Ratio Orderings and Comparative Statics

Ed Hopkins and Tatiana Kornienko

Edinburgh School of Economics Discussion Paper Series from Edinburgh School of Economics, University of Edinburgh

Abstract: Monotone ratio orderings are refinements of first order stochastic dominance that allow monotone comparative statics results in games of incomplete information. We develop analogous refinements for second order stochastic dominance based on the monotonicity of the cumulative probability ratio and the unimodality of the likelihood and probability ratios. We go on to investigate comparative statics in first price auctions, both private and common value, of the effects of more precise information in the sense of the new orderings. We find that almost all types bid more aggressively under the new distribution than they did under the old, but the highest types may bid less. This leads to higher expected revenue in a simple common value auction, but to an ambiguous result in the private value case.

Keywords: monotone likelihood ratio; monotone probability ratio; conditional stochastic dominance; generalized Lorenz order; comparative statics; first price auctions; common value auctions (search for similar items in EconPapers)
JEL-codes: C72 D31 D44 D81 (search for similar items in EconPapers)
Pages: 32
Date: 2003-08
New Economics Papers: this item is included in nep-mic
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Citations: View citations in EconPapers (11)

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