nep-gth New Economics Papers
on Game Theory
Issue of 2005‒06‒14
nineteen papers chosen by
Laszlo A. Koczy
Universiteit Maastricht

  1. Implementation of the Ordinal Shapley Value for a three-agent economy By David Pérez-Castrillo; David Wettstein
  2. Dominant Strategy Implementation in Pure Exchange Economies By Hideki Mizukami; Takuma Wakayama
  3. Strategy-proof Sharing By Hideki Mizukami; Tatsuyoshi Saijo; Takuma Wakayama
  4. Optimal Transfers and Participation Decisions in International Environmental Agreements By Carraro, Carlo; Eyckmans, Johan; Finus, Michael
  5. Strategic analysis in complex networks with local externalities By Galeotti, Andrea; Vega-Redondo, Fernando
  6. Finite State Dynamic Games with Asymmetric Information: A Framework for Applied Work By Fershtman, Chaim; Pakes, Ariel
  7. Regional and Sub-Global Climate Blocs. A Game-Theoretic Perspective on Bottom-up Climate Regimes By Buchner, Barbara; Carraro, Carlo
  8. Efficient Kidney Exchange: Coincidence of Wants in a Structured Market By Alvin E. Roth; Tayfun Sonmez; M. Utku Unver
  9. Consumers networks and search equilibria By Galeotti, Andrea
  10. Bertrand Equilibria and Sharing Rules By Hoernig, Steffen
  11. Equilibria in a Dynamic Global Game: The Role of Cohort Effects By Heidhues, Paul; Melissas, Nicolas
  12. When the Punishment Must Fit the Crime: Remarks on the Failure of Simple Penal Codes in Extensive-Form Games By Mailath, George J.; Nocke, Volker; White, Lucy
  13. Endogenous Leadership in Teams By Pedro Rey Biel; Steffen Huck
  14. The Insiders' Dilemma: An Experiment on Merger Formation By Lindqvist, Tobias; Stennek, Johan
  15. Strategic Experimentation and Disruptive Technological Change By Schivardi, Fabiano; Schneider, Martin
  16. A Neural Networks approach to Minority Game By Luca Grilli; Angelo Sfrecola
  17. Neural Networks to Predict Financial Time Series in a Minority Game Context By Luca Grilli; Angelo Sfrecola
  18. Learning Foreign Languages.Theoretical and Empirical Implications of the Selten and Pool Model By Ginsburgh, Victor; Ortuño-Ortín, Ignacio; Weber, Shlomo
  19. Is It Trust we Model? An Attempt to Calculate the Non-Calculative By Rosenkranz, Stephanie; Weitzel, Utz

  1. By: David Pérez-Castrillo; David Wettstein
    Abstract: We propose a simple mechanism that implements the Ordinal Shapley Value (Pérez-Castrillo and Wettstein [2005]) for economies with three or less agents.
    Keywords: Ordinal Shapley Value, implementation, mechanism design
    JEL: C72 D50 D63
    Date: 2005–05–18
  2. By: Hideki Mizukami (Faculty of Economics, Toyama University); Takuma Wakayama (Graduate School of Economics, Osaka University)
    Abstract: In this paper, we consider dominant strategy implementation in classical pure exchange economies with free disposal. We show that quasi-strong-non-bossiness and strategy-proofness together are necessary and sufficient for dominant strategy implementation via the direct revelation mechanism. Moreover, we prove that strategy-proofness is sufficient for dominant strategy implementation, by using an augmented revelation mechanism similar to the one devised by Jackson et al. (1994). This implies that, in classical pure exchange economies, dominant strategy implementability by a certain indirect mechanism is equivalent to truthful implementability in dominant strategy equilibria.
    Keywords: Quasi-strong-non-bossiness, Strategy-proofness, Augmented Revelation Mechanism, The Revelation Principle
    JEL: D51 C72 D71 D78
    Date: 2004–03
  3. By: Hideki Mizukami (Faculty of Economics, Toyama University); Tatsuyoshi Saijo (Institute of Social and Economic Research, Osaka University); Takuma Wakayama (Graduate School of Economics, Osaka University)
    Abstract: We consider the problem of sharing a divisible good, where agents prefer more to less. First, we prove that a sharing rule satisfies strategy proofness if and only if it has the quasi-constancy property: no one changes her own share by changing her announcements. Next, by constructing a system of linear equations in a manner that is consistent with quasi-constancy, we provide a way to find every strategy-proof sharing rule. Finally, we identify a necessary and sufficient condition for the existence of non-constant, strategy-proof sharing rules, by examining the relationship between the constancy of strategy-proof sharing rules and the dimension of the solution space of the linear system.
