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on Contract Theory and Applications |
| By: | John Duffy; Felix Munoz-Garcia |
| Abstract: | This paper investigates behavior in finitely repeated simultaneous and sequential-move prisoner's dilemma games when there is one-sided incomplete information and signaling about players' concerns for fairness, specifically, their preferences regarding "inequity aversion." In this environment, we show that only a pooling equilibrium can be sustained, in which a player type who is unconcerned about fairness initially cooperates in order to disguise himself as a player type who is concerned about fairness. This disguising strategy induces the uninformed player to cooperate in all periods of the repeated game, including the final period, at which point the player type who is unconcerned about fairness takes the opportunity to defect, i.e., he "backstabs" the uninformed player. Despite such last-minute defection, our results show that the introduction of incomplete information can actually result in a Pareto improvement under certain conditions. We connect the predictions of this "backstabbing" equilibrium with the frequently observed decline in cooperative behavior in the final period of finitely-repeated experimental games. |
| Keywords: | Prisoner\'s Dilemma, Social Preferences, Inequity Aversion, Incomplete Information, Siganling, Information Transmission |
| JEL: | C72 C73 D82 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:pit:wpaper:491&r=cta |
| By: | Ilwoo Hwang |
| Abstract: | I study a dynamic one-sided-offer bargaining model between a seller and a buyer under incomplete information. The seller knows the quality of his product while the buyer does not. During bargaining, the seller randomly receives an outside option, the value of which depends on the hidden quality. If the outside option is sufficiently important, there is an equilibrium in which the uninformed buyer fails to learn the quality and continues to make the same randomized offer throughout the bargaining process. As a result, the equilibrium behavior produces an outcome path that resembles the outcome of a bargaining deadlock and its resolution. The equilibrium with deadlock has inefficient outcomes such as a delay in reaching an agreement and a breakdown in negotiations. Bargaining inefficiencies do not vanish even with frequent offers, and they may exist when there is no static adverse selection problem. Under stronger parametric assumptions, the equilibrium with deadlock is unique under a monotonicity criterion, and all equilibria exhibit inefficient outcomes. |
| Keywords: | bargaining game, asymmetric information, bargaining deadlock, delay, failure of learning, Coase conjecture |
| JEL: | C78 D82 D83 |
| Date: | 2013–09–03 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:13-050&r=cta |
| By: | Lucie Ménager (LEM - Laboratoire d'Économie Moderne - Université Paris II - Panthéon-Assas : EA4442, EQUIPPE - ECONOMIE QUANTITATIVE, INTEGRATION, POLITIQUES PUBLIQUES ET ECONOMETRIE - Université Lille III - Sciences humaines et sociales) |
| Abstract: | We study the effect of cheap talk between bidders on the outcome of a first-price procurement game with N sellers in which bidding is costly. Although no side-payements or commitments are allowed, we show that the game admits a unique family of symmetric equilibria in which sellers use communication to collude on a subset of participants and/or to reveal information about their valuation. Contrary to the conventional wisdom, the buyer's expected revenue and the surplus need not decrease with collusion, and the ex-ante surplus increases with the amount of information revealed in equilibrium. This is because when communication is cheap, bidders cannot directly collude on higher prices. Rather, communication leads to a competition between fewer, but more aggressive bidders, which entails more allocative efficiency and a decrease in the total wasteful entry cost. |
| Keywords: | Communication; procurement; collusion |
| Date: | 2013–08–16 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00856078&r=cta |
| By: | Volker Benndorf; Dorothea Kübler; Hans-Theo Normann; |
| Abstract: | We study the voluntary revelation of private, personal information in a labor-market experiment with a lemons structure where workers can reveal their productivity at a cost. While rational revelation improves a worker's payoff, it imposes a negative externality on others and may trigger further unraveling. Our data suggest that subjects reveal their productivity less frequently than predicted in equilibrium. A loaded frame emphasizing personal information about workers' health leads to even less revelation. We show that three canonical behavioral models all predict too little rather than too much revelation: level-k reasoning, quantal-response equilibrium,and to a lesser extent inequality aversion. |
| Keywords: | information revelation, privacy, lemons market, level-k reasoning, quantal response equilibrium, inequality aversion |
| JEL: | C72 C90 C91 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2013-040&r=cta |
| By: | Biais, Bruno; Landier, Augustin |
| Abstract: | The rents agents can extract from principals increase with the magnitude of incentive problems, which the literature usually takes as given. We endogenize it, by allowing agents to choose technologies that are more or less opaque and correspondingly prone to agency problems. In our overlapping generations model, agents compete with their predecessors. We study whether the presence of old- timers earning low rents can keep young managersrent-seeking in check. With dynamic contracts, long horizons help principals incentivize agents. Hence, old agents are imperfect substitutes for young ones. This mutes down competition between generations, especially if compensation deferral is strong. As a result, young managers can opt for more opaque and complex technologies, and therefore larger rents, than their predecessors. Thus, in equilibrium, complexity and rents rise over time. |
| Keywords: | Agency rents, moral hazard, nance sector, dynamic contracts, opacity. |
| JEL: | D3 D8 G2 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:27436&r=cta |
| By: | Eric Langlais (EconomiX, UMR CNRS 7235 and University of Paris Ouest-Nanterre-La Défense); Marie Obidzinski (CRESE, Université de Franche-Comté) |
| Abstract: | This paper revisits the issue of law enforcement and the design of monetary sanctions when the public law enforcer's incentives depart from those of a benevolent authority, which is the most frequent assumption made in the literature on crime deterrence. We first consider the case an elected enforcer. We find that when the harm generated by offenses is quite small relative to the average private benefits, equilibrium with weak enforcement/low sanction prevails. Instead, when the harm generated by offenses is high relative to the average private benefits, it is the equilibrium with strong enforcement/high sanctions that prevails. Therefore, we provide an explanation for the empirical puzzle highlighted by Lin(2007): elected enforcers punish major (minor) crimes more (less) severely than the benevolent social planer. The case of an appointed enforcer prone to rent seeking is also considered. The monetary sanction under rent seeking is closer to the utilitarian level, as compared with the one under election. |
| Keywords: | law enforcement, deterrence, monetary sanctions, punishment, electoral competition, democracy, rent seeking, dictature. |
| JEL: | D72 D73 H1 K14 K23 K4 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:crb:wpaper:2013-06&r=cta |
| By: | Mihaela van der Schaar (Electrictal Engineering, UCLA); Yuanzhang Xiao (Electrictal Engineering, UCLA); William Zame (Economics, UCLA) |
| Abstract: | The problem of efficient sharing of a resource is nearly ubiquitous. Except for pure public goods, each agent's use creates a negative externality; often the negative externality is so strong that efficient sharing is impossible in the short run. We show that, paradoxically, the impossibility of efficient sharing in the short run enhances the possibility of efficient sharing in the long run, even if outcomes depend stochastically on actions, monitoring is limited and users are not patient. We base our analysis on the familiar framework of repeated games with imperfect public monitoring, but we extend the framework to view the monitoring structure as chosen by a designer who balances the benefits and costs of more accurate observations and reports. Our conclusions are much stronger than in the usual folk theorems: we do not require a rich signal structure or patient users and provide an explicit online construction of equilibrium strategies. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:eie:wpaper:1320&r=cta |