nep-gth New Economics Papers
on Game Theory
Issue of 2007‒10‒27
thirteen papers chosen by
Laszlo A. Koczy
University of Maastricht

  1. Games of Capacities: A (Close) Look to Nash Equilibria By Antonio Romero-Medina; Matteo Triossi
  2. Reputation Effects By George J. Mailath
  3. Slightly Altruistic Equilibria in Normal Form Games By Giuseppe De Marco; Jacqueline Morgan
  4. A corrigendum to "Games with imperfectly observable actions in continuous time" By Hashimoto, Tadashi
  5. Games of strategic complementarities: An application to bayesian games By Vives, Xavier
  6. Language, meaning and games: a model of communication, coordination and evolution By Stefano Demichelis; Jörgen W. Weibull
  7. A short note on joint welfare maximization assumptions By Dritan Osmani; Richard S.J. Tol
  8. Toward Farsightedly Stable International Environmental Agreements, Part two By Dritan Osmani; Richard S.J. Tol
  9. Risk Exchange as a Market or Production Game By Borglin, Anders; Flåm, Sjur
  10. How much is a friend worth?: directed altruism and enforced reciprocity in social networks By Stephen Leider; Markus M. Möbius; Tanya Rosenblat; Quoc-Anh Do
  11. Anglo-Dutch, Split-Award Spectrum Auctions with a Downstream Market By Parimal Bag; Paul Levine; Neil Rickman
  12. A note on Rubinstein's ``Why are certain properties of binary relations relatively more common in natural language?" By Beard, Rodney
  13. Union Wages, Hours of Work and the Effectiveness of Partial Coordination Agreements By Sven Wehke