    Keywords: Strategy-proofness, Bossiness, Non-constancy, Quasi-constancy.
    JEL: C72 D71
    Date: 2005–03
  4. By: Carraro, Carlo; Eyckmans, Johan; Finus, Michael
    Abstract: The literature on international environmental agreements has recognized the role transfers play in encouraging participation in international environmental agreements (IEAs), but the few results achieved so far are overly specific and do not exploit the full potential of transfers for successful treaty-making. Therefore, in this paper, we develop a framework that enables us to study the role of transfers in a more systematic way. We propose a design for transfers using both internal and external financial resources and making 'welfare optimal agreements' self-enforcing. To illustrate the relevance of our transfer scheme for actual treaty-making, we use a well-known integrated assessment model of climate change to show how appropriate transfers may be able to induce almost all countries into signing a self-enforcing climate treaty.
    Keywords: climate policy; international environmental agreements; self-enforcing international environmental agreements; transfers
    JEL: C72 H23 Q25 Q28
    Date: 2005–05
  5. By: Galeotti, Andrea; Vega-Redondo, Fernando
    Abstract: In this paper, we discuss a model with local positive externalities on a complex random network that allows for wide heterogeneities among the agents. The situation can be analyzed as a game of incomplete information where each player's connectivity is her type. We focus on three paradigmatic cases in which the overall degree distribution is Poisson, exponential, and scale-free (given by a power law). For each of them, we characterize the equilibria and obtain interesting insights on the interplay between network topology and payoffs. For example, we reach the somewhat paradoxical conclusion that a broad degree distribution or/and too low a cost of effort render it difficult, if not impossible, to sustain an (efficient) high-effort configuration at equilibrium.
    Keywords: Complex networks, local externalities
    Date: 2005–06
  6. By: Fershtman, Chaim; Pakes, Ariel
    Abstract: We present a framework for the applied analysis of dynamic games with asymmetric information. The framework consists of a definition of equilibrium, and an algorithm to compute it. Our definition of Applied Markov Perfect equilibrium is an extension of the definition of Markov Perfect equilibrium for games with asymmetric information; an extension chosen for its usefulness to applied research. Each agent conditions its strategy on the payoff or informationally relevant variables that are observed by that particular agent. The strategies are optimal given the beliefs on the evolution of these observed variables, and the rules governing the evolution of the observables are consistent with the equilibrium strategies. We then provide a simple algorithm for computing this equilibrium. The algorithm is easy to program and does not require computation of posterior distributions, explicit integration over possible future states, or information from all possible points in the state space. For specificity, we present our results in the context of a dynamic oligopoly game with collusion in which the outcome of firms’ investments are random and only observed by the investing agent. We then use this example to illustrate the computational properties of the algorithm.
    Keywords: cartels; collusive behaviour; dynamic games; numerical analysis
    JEL: C63 C73 L13 L40
    Date: 2005–04
  7. By: Buchner, Barbara; Carraro, Carlo
    Abstract: No international regime on climate change is going to be fully effective in controlling GHG emissions without the involvement of countries such as China, India, the United States, Australia, and possibly other developing countries. This highlights an unambiguous weakness of the Kyoto Protocol, where the aforementioned countries either have no binding emission targets or have decided not to comply with their targets. Therefore, when discussing possible post-Kyoto scenarios, it is crucial to prioritise participation incentives for all countries, especially those without explicit or with insufficient abatement targets. This paper offers a bottom-up game-theoretic perspective on participation incentives. Rather than focusing on issue linkage, transfers or burden sharing as tools to enhance the incentives to participate in a climate agreement, this paper aims at exploring whether a different policy approach could lead more countries to adopt effective climate control policies. This policy approach is explicitly bottom-up, namely it gives each country the freedom to sign agreements and deals, bilaterally or multilaterally, with other countries, without being constrained by any global protocol or convention. This study provides a game-theoretic assessment of this policy approach and then evaluates empirically the possible endogenous emergence of single or multiple climate coalitions. Welfare and technological consequences of different multiple bloc climate regimes will be assessed and their overall environmental effectiveness will be discussed.
