nep-gth New Economics Papers
on Game Theory
Issue of 2006‒11‒25
eighteen papers chosen by
Laszlo A. Koczy
Universiteit Maastricht

  1. A Non-cooperative Approach to the Compensation Rules for Primeval Games By Yuan Ju; Peter Borm
  2. Cooperative game theory and its application to natural, environmental, and water resource issues : 1. basic theory By Parrachino, Irene; Zara, Stefano; Patrone, Fioravante
  3. Endogenous Heterogeneity in Strategic Models: Symmetry-breaking via Strategic Substitutes and Nonconcavities By Rabah Amir; Filomena Garcia; Malgorzata Knauff
  4. Profit sharing in unique Nash equilibrium: Characterization in the two-agent case By Justin Leroux
  5. On Dynamic Compromise By T. Renee Bowen; Zaki Zahran
  6. Secure Implementation Experiments: Do Strategy-proof Mechanisms Really Work? By Timothy N. Cason; Tatsuyoshi Saijo; Tomas Sjostrom; Takehiko Yamato
  7. Formation of Segregated and Integrated Groups By Alison Watts
  8. Parallel Climate Blocs. Incentives to cooperation in international climate negotiations By Carlo Carraro; Barbara Buchner
  9. Optimal Transfers and Participation Decisions in International Environmental Agreements By Carlo Carraro; Johan Eyckmans; Michael Finus
  10. Jump Bidding and Overconcentration in Simultaneous Ascending Auctions By Zheng, Charles Zhoucheng
  11. Zheng’s Optimal Mechanism with Resale and the Second-Price Auction By Bernard Lebrun
  12. Bargaining in Collusive Markets By Andersson, Ola
  13. Auctions with Almost Homogeneous Bidders By Bernard Lebrun
  14. Secure Implementation By Tatsuyoshi Saijo; Tomas Sjostrom; Takehiko Yamato
  15. First-Price and Second-Price Auctions with Resale By Bernard Lebrun
  16. Strategic Interaction in the Sex Market By Morrow, John; Sivan, Yoav
  17. Heterogeneity in Nash Networks By Sudipta Sarangi; Pascal Billand; Christophe Bravard
  18. Fighting Collusion in Tournaments By Chen, Zhijun

  1. By: Yuan Ju (Department of Economics, Keele,); Peter Borm (CentER for Economic Research and Department of Econometrics and Operations Research, Tilburg University,)
    Abstract: To model inter-individual externalities and analyze the associated compensation issue, Ju and Borm (2005) introduces a new game-theoretic framework, primeval games, and proposes, from a cooperative perspective, three compensation rules as solution concepts for primeval games: the marginalistic rule, the concession rule, and the primeval rule. In this paper, we provide a non-cooperative approach to address these problems more specifically. Inspired by the generalized bidding approach (Ju and Wettstein (2006)) for TU games, we design various bidding mechanisms to fit the model of primeval games and show that each implements the corresponding compensation rule in subgame perfect equilibrium. These mechanisms require nearly no condition on the game environment and obtain each solution itself rather than in expected terms. Moreover, since the various mechanisms share a common basic structure, this paper offers a non-cooperative benchmark to compare different axiomatic solutions, which, in return, may advance the axiomatic study of the issue by constructing alternative compensation rules.
    Keywords: Externality; compensation; primeval games; marginalistic rule; concession rule; primeval rule; bidding mechanism; implementation.
    JEL: C71 C72 D62 D63
    Date: 2006–09
  2. By: Parrachino, Irene; Zara, Stefano; Patrone, Fioravante
    Abstract: Game theory provides useful insights into the way parties that share a scarce resource may plan their use of the resource under different situations. This review provides a brief and self-contained introduction to the theory of cooperative games. It can be used to get acquainted with the basics of cooperative games. Its goal is also to provide a basic introduction to this theory, in connection with a couple of surveys that analyze its use in the context of environmental problems and models. The main models (bargaining games, transfer utility, and non-transfer utility games) and issues and solutions are considered: bargaining solutions, single-value solutions like the Shapley value and the nucleolus, and multi-value solutions such as the core. The cooperative game theory (CGT) models that are reviewed in this paper favor solutions that include all possible players and ignore the strategic stages leading to coalition building. They focus on the possible results of the cooperation by answering questions such as: Which coalitions can be formed? And how can the coalitional gains be divided to secure a sustainable agreement? An important aspect associated with the solution concepts of CGT is the equitable and fair sharing of the cooperation gains.