  1. By: Antonio Romero-Medina; Matteo Triossi
    Abstract: The paper studies two games of capacity manipulation in hospital-intern markets. The focus is on the stability of Nash equilibrium outcomes. We provide minimal necessary and sufficient conditions guaranteeing the existence of pure strategy Nash Equilibria and the stability of outcomes.
    Keywords: Stable Matchings, Capacity, Nash Equilibrium, Cycles.
    JEL: C71 C78 D71 D78 J44
    Date: 2007
  2. By: George J. Mailath (Department of Economics, University of Pennsylvania)
    Abstract: This article gives a brief introduction to reputation effects. A canonical model is described, the reputation bound result of Fudenberg and Levine (1989 1992) and the temporary reputation result of Cripps, Mailath, and Samuelson (2004, 2007) are stated and discussed.
    Keywords: commitment, incomplete information, reputation bound, reputation effects
    JEL: C70 C78
    Date: 2007–10–09
  3. By: Giuseppe De Marco (Università di Napoli Parthenope); Jacqueline Morgan (Università di Napoli Federico II and CSEf)
    Abstract: We introduce a refinement concept for Nash equilibria (slightly altruistic equilibrium) defined by a limit process and which captures the idea of reciprocal altruism as presented in Binmore (2003). Existence is guaranteed for every finite game and for a large class of games with a continuum of strategies. Results and examples emphasize the (lack of) connections with classical refinement concepts. Finally, it is shown that under a pseudo-monotonicity assumption on a particular operator associated to the game it is possible, by selecting slightly altruistic equilibria, to eliminate those equilibria in which a player can switch to a strategy that is better for the others without leaving the set of equilibria.
    Date: 2007–10–01
  4. By: Hashimoto, Tadashi
    Abstract: Sannikov (2007) investigates properties of perfect public equilibria in continuous time repeated games. This note points out that the proof of the main theorem (Theorem 2) needs some corrections. I show that the main theorem holds as it is with suitable modifications of Lemmata 5 and 6.
    Keywords: repeated games; continuous time
    JEL: C73 C72
    Date: 2007–09
  5. By: Vives, Xavier (IESE Business School)
    Abstract: Games of strategic complementarities are those in which any player increases his action in response to an increase in the level of actions of rivals. This paper provides an introduction to the theory of games of strategic complementarities, considers Bayesian games, and provides an application to global games.
    Keywords: Strategic complementarities; games theory;
    Date: 2007–07–07
  6. By: Stefano Demichelis; Jörgen W. Weibull
    Abstract: Language is arguably a powerful coordination device in real-life interactions. We here develop a game-theoretic model of two-sided pre-play communication that generalizes the cheap-talk approach by way of introducing a meaning correspondence between messages and actions, and postulating two axioms met by natural languages. Deviations from this correspondence are called dishonest and players have a lexicographic preference for honesty, second to material payoffs. The model is first applied to finite and symmetric two-player games and we establish that, in generic and symmetric n x n -coordination games, a Nash equilibrium component in such a lexicographic communication game is evolutionarily stable if and only if it results in the unique Pareto efficient outcome of the underlying game. We discus Aumann’s (1990) example of a Pareto efficient equilibrium that is not self-enforcing. We also extend the approach to one-sided communication.
    Keywords: Communication, coordination, language, honesty, evolutionary stability.
    JEL: C72 C73 D01
    Date: 2007
  7. By: Dritan Osmani; Richard S.J. Tol (Economic and Social Research Institute, Dublin, Ireland)
    Abstract: Non-cooperative game theoretical models of international environmental agreements (IEAs) use the assumption that coalition of signatories maximize their joint welfare. The joint maxi- mization assumption is compared with di®erent sharing pro¯t schemes such as Shapley value, Nash bargaining solution and Consensus Value. The results show that the joint welfare max- imization assumption is similar with Nash Bargaining solution.
    Keywords: game theory, coalition formation, joint welfare maximization, Shapley value, Nash bargaining solution, Consensus Value, international environmental agreements
    JEL: C02 C72 H41
    Date: 2007–10
  8. By: Dritan Osmani; Richard S.J. Tol (Economic and Social Research Institute, Dublin, Ireland)
    Abstract: We investigate the stability of International Environmental Agreements (IEA) by applying game theory. The paper extends further our previous research on farsightedly stable coalitions and preferred farsightedly stable coalitions (Osmani & Tol 2007). The integrated assessment model FUND provides the cost-bene¯t payo® functions of pollution abatement for sixteen di®erent world regions. The stability concept of d'Aspremont et al. (1983) and farsighted stability of Chwe (1994) are compared. The d'Aspremont stability assumes that players are myopic while the farsighted stability concept captures the perfect foresight of the players and predicts which coalitions can be formed when players are farsighted. All farsightedly stable and D'Aspremont stable coalitions are found and their improvement to environment and welfare are computed.
    Keywords: game theory, integrated assessment modeling, farsighted stability, D'Aspremont stability, coalition formation
    JEL: C02 C72 H41
    Date: 2007–10
  9. By: Borglin, Anders (Department of Economics, Lund University); Flåm, Sjur (Economics Department, Bergen University;)
    Abstract: Risk exchange is considered here as a cooperative game with transferable utility. The set-up fits markets for insurance, securities and contingent endowments. When convoluted payoff is concave at the aggregate endowment, there is a price-supported core solution. Under variance aversion the latter mirrors the two-fund separation in allocating to each agent some sure holding plus a fraction of the aggregate.
    Keywords: securities; mutual insurance; market or production games; transferable utility; extremal convolution; core solutions; variance or risk aversion; two-fund separation; CAPM
    JEL: C61 G11 G12 G13
    Date: 2007–10–08
  10. By: Stephen Leider; Markus M. Möbius; Tanya Rosenblat; Quoc-Anh Do
    Abstract: We conduct field experiments in a large real-world social network to examine why decision-makers treat their friends more generously than strangers. Subjects are asked to divide a surplus between themselves and named partners at varying social distances, but only one of these decisions is implemented. We decompose altruistic preferences into baseline altruism towards strangers, and directed altruism towards friends. In order to separate the motives that are altruistic from the ones that anticipate a future interaction or repayment, we implement an anonymous treatment in which neither player is told at the end of the experiment which decision was selected for payment, and a non-anonymous treatment where both players are told the outcome. Moreover, in order to distinguish between different future interaction channels—including signaling one’s propensity to be generous and enforced reciprocity, where the decision-maker grants the partner a favor because she expects it to be repaid in the future—the experiments include games where transfers both increase and decrease social surplus. We find that decision-makers vary widely in their baseline altruism, but pass at least 50 percent more surplus to friends as opposed to strangers when decision-making is anonymous. Under non-anonymity, transfers to friends increase by an extra 24 percent relative to strangers, but only in games where transfers increase social surplus. This effect increases with the density of the social network structure between both players. Our findings are well explained by enforced reciprocity, but not by signaling or preference-based reciprocity. We also find that partners’ expectations are well attuned to directed altruism, but that they completely ignore the decision-makers’ baseline altruism. Partners with higher baseline altruism have friends with higher baseline altruism and, therefore, are treated better by their friends.
    Keywords: Altruism
    Date: 2007
  11. By: Parimal Bag (University of Surrey); Paul Levine (University of Surrey); Neil Rickman (University of Surrey and CEPR)
    Abstract: Treating spectrum of different bandwidths as essentially distinct inputs needed for possibly different types of services has formed the core of spectrum analysis in academic research so far. New technological advances, such as cognitive radio, now allow us to move away from this inflexibility and to open up the new possibility of making different spectrum bands compatible. Spectrum, it is envisaged, is to become divisible and homogeneous. Auctions for this case have not been previously analyzed. By suitably adapting the Anglo-Dutch spectrum auction of Binmore and Klemperer (2000) and the split-award procurement auction of Anton and Yao (1989) and combining the adapted versions, we set out an ‘Anglo-Dutch split-award auction’ for divisible and homogeneous radio spectrum. An important feature of the game is a post-auction stage where the firms who have acquired some spectrum compete in the production of radio services. The equilibrium of the complete information game is completely characterized and important differences with the procurement auction highlighted. Finally, we compare the performance of our auction mechanism with a complete information form of the Binmore – Klemperer mechanism.
    Keywords: radio spectrum, spectrum trading, imperfect competition
    JEL: L10 L50 L96
    Date: 2007–10
  12. By: Beard, Rodney
    Abstract: This note examines the complexity of complete transitive binary relations or tournaments using Kolmogorov complexity. The complexity of tournaments calculated using Kolmogorov complexity is then compared to minimally complex tournaments defined in terms of the minimal number of examples needed to describe the tournament. The latter concept is the concept of complexity employed by Rubinstein [6] in his economic theory of language. A proof of Rubinsein's conjecture on the complexity bound of natural language tournaments is provided.
    Keywords: Economics of language; Game theory; Complexity
    JEL: Z13 C79
    Date: 2001
  13. By: Sven Wehke (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: Small monopoly trade unions decide upon the wage rate per hour and the hours of work subject to firm's demand for union members. Since the resulting Nash equilibrium is characterized by excess unemployment, we study the employment and welfare effects when trade unions try to coordinate their policies. Firstly, we consider a joint agreement about marginal wage moderation, where trade unions remain free to choose the hours of work non-cooperatively. Secondly, we analyze in which way a joint change in the hours of work affects employment and welfare if trade unions are free to choose the wage rate.
    Keywords: unemployment, wage setting, hours of work, partial cooperation
    JEL: C72 J51
    Date: 2007–09

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