nep-gth New Economics Papers
on Game Theory
Issue of 2007‒11‒17
thirteen papers chosen by
Laszlo A. Koczy
University of Maastricht

  1. Games with Externalities and Delegation to a Common Agent By Emanuele Gerratana
  2. An Overview of Coalitions and Networks Formation Models for Economic Applications By Marco A. Marini
  3. Long-run Negotiations withDynamic Accumulation By Francesca Flamini
  4. Bargaining Foundations of the Median Voter Theorem By John Duggan; Tasos Kalandrakis
  5. Efficient Dynamic Coordination with Individual Learning By Amil Dasgupta; Jakub Steiner; Colin Stewart
  6. Endogenous Mechanisms and Nash Equilibrium in Competitive Contracting By Frank H. Page, Jr.; Paulo K. Monteiro
  7. Dynamic games in the wholesale electricity market By DAKHLAOUI Ahlem;
  8. Can game theory be saved? By Flavio Menezes; John Quiggin
  9. Markets for Influence By Flavio Menezes; John Quiggin
  10. Sequential Contracting with Multiple Principals By Calzolari, Giacomo; Pavan, Alessandro
  11. Development Aid in the Presence of Corruption: Differential Games among Donors By Murray C. Kemp; Ngo Van Long
  12. When is Bargaining Successful? Negotiated Division of Tournament Prizes By Goldreich, David; Pomorski, Lukasz
  13. Endogenous Political Instability By Ryo Arawatari; Kazuo Mino

  1. By: Emanuele Gerratana (Department of Economics, Koç University)
    Abstract: I present a model in which the players of a game have the option to delegate parts of their strategies to a third party who has an interest in the outcome of the game. I analyze whether the game with delegation to a common agent improves over the equilibrium of the original game. This paper contributes to the literature on private common agency and to the failure of the revelation principle with multiple principals. One contribution of this paper is the characterization of the complete set of equilibrium outcomes for the game with delegation, including the asymmetric outcomes. I also provide an answer to the question whether the results of the existing models of private common agency are robust to mixed strategy deviations and shed light on the persistence of the failure of revelation principle.
    Keywords: Common Agency Games, Delegation, Revelation Principle, Games with Externalities.
    JEL: C72 D74 D86
    Date: 2007–09
  2. By: Marco A. Marini (Department of Economics, University of Urbino, Urbino, (Italy))
    Abstract: This paper presents some recent developments in the theory of coalition and network formation. For this purpose, a few major equilibrium concepts recently introduced to model the formation of coalition structures and networks among players are brie?y reviewed and discussed. Some economic applications are also illustrated to give the ?avour of the type of predictions such models are able to provide.
    Keywords: Coalitions, Networks, Core, Games with Externalities, Endogenous Coalition Formation, Pairwise Stability, Stable Networks, Link Formation.
    JEL: C70 C71 D23 D43
    Date: 2007
  3. By: Francesca Flamini
    Abstract: TMany negotiations are characterised by dynamic accumulation: current agreements affect future bargaining possibilities. We study such situations by using repeated bargaining games in which two parties can decide how much to invest and how to share the residual surplus for their own consumption. We show that there is a unique (stationary) Markov Perfect Equilibrium characterised by immediate agreement. Moreover, in equilibrium a relatively more patient party invests more than his opponent. However, being more patient can make a player worse off. In addition, we derive the conditions under which we obtain an efficient investment path. Our results are robust to different bargaining procedures, different rates of time preference and elasticities of substitution.
    Keywords: exports; control function; GMM; matching; TFP; sample selection
    JEL: C61 C72 C73 C78
    Date: 2007–08
  4. By: John Duggan; Tasos Kalandrakis (Dept. of Political Science, Yale University)
    Abstract: We provide game-theoretic foundations for the median voter theorem in a one-dimensional bargaining model based on Baron and Ferejohn’s (1989) model of distributive politics. We prove that, as the agents become arbitrarily patient, the set of proposals that can be passed in any subgame perfect equilibrium collapses to the median voter’s ideal point. While we leave the possibility of some delay, we prove that the agents’ equilibrium continuation payoffs converge to the utility from the median, so that delay, if it occurs, is inconsequential. We do not impose stationarity or any other refinements. Our result counters intuition based on the folk theorem for repeated games, and it contrasts with the known result for the distributive bargaining model that, as agents become patient, any division of the dollar can be supported as a subgame perfect equilibrium outcome.
    Date: 2007–11
  5. By: Amil Dasgupta; Jakub Steiner; Colin Stewart
    Abstract: We study how the presence of multiple participation opportunities coupled with individual learning about payoff affects the ability of agents to coordinate efficiently in global coordination games. Two players face the option to invest irreversibly in a project in one of many rounds. The project succeeds if some underlying state variable theta is positive and both players invest, possibly asynchronously. In each round they receive informative private signals about theta, and asymptotically learn the true value of theta. Players choose in each period whether to invest or to wait for more precise information about theta. We show that with sufficiently many rounds, both players invest with arbitrarily high probability whenever investment is socially efficient, and delays in investment disappear when signals are precise. This result stands in sharp contrast to the usual static global game outcome in which players coordinate on the risk-dominant action. We provide a foundation for these results in terms of higher order beliefs.
