online Consumption During and After the COVID-19 Pandemic: Evidence from Japan
  Tsutomu WatanabeYuki Omori

  Abstract

  The spread of COVID-19 infections has led to substantial changes in consumption patterns. While demand for services that involve face-to-face contact has decreased sharply, online consumption of goods and services, such as through e-commerce, is increasing. The aim of this paper is to investigate whether online consumption will continue to increase even after COVID-19 subsides. Online consumption requires upfront costs, which have been regarded as one of the factors inhibiting the diffusion of online consumption. However, if many consumers made such upfront investments due to the pandemic, they would have no reason to return to offline consumption after the pandemic has ended. We examine whether this was actually the case using credit card transaction data. Our main findings are as follows.  First, the main group responsible for the increase in online consumption are consumers who were already familiar with it before the pandemic. These consumers increased the share of online spending in their overall spending. Second, some consumers that had never used the internet for purchases before started to do so due to COVID-19. However, the fraction of consumers making this switch was not very different from the trend before the crisis. Third, by age group, the switch to online consumption was more pronounced among youngsters than seniors. These findings suggest that it is not the case that during the pandemic a large number of consumers made the upfront investment necessary to switch to online consumption, so a certain portion of the increase in online consumption is likely to fall away again once COVID-19 subsides.

   

  Introduction

  People’s consumption patterns have changed substantially as a result of the spread of the COVID-19 infections. One such change is a reduction in the consumption of services that involve face-to-face contact. For instance, “JCB Consumption NOW” data, credit card transaction data provided jointly by JCB Co., Ltd., and Nowcast Inc., show that, since February this year, spending on eating out, entertainment, travel, and lodging have shown substantial decreases. Even in the case of goods consumption, there has been a tendency to avoid face-to-face contact such as at convenience stores and supermarkets. For example, with regard to supermarket shopping, the amount of spending per consumer has increased, but the number of shoppers has decreased, indicating that consumers purchase more than usual at supermarkets but try to minimize the risk of infection by reducing the number of visits. Another important change is the increase in the consumption of services and goods that do not involve face-to-face contact. The credit card transaction data indicate that with regard to services consumption, spending on movies and theaters has decreased substantially, while spending on streaming media services has increased. As for the consumption of goods, so-called e-commerce, i.e., purchases via the internet, has shown substantial increases.

   

  WP035

  2021.11

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• The Demand for Money at the Zero Interest Rate Bound
  Tomoyoshi YabuTsutomu Watanabe

  Abstract

  This paper estimates a money demand function using US data from 1980 onward, including the recent near-zero interest rate period. We show that the substantial increase in the money-income ratio during the period of near-zero interest rates is captured well by the log-log specification, but not by the semi-log specification. Our result is the opposite of the result obtained by Ireland (2009), who found that the semi-log specification performs better. This mainly stems from the difference in the sample period employed: ours contains 24 quarters with interest rates below 1 percent, while Ireland’s (2009) sample period contains only three quarters.

   

  Introduction

  In regression analyses of money demand functions, there is no consensus on whether the nominal interest rate as an independent variable should be used in linear or log form. For example, Meltzer (1963), Hoffman and Rasche (1991), and Lucas (2000) employ a log-log specification (i.e., regressing real money balances (or real money balances relative to nominal GDP) in log on nominal interest rates in log), while Cagan (1956), Lucas (1988), Stock and Watson (1993), and Ball (2001) employ a semi-log specification (i.e., nominal interest rates are not in log).

   

  WP034

  2021.10

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• Household Inventory, Temporary Sales, and Price Indices
  Kota WatanabeKozo UedaTsutomu Watanabe

  Abstract

  Large-scale household inventory buildups occurred in Japan five times over the last decade, including those triggered by the Tohoku earthquake in 2011, the spread of COVID-19 infections in 2020, and the consumption tax hikes in 2014 and 2019. Each of these episodes was accompanied by considerable swings in GDP, suggesting that fluctuations in household inventories are one of the sources of macroeconomic fluctuations in Japan. In this paper, we focus on changes in household inventories associated with temporary sales and propose a methodology to estimate changes in household inventories at the product level using retail scanner data. We construct a simple model on household stockpiling and derive equations for the relationships between the quantity consumed and the quantity purchased and between consumption and purchase prices. We then use these relationships to make inferences about quantities consumed, consumption prices, and inventories. Next, we test the validity of this methodology by calculating price indices and check whether the intertemporal substitution bias we find in the price indices is consistent with theoretical predictions. We empirically show that there exists a large bias in the Laspeyres, Paasche, and Törnqvist price indices, which is smaller at lower frequencies but non-trivial even at a quarterly frequency and that intertemporal substitution bias disappears for a particular type of price index if we switch from purchase-based data to consumption-based data.  
  

   

  Introduction

  In the first week of March 2020, when the first wave of COVID-19 infections hit Japan, supermarket sales went up more than 20% over the previous year. This was due to hoarding by consumers stemming from an increase in uncertainty regarding the spread of the virus. Similar hoarding occurred during the third wave, which struck Japan in October 2020. Such hoarding has occurred not only during the COVID-19 pandemic but also after the Tohoku earthquake in March 2011 and the subsequent nuclear power plant accident in Fukushima, when residents of Tokyo and other areas that were spared serious damage went on a buying spree for food and other necessities. Consumer hoarding also occurred due to policy shocks: when the consumption tax rate was raised in April 2014 and in October 2019, people hoarded large amounts of goods just before the tax rate was raised, and a prolonged consumption slump occurred thereafter. Each of these episodes was accompanied by considerable swings in GDP, suggesting that fluctuations in household inventories are one of the sources of macroeconomic fluctuations in Japan.

   

  WP033

  2021.09

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