    Keywords: Environmental Economics & Policies,Economic Theory & Research,Livestock & Animal Husbandry,Education for the Knowledge Economy,Education for Development
    Date: 2006–11–01
  3. By: Rabah Amir; Filomena Garcia; Malgorzata Knauff
    Abstract: This paper is an attempt to develop a unified approach to endogenous heterogeneity by constructing general class of two-player symmetric games that always possess only asymmetric pure-strategy Nash equilibria. These classes of games are characterized in some abstract sense by two general properties: payo? non-concavities and some form of strategic substitutability. We provide a detailed discussion of the relationship of this work with Matsuyama’s symmetry breaking framework and with business strategy literature. Our framework generalizes a number of models dealing with two-stage games, with long term investment decisions in the first stage and product market competition in the second stage. We present the main examples that motivate this study to illustrate the generality of our approach.
    Keywords: firm heterogeneity; submodular games; business strategy; innovation strategies.
    JEL: C72 C62 L11
  4. By: Justin Leroux (IEA, HEC Montréal)
    Abstract: Two agents jointly operate a decreasing marginal returns technology to produce a private good. We characterize the class of output-sharing rules for which the labor-supply game has a unique Nash equilibrium. It consists of two families: rules of the serial type which protect a small user from the negative externality imposed by a large user, and rules of the reverse serial type, where one agent effectively employs the other agent’s labor. Exactly two rules satisfy symmetry; a result in sharp contrast with Moulin and Shenker’s (Econometrica, 1992) characterization of their serial mechanism as the unique cost-sharing rule satisfying the same incentives property. We also show that the familiar stand alone test characterizes the class of fixed-path methods (Friedman, Economic Theory, 2002) under our incentives criterion.
    Keywords: Joint production, serial rule, decreasing serial rule, strategyproofness.
    JEL: C72 D23 D62
    Date: 2006–10
  5. By: T. Renee Bowen; Zaki Zahran (Department of Economics, Georgetown University)
    Abstract: What prevents majorities from extracting surplus from minorities in a dynamic legislative process? In this paper we study an infinitely repeated game where legislators determine the division of a surplus each period. A division proposal is made at the beginning of the period by a randomly selected legislator and is then voted on. Proposals that are accepted by a simple majority are implemented, otherwise the status quo allocation prevails. We show existence of a symmetric Markov perfect equilibrium in which more than a minimum winning majority receive a positive allocation for an intermediate range of discount factors. However, the equilibrium outcome is sensitive to initial conditions: compromise is achieved when initial allocations are well distributed, otherwise the equilibrium spirals towards a complete absence of compromise. We find that, contrary to intuition, compromise becomes easier to sustain as the number of legislators increases. Classification-JEL Codes: C73, D74
    Keywords: Compromise, Legislative Bargaining, Dynamic Political Games
  6. By: Timothy N. Cason (Department of Economics, Purdue University); Tatsuyoshi Saijo (Osaka University); Tomas Sjostrom (Department of Economics, Rutgers University); Takehiko Yamato (Department of Value & Decision Science, Tokyo Institute of Technology)
    Abstract: Strategy-proofness, requiring that truth-telling is a dominant strategy, is a standard concept used in social choice theory. Saijo et al. (2003) argue that this concept has serious drawbacks. In particular, many strategy-proof mechanisms have a continuum of Nash equilibria, including equilibria other than dominant strategy equilibria. For only a subset of strategy-proof mechanisms do the set of Nash equilibria and the set of dominant strategy equilibria coincide. For example, this double coincidence occurs in the Groves mechanism when preferences are single-peaked. We report experiments using two strategy-proof mechanisms. One of them has a large number of Nash equilibria, but the other has a unique Nash equilibrium. We found clear differences in the rate of dominant strategy play between the two.
    Keywords: Experiment, Laboratory, Secure Implementation, Groves-Clarke, Pivotal, Learning
    JEL: C92 D71 D78 H41
    Date: 2005–07
  7. By: Alison Watts (Southern Illinois University)
    Abstract: A model of group formation is presented where the number of groups is fixed and a person can only join a group if the group’s members approve the person’s joining. Agents have either local status preferences (each agent wants to be the highest status agent in his group) or global status preferences (each agent wants to join the highest status group that she can join). For both preference types, conditions are provided which guarantee the existence of a segregated stable partition where similar people are grouped together and conditions are provided which guarantee the existence of an integrated stable partition where dissimilar people are grouped together. Additionally, in a dynamic framework we show that if a new empty group is added to a segregated stable partition, then integration may occur.