    Keywords: agreements; climate; incentives; negotiations; policy
    JEL: C72 H23 Q25 Q28
    Date: 2005–05
  8. By: Alvin E. Roth; Tayfun Sonmez; M. Utku Unver
    Abstract: Patients needing kidney transplants may have willing donors who cannot donate to them because of blood or tissue incompatibility. Incompatible patient-donor pairs can exchange donor kidneys with other such pairs. The situation facing such pairs resembles models of the "double coincidence of wants," and relatively few exchanges have been consummated by decentralized means. As the population of available patient-donor pairs grows, the frequency with which exchanges can be arranged will depend in part on how exchanges are organized. We study the potential frequency of exchanges as a function of the number of patient-donor pairs, and the size of the largest feasible exchange. Developing infrastructure to identify and perform 3-way as well as 2-way exchanges will have a substantial effect on the number of transplants, and will help the most vulnerable patients. Larger than 3-way exchanges have much smaller impact. Larger populations of patient-donor pairs increase the percentage of patients of all kinds who can find exchanges.
    JEL: C7 C6
    Date: 2005–06
  9. By: Galeotti, Andrea
    Abstract: We explore the effect of local information sharing among consumers on market functioning. Consumers are embedded in a consumers network, they may costly search non-sequentially for price quotations and the information gather are non-excludable along direct links. We first show that when search costs are low consumers randomize between searching for one price and two price quotations (high search intensity equilibrium). Otherwise, consumers randomize between searching for one price and not searching at all (low search intensity equilibrium). In both equilibria consumers search less frequently in denser networks. The main result of the paper show that when search costs are low the expected price and the social welfare increase, while the consumer surplus decreases, as the consumers network becomes denser. These results are reverse when search costs are high.
    Keywords: Networks, local externalities, non-sequential search
    Date: 2005–06
  10. By: Hoernig, Steffen
    Abstract: We analyse how sharing rules affect Nash equilibria in Bertrand games, where the sharing of profits at ties is a decisive assumption. Necessary conditions for either positive or zero equilibrium profits are derived. Zero profit equilibria are shown to exist under weak conditions if the sharing rule is ‘sign-preserving’. For Bertrand markets we define the class of ‘expectation sharing rules’, where profits at ties are derived from some distribution of quantities. In this class the winner-takes-all sharing rule is the only one that is always sign-preserving, while for each pair of demand and cost functions there may be many others.
    Keywords: Bertrand games; expectation sharing rules; sharing rule; sign-preserving sharing rules; tie-breaking rule
    JEL: C72 D43 L13
    Date: 2005–03
  11. By: Heidhues, Paul; Melissas, Nicolas
    Abstract: We introduce strategic waiting in a global game setting with irreversible investment. Players can wait in order to make a better informed decision. We allow for cohort effects and discuss when they arise endogenously in technology adoption problems with positive contemporaneous network effects. Formally, cohort effects lead to intra-period network effects being greater than inter-period network effects. Depending on the nature of the cohort effects, the dynamic game may or may not satisfy dynamic increasing differences. If it does, our model has a unique rationalizable outcome. Otherwise, there exist parameter values for which multiple equilibria arise because players have a strong incentive to invest at the same point in time others do.
    Keywords: coordination; equilibrium selection; global game; period-speciifc network effects; strategic complementarities; strategic waiting
    JEL: C72 C73 D82 D83
    Date: 2005–04
  12. By: Mailath, George J.; Nocke, Volker; White, Lucy
    Abstract: In repeated normal-form games, simple penal codes (Abreu 1986, 1988) permit an elegant characterization of the set of subgame-perfect outcomes. We show that the logic of simple penal codes fails in repeated extensive-form games. We provide two examples illustrating that a subgame-perfect outcome may be supported only by a profile with the property that the continuation play after a deviation is tailored not only to the identity of the deviator, but also to the nature of the deviation.
    Keywords: optimal punishment; repeated extensive game; simple penal code; subgame perfect equilibrium
    JEL: C70 C72 C73
    Date: 2004–12
  13. By: Pedro Rey Biel (University College London); Steffen Huck (University College London)
    Abstract: In this paper we study the mechanics of ``leading by example'' in teams. Leadership is beneficial for the entire team when agents are conformists, i.e., dislike effort differentials. We also show how leadership can arise endogenously and discuss what type of leader benefits a team most.
