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on Contract Theory and Applications |
| By: | Kohei Kawamura (University of Edinburgh) and Vasileios Vlaseros (University of Edinburgh) |
| Abstract: | This paper studies dichotomous majority voting in common interest committees where each member receives not only a private signal but also a public signal observed by all of them. The public signal represents, e.g. expert information presented to an entire committee and its quality is higher than that of each individual private signal. We identify two informative symmetric strategy equilibria, namely i) the mixed strategy equilibrium where each member randomizes between following the private and public signals should they disagree; and ii) the pure strategy equilibrium where they follow the public signal for certain. The former outperforms the latter. The presence of the public signal precludes the equilibrium where every member follows their own signal, which is an equilibrium in the absence of the public signal. The mixed strategy equilibrium in the presence of the public signal outperforms the sincere voting equilibrium without the public signal, but the latter may be more efficient than the pure strategy equilibrium in the presence of the public signal. We suggest that whether expert information improves committee decision making depends on equilibrium selection. |
| Keywords: | information aggregation, strategic voting, expert information |
| JEL: | D72 D82 D83 |
| Date: | 2013–08–02 |
| URL: | http://d.repec.org/n?u=RePEc:edn:esedps:220&r=cta |
| By: | Mehmet Ekmekci (Northwestern University); Nuh Dalkiran (Bilkent University) |
| Abstract: | Much of the interest in the adverse selection approach to reputations in repeated games arises from the fact that quite small departures from the complete information model seems to have large effects on the set of equilibrium payoffs. We show that this is not the case in reputation games where a long-run player plays a fixed stage-game against an infinite sequence of short-run players under imperfect public-monitoring. We conclude that in such games, introducing arbitrarily small incomplete information cannot open the possibility of new equilibrium payoffs that are far away from the complete information equilibrium payoff set, even when the long-run player's discount factor is very high but fixed. Our main result implies that the standard reputation results hold true due to a specific order of limits. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed013:49&r=cta |
| By: | Alex Gershkov; Benny Moldovanu; Xianwen Shi |
| Abstract: | We study dominant strategy incentive compatible (DIC) and deterministic mechanisms in a social choice setting with several alternatives. The agents are privately informed about their preferences, and have single-crossing utility functions. Monetary transfers are not feasible. We use an equivalence between deterministic, DIC mechanisms and generalized median voter schemes to construct the constrained-efficient, optimal mechanism for an utilitarian planner. Optimal schemes for other welfare criteria such as, say, a Rawlsian maximin can be analogously obtained. |
| Keywords: | Mechanism Design, Voting, Dominant Strategy, Utilitarian |
| JEL: | D82 D72 D71 |
| Date: | 2013–08–07 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-493&r=cta |
| By: | Willemien Kets |
| Abstract: | The standard framework for analyzing games with incomplete information models players as if they have an infinite depth of reasoning, which is not always consistent with experimental evidence. This paper generalizes the type spaces of Harsanyi (1967- 1968) so that players can have a nite depth of reasoning. We do this restricting the set of events that a player of a finite depth can reason about. This approach allows us to extend the Bayesian-Nash equilibrium concept to environments with players with a nite depth of reasoning. We demonstrate that the standard approach of modeling beliefs with Harsanyi type spaces fails to capture the equilibrium behavior of players with a nite depth, at least in some games. Consequently, the standard approach cannot be used to describe the equilibrium behavior of players with a finite depth in general. |
| Keywords: | Bounded rationality, higher-order beliefs, finite depth of reasoning, games with incomplete information, Bayesian equilibrium JEL Classification: C700, C720, D800, D830 |
| Date: | 2013–07–22 |
| URL: | http://d.repec.org/n?u=RePEc:nwu:cmsems:1569&r=cta |
| By: | Nassim N. Taleb; Constantine Sandis |
| Abstract: | Standard economic theory makes an allowance for the agency problem, but not the compounding of moral hazard in the presence of informational opacity, particularly in what concerns high-impact events in fat tailed domains. But the ancients did; so did many aspects of moral philosophy. We propose a global and morally mandatory heuristic that anyone involved in an action which can possibly generate harm for others, even probabilistically, should be required to be exposed to some damage, regardless of context. While perhaps not sufficient, the heuristic is certainly necessary hence mandatory. It is supposed to counter risk hiding in the tails. We link the rule to various philosophical approaches to ethics and moral luck. |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1308.0958&r=cta |
| By: | Raul V. Fabella (School of Economics, University of the Philippines Diliman) |
| Abstract: | We give the conditions for the attainment of self-enforcing Pareto efficiency under complete effort non-observability, strict agent rationality and global budget balance among teams involved in a winner-takes-all contest for a prize. Employing Nash conjectures and fixed fee financing of the prize, we characterize the competitive environment that allows teams to overcome the moral hazard problem and induce self-enforcing egalitarian outcomes. If the number of identical teams is finite, the production technology is restricted to factor symmetric ones. When the number of identical teams becomes unbounded, the restriction on the production technology vanishes and there always exists a fee level that supports a self-enforcing Pareto efficient solution as long as member utilities over own share are identical and obey the Inada conditions. Some form of membership symmetry cannot be ruled out for Pareto efficiency. |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:phs:dpaper:201308&r=cta |