nep-gth New Economics Papers
on Game Theory
Issue of 2006‒06‒03
ten papers chosen by
Laszlo A. Koczy
Universiteit Maastricht

  1. On the Chacteristic Numbers of Voting Games By Mathieu Martin (THEMA - CNRS); Vincent Merlin (CREM – CNRS)
  2. Common Agency Games with Separable Preferences By Attar Andrea; Gwenäel Piaser; Nicolas Porteiro
  3. Reputation in Multi-unit Ascending Auction By Kwiek, Maksymilian
  4. Cooperative Networks: Theory and Experimental Evidence By Katinka Pantzy; Anthony Ziegelmeyer
  5. An Analysis of Rational Voting with Private Values and Cost Uncertainty By Curtis R. Taylor; Huseyin Yildirim
  6. Reputation and Cooperation in the Repeated Second-price Auctions By Kwiek, Maksymilian
  7. Strategic Delay and Rational Imitation in the Laboratory By Anthony Ziegelmeyer; Kene Boun My; Jean-Christophe Vergnaud; Marc Willinger
  8. Can a Newly Proposed Mechanism for Allocating Contracts in U.S. Electricity Wholesale Markets Lead to Lower Prices? A Game Theoretic Analysis By Vicki Knoblauch
  10. Afriat’s Theorem for General Budget Sets By Francoise Forges; Enrico Minelli