    Keywords: Group Formation, Stable Partition, Segregation, Integration
    JEL: C7 D6
    Date: 2006–10
  8. By: Carlo Carraro (Department of Economics, University Of Venice Cà Foscari); Barbara Buchner (Fondazione Eni Enrico Mattei)
    Abstract: There are increasing signals that countries that negotiate on GHG emission control are unlikely to sign and ratify a single climate protocol, even though almost all countries have subscribed the UNFCCC convention that sets the framework of international climate cooperation. In addition to the US decision not to ratify the Kyoto Protocol, New Zealand and Australia recently led to the formation of a new alliance in which technological cooperation is the main tool to achieve GHG emission control. In the U.S., some States on the Eastern coast are negotiating to adopt emission reduction targets and to establish a permit market despite the opposition of the federal government. Cooperation on climate policy is also the objective of recent negotiations between ASEAN countries. Given this background, this paper aims at examining whether the aforementioned events are simply the noise of a political process leading to a global agreement on climate change control or are instead consistent with some basic economic incentives that are pushing countries towards the formation of two (or more) parallel climate blocs. To this aim, this paper uses a well known integrated assessment climate-economy model to evaluate the incentives to cooperation in climate negotiations for the main world countries. A game-theoretic framework is adopted to analyse a country’s incentive to belong to a climate coalition. In our setting, a given country can either join one of the existing climate coalitions or can propose a new one or can decide to free-ride on the other countries’ cooperative abatement effort. We then analyse the characteristics of the main possible outcomes and assess which outcomes are most likely to prevail in future negotiations, at least as far as economic incentives are concerned.
    Keywords: Agreements, Climate, Incentives, Negotiations, Policy
    JEL: C72 H23 Q25 Q28
    Date: 2005
  9. By: Carlo Carraro (Department of Economics, University Of Venice Cà Foscari); Johan Eyckmans (European University College Brussels EHSAL and Center for Economic Studies, Katholieke Universiteit Leuven.); Michael Finus (Department of Economics, University of Hagen and National University of Singapore)
    Abstract: The literature on international environmental agreements has recognized the role transfers play in encouraging participation in international environmental agreements. However, the results achieved so far are overly specific. Therefore, we develop a more general framework that enables us to study the role of transfers in a systematic way. We propose transfers using both internal and external financial resources for making “welfare optimal agreements” self-enforcing. To illustrate the relevance of our transfer scheme, we use a stylized integrated assessment simulation model of climate change to show how appropriate transfers may induce almost all countries into signing a self-enforcing climate treaty.
    Keywords: Self-enforcing International Environmental Agreements, Climate Policy, Transfers
    JEL: C72 H23 Q25 Q28
    Date: 2006
  10. By: Zheng, Charles Zhoucheng
    Abstract: The finding is that the well-known exposure problem of simultaneous ascending auctions is sensitive to the specific rules on bid submission. Based on a two-object model allowing for complementarity, I prove that, if jump bidding and bid withdrawal are allowed, there is an equilibrium where the exposure problem vanishes, and the simultaneous auctions mimic an ascending package auction, which overly concentrates the goods to a multi-item bidder and never overly diffuses them to single-item bidders.
    Keywords: auction, multiple object aucrtions, simultaneous auctions, synergy, complementarity, exposure problem, threshold problem
    JEL: C7
    Date: 2006–11–16
  11. By: Bernard Lebrun (Department of Economics, York University)
    Abstract: We show that Zheng (2002)’s optimal mechanism in the presence of resale can be interpreted as an equilibrium of an ascending-price auction and, in the two-bidder case, as an equilibrium with a no-regret property of the English and second-price auctions. We also show that it can be extended beyond Zheng (2002)’s original assumptions
    Keywords: Zheng’s mechanism, optimality, resale, second-price auction, independent private values
    JEL: D44
    Date: 2006
  12. By: Andersson, Ola (Department of Economics, Lund University)
    Abstract: In this paper we investigate collusion in an infinitely repeated Bertrand duopoly where firms have different discount factors. In order to study how a collusive agreement is reached we model the equilibrium selection as an alternating-offer bargaining game. The selected equilibrium has several appealing features: First, it is efficient in the sense that it entails immediate agreement on the monopoly price. Second, the equilibrium shows how discount factors affect equilibrium market shares. A comparative statics analysis on equilibrium market shares reveals that changes in discount factors may have ambiguous effects on market shares.