    Keywords: team production; conformism; leadership; leading by example; endogenous timing
    JEL: C72 D23 D63 J31 L23
    Date: 2005–06–08
  14. By: Lindqvist, Tobias; Stennek, Johan
    Abstract: This paper tests the insiders’ dilemma hypothesis in a laboratory experiment. The insiders’ dilemma means that a profitable merger does not occur, because it is even more profitable for each firm to unilaterally stand as an outsider (Stigler, 1950; Kamien and Zang, 1990 and 1993). The experimental data provides support for the insiders’ dilemma, and thereby for endogenous rather than exogenous merger theory. More surprisingly, our data suggests that fairness (or relative performance) considerations also make profitable mergers difficult. Mergers that should occur in equilibrium do not, since they require an unequal split of surplus.
    Keywords: antitrust; coalition formation; experiment; insiders' dilemma; mergers
    JEL: C78 C92 G34 L13 L41
    Date: 2005–04
  15. By: Schivardi, Fabiano; Schneider, Martin
    Abstract: This paper studies the diffusion of a new technology that is brought to market while its potential is still uncertain. We consider a dynamic game in which firms improve both a new and a rival old technology while learning about the relative potential of both technologies. We use the model to understand historical evidence on diffusion and market structure. In particular, the model explains why a change in market leadership often goes along with slow diffusion. It also provides a rational explanation for observed ‘incumbent inertia’ and shows how markets can make mistakes in the selection of new technologies.
    Keywords: dynamic games; innovation; learning; oligopoly
    JEL: C63 C73 D83 L13 O31
    Date: 2005–02
  16. By: Luca Grilli; Angelo Sfrecola
    Abstract: The Minority Game comes from the so-called "El Farol bar" problem by W.B. Arthur. The underlying idea is competition for limited resources and it can be applied to different fields such as: stock markets, alternative roads between two locations and in general problems in which the players in the "minority" win. Players in this game use a window of the global history for making their decisions, we propose a neural networks approach with learning algorithms in order to determine players strategies. We use three different algorithms to generate the sequence of minority decisions and consider the prediction power of the neural network associated to that algorithm. The case of sequences generated randomly is also studied.
    Keywords: Minority Game, Learning Algorithms, Neural Networks.
    JEL: C45 C70
    Date: 2005–06
  17. By: Luca Grilli; Angelo Sfrecola
    Abstract: In this paper we consider financial time series from U.S. Fixed Income Market, S&P500, Exchange Market and Oil Market. It is well known that financial time series reveal some anomalies as regards the Efficient Market Hypotesis and some scaling behavior is evident such as fat tails and clustered volatility. This suggests to consider financial time serie as "pseudo"-random time series. For this kind of time series the power of prediction of neural networks has been shown to be appreciable. We first consider the financial time serie from the Minority Game point of view and than we apply a neural network with learning algorithm in order to analyze its prediction power. We show that Fixed Income Market presents many differences from other markets in terms of predictability as a measure of market efficiency.
    Keywords: Minority Game, Learning Algorithms, Neural Networks, Financial Time Series, Efficient Market Hypotesis
    JEL: C45 C70 C22 G14
    Date: 2005–06
  18. By: Ginsburgh, Victor; Ortuño-Ortín, Ignacio; Weber, Shlomo
    Abstract: In this paper we adopt the Selten-Pool model (1993) framework of language acquisition that is based on the notion of communicative benefits and learning costs. We consider a model with languages that serve as imperfect substitutes and show that under supermodularity of the communicative benefits function and some other mild conditions, there exists a unique interior linguistic equilibrium. We then derive a demand function for foreign languages that we estimate for English, French, German and Spanish in 13 European countries.
    Keywords: communicative benefits; estimation of demand functions for languages; European Union; languages; learning costs; linguistic distances
    JEL: C72 O52 Z13
    Date: 2005–03
  19. By: Rosenkranz, Stephanie; Weitzel, Utz
    Abstract: In this paper we characterize a situation in which non-calculative trust has to play a role in the decision to cooperate. We then analyse the given situation in game theoretical terms and distinguish those aspects of players’ decisions that are cooperative from those that may be interpreted as being trustful. We argue that the cooperative aspect relates to incentives while the trustful (and thus non-calculative) aspect of the decision is related to the framing of the situation.
    Keywords: alliances; cooperation; focal points; framing; trust
    JEL: C72 D74 D80 Z13
    Date: 2005–05

This nep-gth issue is ©2005 by Laszlo A. Koczy. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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