  1. By: Mathieu Martin (THEMA - CNRS); Vincent Merlin (CREM – CNRS)
    Abstract: This paper deals with the non-emptiness of the stability set for any proper voting game.We present an upper bound on the number of alternatives which guarantees the non emptiness of this solution concept. We show that this bound is greater than or equal to the one given by Le Breton and Salles [6] for quota games.
    Keywords: voting game, core, stability set
    JEL: C7 D7
    Date: 2006
  2. By: Attar Andrea (IDEI, University of Toulouse; Concordia University); Gwenäel Piaser (Department of Economics, University Of Venice Cà Foscari); Nicolas Porteiro (University Pablo de Olavide)
    Abstract: This paper examines the role of the direct mechanisms in common agency games. We show how the introduction of a separability condition on the preferences of the agent is sufficient for a version of the Revelation Principle to hold in finite generic games. The result goes through without imposing any restriction on the principals’ payoffs. Therefore, it is still possible to restrict attention to direct mechanisms without any loss of generality even when competition over contracts is considered.
    Keywords: Revelation Principle, Common Agency, Separable Preferences
    JEL: D82
    Date: 2006
  3. By: Kwiek, Maksymilian
    Abstract: This paper considers a model of multi-unit ascending auction with two players and known values. This standard model is not robust to a small reputational perturbation. If reputation is one-sided, then the player without reputation lowers her demand in order to clear the market and stop the auction immediately at the reserve price. Hence, the player with reputation buys all the units she demands at the lowest possible price. If the reputation is on both sides, then the War of Attrition emerges. In any case, there is a unique equilibrium payoff profile. One feature of the equilibrium of the two-sided model is that market clearing is delayed and the expected realized price is higher than the reserve price. Keywords; Multi-unit auction, uniform price, ascending auction, reputation, complementarities, aggressive bidding JEL Classification: D44
  4. By: Katinka Pantzy; Anthony Ziegelmeyer
    Abstract: We consider a modified pure public good game characterized by a pre-play negotiation stage, on which pairs of players can form binding cooperation commitments. As the introduced mechanism only supports pairwise rather than more inclusive commitments, it does not implement the efficient outcome. We theoretically derive the incentive compatible and efficient cooperative networks and evaluate the behavioral efficacy of the suggested mechanism to promote and stabilize cooperation. We present the results of two separate experiments. The first experiment serves to provide necessary methodological prerequisites and establishes that neither repetition with an unknown end nor voluntary costly monitoring are behaviorally sufficient to induce cooperative outcomes. In the second experiment we introduce the pairwise commitment mechanism. We show that the mechanism induces aggregate cooperation rates not only beyond the rates observed under the voluntary contribution mechanism operationalized in the first experiment, but also beyond the rate which is supported by the formation of incentive compatible networks. We observe a large heterogeneity between groups: while some groups converge to full cooperation by managing to coordinate on the formation of efficient networks over time, both networks and cooperation rates unravel in other groups. An extended version of our theoretical setting with inequity averse players in the form suggested by Fehr and Schmidt (1999) captures the stylized facts of both experiments.
    Keywords: Strategic formation of networks, Social dilemma, Positive externalities, Experiments
    JEL: C92 D85 H41 Z13
    Date: 2006–05
  5. By: Curtis R. Taylor; Huseyin Yildirim
    Date: 2006–05–22
  6. By: Kwiek, Maksymilian
    Abstract: This paper shows that there are strong reputational effects in a general class of second price auctions, including single-unit English and Vickrey auctions with interdependent values, multiunit ascending and uniform price auctions and a War of Attrition. It is based on recent results on reputation with symmetric discounting. If a reputation is one sided and bidders are patient, the bidder with reputation must obtain most of the surplus in the sequence of auctions, the other bidder and the seller get very little. If the reputation is two-sided then the bidders engage in a game akin to War of Attrition. The resulting payoff is very low for the bidders and very high for the seller. In any case, Folk Theorem fails: collusion in the second price auctions is impossible. The predictions of the model are that the path of prices is declining, in fact prices in the early auctions should reach levels that are higher than the value of the object and there should be a set of strong bidders emerging after a few auctions. A recent series of auctions of spectrum for UMTS services in Europe seems to fit both the assumptions and predictions of the model. Keywords; Repeated Auctions, Ascending Auctions, Second-Price Auctions, Collusion, Reputation, Aggressive bidding JEL Classification: D44, C72, L96,
  7. By: Anthony Ziegelmeyer; Kene Boun My; Jean-Christophe Vergnaud; Marc Willinger
    Abstract: This paper investigates market failures due to strategic delays. We test experimentally a discrete model of dynamic investment, where two privately informed agents have an option to invest at the time of their choice in the presence of waiting costs. The equilibrium outcome of our experimental game is characterized by efficient imitation but complete revelation of information is time consuming. In accordance with the equilibrium solution, subjects better informed take investment decision before subjects who are less informed and subjects’ decisions exhibit rational imitation. Still, subjects do not play exactly in accordance with the equilibrium sequence and we interpret their deviations from equilibrium play as an attempt to internalize the information externalities.
    Keywords: Information Externalities, Social Learning, Strategic Delay, Experiments
    JEL: C91 D82
    Date: 2006–05
  8. By: Vicki Knoblauch (University of Connecticut)
    Abstract: This study of the wholesale electricity market compares the cost-minimizing performance of the auction mechanism currently in place in U.S. markets with the performance of a proposed replacement. The current mechanism chooses an allocation of contracts that minimizes a fictional cost calculated using pay-as-offer pricing. Then suppliers are paid the market clearing price. The proposed mechanism uses the market clearing price in the allocation phase as well as in the payment phase. In concentrated markets, the proposed mechanism outperforms the current mechanism even when strategic behavior by suppliers is taken into account. The advantage of the proposed mechanism increases with increased price competition.
    Keywords: strategic behavior, multi-unit auction, electricity, Bertrand competition
    JEL: C72 D44 L10 L94
    Date: 2004–04
  9. By: Arzu Basaran
    Abstract: Rapid growth of urban areas and their development problems in industrializing countries has had major impacts on the environment. Water, the main source of life on earth is under the threat of various types of pollution. These threats have been forceful in demonstrating the necessity of the management and planning of drainage basins. The importance of the evaluation of the total economic value of the water resources and aquatic ecosystems of drainage basins has not yet been accepted in the current planning system of Turkey. In Turkey a total number of 36 public agencies take part in the decision making process within a drainage basin. Decisions taken by these agencies with respect to the use of land and water affect the quality and sustainability of water as a natural resource. These agencies act under a legal structure comprising 105 different laws and regulations related to the environment and this creates additional confusion in planning practice. The situation calls for the organization of special drainage management institutions for drainage basins. The aim of this study is to explore the use of game theory to analyze the roles and actions of different interest groups (players) and develop a better understanding of the decision making process and its consequences on a drainage basin. In this study, we use the case of a river sub-basin from the north-western region of Turkey: the Nilüfer Watershed that contains fertile agricultural lands and the third biggest industrial city in Turkey. The Nilüfer Stream is deeply polluted by industrial, agricultural and domestic wastewater. There are 1 metropolitan municipality, 20 district municipalities and 8 provincial authorities of central government within the watershed. All players have strategies about environment and planning such as land use decision, waste water standard and discharge permitting etc. Some strategies conflict the other players’ strategies. Game theory, which aims to explain the interactive decision making process with more than one decision maker, has developed as a theory of human strategic behavior based on an idealized picture of rational decision making (Binmore, 1996; Eichberger, 1992). The game theory has been applied to social sciences especially to economy, international relations, politics, which are in the state of making decisions in non-cooperative conditions. Although there is limited in number the game theory applications in planning, they are very important studies on location problem in spatial planning such as Stevens, (1961), Isard and Reiner, (1962), Isard, (1967). There are also new studies that use the game theory in planning. Sharing problem of river as a natural resource is the main study area in planning (Dinar and Wolf, 1994; Kilot, 1994; Kucukmekmetoglu and Guldman, 2002; Rogers, 1993). Game theory applications on environmental problems started in 1990s. Environmental problems such as transfrontier pollution (air or water) are often multilateral, and they affect all the agents in the economies of countries. There are studies in which air pollution problem is analyzed by the game theory with the cooperation of neighbor countries such as Ray (2000), Maler and Zeeuw (1998), Barret (1998). In this research an in depth analysis is made to understand the preferences and attitudes of different players taking part within the Nilüfer watershed. Players generally make independent decisions without any form of cooperation situation. Therefore, non-cooperative game is used in this analyze. The decision making process of the players are analyzed through a scenario in two-player games. The scenario is about strategies of environmental protection and industrial development in the watershed. We explore Nash equilibrium in game which represents present condition. Nash (1950) proved the existence of a strategic equilibrium for non-cooperative games. The main outcome of the paper will be to point to new directions in the planning process and to open to discussion the use of game theory in planning. Game theoretic approach will make it easier for the agents to cooperate if the conflicts in the planned area are clearly defined. It is possible to achieve cooperative bargaining solutions where all agents are winners. Actually, this is the target of planning because sustainable development of the river basin depends on bargaining where all agents are winners.
    Date: 2005–08
  10. By: Francoise Forges; Enrico Minelli
    Abstract: Afriat (1967) showed the equivalence of the strong axiom of revealed preference and the existence of a solution to a set of linear inequalities. From this solution he constructed a utility function rationalizing the choices of a competitive consumer. We extend Afriat’s theorem to a class of nonlinear budget sets. We thereby obtain testable implications of rational behavior for a wide class of economic environments, and a constructive method to derive individual preferences from observed choices. In an application to market games, we identify a set of observable restrictions characterizing Nash equilibrium outcomes.
    Keywords: GARP, rational choice, revealed preferences, market games, SARP, WARP
    JEL: C72 D11 D43
    Date: 2006

This nep-gth issue is ©2006 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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.