    Keywords: Bargaining; different discount factors; explicit collusion; market shares
    JEL: C72 D43 L11 L41
    Date: 2006–11–14
  13. By: Bernard Lebrun (Department of Economics, York University)
    Abstract: We deviate from the symmetric case of the independent private value model by allowing the bidders’ value distributions, which depend on parameters, to be slightly different. We show that previous results about the equality to the first-order in the parameters between revenues from the second-price auction and other auction mechanisms follow from the joint differentiability of the equilibria with respect to the parameters. We prove this differentiability for the first-price auction and obtain general formulas for the different first-order effects. From our results about the first-price auction, we analytically generate examples with continuous distributions where a stochastic improvement to a bidder’s value distribution reduces his equilibrium payoff. In another application, we show that, starting from competition among cartels of equal sizes, allowing in a small number of members from other cartels can be profitable only if the members or the synergies between them are strong enough.
    Keywords: Independent private value model; auctions; asymmetry; first-price auction, second-price auction; differentiability; revenue equivalence theorem
    JEL: D44
    Date: 2006
  14. By: Tatsuyoshi Saijo (Osaka University); Tomas Sjostrom (Department of Economics, Rutgers University); Takehiko Yamato (Department of Values and Decision Science, Tokyo Institute of Technology)
    Abstract: Strategy-proofness, requiring that truth-telling is a dominant strategy, is a standard concept in social choice theory. However, this concept has serious drawbacks. In particular, many strategy-proof mechanisms have multiple Nash equilibria, some of which produce the wrong outcome. A possible solution to this problem is to require double implementation in Nash equilibrium and in dominant strategies, i.e., secure implementation. We characterize securely implementable social choice functions, and compare our results with dominant strategy implementation. In standard quasi-linear environments with divisible private or public goods, there exist Pareto efficient (non-dictatorial) social choice functions that can be securely implemented. But in the absence of side-payments, secure implementation is incompatible with Pareto efficiency.
    JEL: C92 D71 D78 H41
    Date: 2005–07
  15. By: Bernard Lebrun (Department of Economics, York University)
    Abstract: We add a resale stage to standard auctions with two bidders. Bids are either kept secret or made public. Either the auction winner or the auction loser chooses the resale price. We characterize an infinity of equilibria of the second-price auction and a unique equilibrium of the first-price auction. For every equilibrium of an auction without bid disclosure, we construct an outcome-equivalent and, in the case of the second-price auction, “posterior implementable” equilibrium of the auction with bid disclosure. We compare the revenues from the two auctions and from the two bargaining procedures at resale
    Keywords: Auctions, resale
    JEL: D44
    Date: 2006
  16. By: Morrow, John; Sivan, Yoav
    Abstract: There have been few attempts to empirically explain the pursuit of short term relationships and sex in a formal context. Previous work has lamented the paucity of empirical studies which utilize incentive driven behavior to draw conclusions and recommend policy. We provide an empirical approach derived from a game theoretic model of social interaction and apply it to a population of high interest. Specifically, we apply the approach to a population of sexually active men who have sex with men (MSM) in a large metropolitan area and derive qualitative conclusions regarding how individuals behave in the marketplace for sex.
    Keywords: sex; matching; dating; mating; social networks; network formation
    JEL: D02 C78
    Date: 2006–01–31
  17. By: Sudipta Sarangi; Pascal Billand; Christophe Bravard
    Abstract: Heterogeneity in Nash networks can arise due to differences in the following four variables: (i) the value of information held by agents, (ii) the rate at which information decays or loses its value as it traverses the network, (iii) the prob- ability with which a links transmits information, and (iv) the cost of forming a link. In this paper we examine Nash networks, efficient networks and the existence of equilibrium networks under different heterogeneity conditions for the two-way flow model of networks.
  18. By: Chen, Zhijun
    Abstract: This paper proposes a new approach of fighting collusion in tournaments which sheds light on the principle of divide and conquer: the principal can benefit from manipulating information revelation, by which he brings asymmetric information between the agents and thus creates a distortion of efficiency in the coalition. We employ a simple tournament setting where, due to perfect collusion, the efficient effort levels are impossible to be implemented through simple mechanisms. We propose a sophisticated mechanism with a biased promotion rule that allows the principal to manipulate the revelation of information and make asymmetric information between the agents, which brings trade-offs between rent-extraction and distortion of efficiency into the coalition. We show that, it is possible to implement efficient effort levels under the sophisticated mechanism. JEL Classification: C72, D82
    Keywords: collusion; tournament
    JEL: C72 D82
    Date: 2006–11

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