nep-gth New Economics Papers
on Game Theory
Issue of 2007‒06‒18
four papers chosen by
Laszlo A. Koczy
University of Maastricht

  1. Bargaining, Moral Hazard and Sovereign Debt Crisis By Sayantan Ghosal; Kannika Thampanishvong
  2. Pareto-efficient climate agreements By Geir B. Asheim and Bjart Holtsmark
  3. Cooperation and equity in the river sharing problem By Ambec, S.; Ehlers, L.
  4. Inefficient centralization of imperfect complements By Martin Gregor; Lenka Gregorová

  1. By: Sayantan Ghosal; Kannika Thampanishvong
    Abstract: We study the interaction between debt rollover, bargaining, coordination and moral hazard in a model of sovereign debt crisis. Conditional on default, there are multiple, interim inefficient equilibrium outcomes and the impact of strengthening Collective Action Clauses (CACs) depends critically on the prevailing equilibrium. With ex ante debtor moral hazard, a positive interim crisis risk, conditional on the debt problem, is necessary to solve the debtor’s ex ante incentives and in general, there is a conflict between ex ante efficiency and interim efficiency. Creditor entry into the market for sovereign debt generates, endogenously, a positive probability of adverse shock and whether strengthening CACs has an impact on the interest charged on sovereign debt, depends on which equilibrium is forecasted in the post-default game. Our analysis makes the case for a formal sovereign bankruptcy procedure.
    Keywords: Sovereign Debt, Bargaining, Coordination, Moral Hazard, Collective Action Clauses.
    JEL: C72 C78 D82 F34
    Date: 2007–06
  2. By: Geir B. Asheim and Bjart Holtsmark (Statistics Norway)
    Abstract: Recent contributions show that climate agreements with broad participation can be implemented as weakly renegotiation-proof equilibria in simple models of greenhouse gas abatement where each country has a binary choice between cooperating (i.e., abate emissions) or defecting (no abatement). Here we show that this result carries over to a model where countries have a continuum of emission choices. Indeed, a Pareto-efficient climate agreement can always be implemented as a weakly renegotiation-proof equilibrium, for a sufficiently high discount factor. This means that one need not trade-off a “narrow but deep” treaty with a “broad but shallow” treaty.
    Keywords: Climate; non-cooperative game-theory; repeated games; weakly renegotiation-proof agreements
    JEL: C72 F53 Q54
    Date: 2007–06
  3. By: Ambec, S.; Ehlers, L.
    Abstract: This paper considers environments in which several agents (countries, farmers, cities) share water from a river. Each agent enjoys a concave benefit function from consuming water up to a satiation level. Noncooperative extraction is typically inefficient and any group of agents can gain if they agree on how to allocate water with monetary compensations. The paper describes which allocations of water and money are acceptable to riparian agents according to core stability and several criteria of fairness. It reviews some theoretical results. It then discusses the implementation of the proposed allocation with negotiation rules and in water markets. Lastly, it provides some policy insights.
    JEL: Q25 Q28
    Date: 2007
  4. By: Martin Gregor (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Lenka Gregorová (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: If local public goods exhibit spillovers and regions are sufficiently symmetric, decentralization implies underprovision, whereas cooperative centralization is associated with strict Pareto-improvement. This classic inference rests on two assumptions: local politicians are delegated sincerely and never provide voluntary transfers to the other regions. We abandon these assumptions in a setup of two symmetric regions with imperfect complementarity between local public goods. For this particular aggregation, non-cooperative decentralization can achieve the social optimum, whereas cooperative centralization cannot.
    Keywords: centralization; public goods; strategic delegation; weakest-link; voluntary transfers
    JEL: C72 D72 H40 H70 H73
    Date: 2007–06

This nep-gth issue is ©2007 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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