    Date: 2007–11–07
  6. By: Frank H. Page, Jr. (Indiana University Bloomington); Paulo K. Monteiro (EPGE/FGV)
    Abstract: We model strategic competition in a market with asymmetric information as a noncooperative game in which each firm competes for the business of a buyer of unknown type by offering the buyer a catalog of products and prices. The timing in our model is Stackelberg: in the first stage, given the distribution of buyer types known to all firms and the deducible, type-dependent best responses of the agent, firms simultaneously and noncooperatively choose their catalog offers. In the second stage the buyer, knowing his type, chooses a single firm and product-price pair from that firm's catalog. By backward induction, this Stackelberg game with asymmetric information reduces to a game over catalogs with payoff indeterminacies. In particular, due to ties within catalogs and/or across catalogs, corresponding to any catalog profile offered by firms there may be multiple possible expected firm payoffs, all consistent with the rational optimizing behavior of the agent for each of his types. The resolution of these indeterminacies depends on the tie-breaking mechanism which emerges in the market. Because each tie-breaking mechanism induces a particular game over catalogs, a reasonable candidate would be a tie-breaking mechanism which supports a Nash equilibrium in the corresponding catalog game. We call such a mechanism an endogenous Nash mechanism. The fundamental question we address in this paper is, does there exist an endogenous Nash mechanism - and therefore, does there exist a Nash equilibrium for the catalog game? We show under fairly mild conditions on primitives that catalog games naturally possess tie-breaking mechanisms which support Nash equilibria.
    Keywords: common agency with adverse selection, endogenous contracting mechanisms, discontinuous games, catalog games, existence of Nash equilibrium, competitive contracting
    JEL: C6 C7 D4
    Date: 2007–11
  7. By: DAKHLAOUI Ahlem;
    Date: 2007–11
  8. By: Flavio Menezes (Australian National University); John Quiggin (Risk & Sustainable Management Group, School of Economics, University of Queensland)
    Abstract: Game-theoretic analysis is a well-established part of the toolkit of economic analysis. In crucial respects, however, game theory has failed to deliver on its original promise of generating sharp predictions of behavior in situations where neoclassical microeconomics has little to say. Experience has shown that in most situations, it is possible to tell a game-theoretic story to fit almost any possible outcome. We argue that, in general, any individually rational outcome of an economic interaction may be supported as the Nash equilibrium of an appropriately chosen game, and that a wide range of these outcomes will have an economically reasonable interpretation. We consider possible attempts to salvage the original objectives of the game-theoretic research program. In at least some cases, information on institutional structures and observations of interactions between agents can be used to limit the set of strategies that may be considered reasonable.
    Keywords: game theory, equilibrium
    JEL: C7
    Date: 2007–02
  9. By: Flavio Menezes (Australian National University); John Quiggin (Risk & Sustainable Management Group, School of Economics, University of Queensland)
    Abstract: We specify an oligopoly game, where firms choose quantity in order to maximise profits, that is strategically equivalent to a standard Tullock rent-seeking game. We then show that the Tullock game may be interpreted as an oligopsonistic market for influence.Alternative specifications of the strategic variable give rise to a range of Nash equilibria with varying levels of rent dissipation.
    Keywords: Tullock contests, oligopoly
    JEL: C7 D72
    Date: 2007–08
  10. By: Calzolari, Giacomo; Pavan, Alessandro
    Abstract: This paper considers dynamic games in which multiple principals contract sequentially and non-cooperatively with the same agent and provides characterization results useful for applications. Our benchmark model is one of private contracting in which downstream principals do not observe upstream mechanisms, nor the decisions taken in these mechanisms. We show that any equilibrium outcome that can be sustained with any arbitrary strategy space for the principals can also be sustained by restricting the principals to offer extended direct mechanisms. In these mechanisms, the agent first reports his extended type (i.e. his exogenous private information along with the endogenous payoff-relevant decisions contracted upstream), the principal then responds by offering the agent a (possibly degenerate) menu of contracts that are payoff— equivalent for that extended type, and finally the agent selects a contract from this menu and the contract is executed. We also show that characterizing equilibria through extended direct mechanisms is facilitated by the fact that (i) each principal can be restricted to offer a single mechanism; (ii) when the agent’s strategy is Markov (i.e. it depends only on payoff-relevant information), each mechanism can be restricted to offer a single contract to each extended type; and (iii) restricting the agent’s strategy to be Markov is without loss in the case of deterministic decisions, e.g. when the contracts are deterministic and the agent does not mix over effort. We finally show how the aforementioned results must be adjusted to accommodate alternative assumptions on the observability of upstream histories and/or the sequence of contracting examined in the literature.
    Keywords: contracts; endogenous types; mechanism design; Sequential common agency
    JEL: C72 D89
    Date: 2007–11
  11. By: Murray C. Kemp; Ngo Van Long
    Abstract: In this paper, we complement the work of Kemp and Shimomura (2002) by considering the case of many donors playing a dynamic non-cooperative game of foreign aid. We consider two models. Model 1 deals with the case where donor countries continually feel the warm glow of from the act of giving. Model 2 postulates that donors will stop giving aid when a target level of development is reached. One of the main results of Model 1 is that there are multiple equilibria that can be Pareto ranked. Another interesting result is that an increase in the level of corruption in the recipient country will reduce the aid level of the low aid equilibrium, but increase that of the high aid equilibrium. In Model 2, the equilibrium strategies are non-linear functions of the level of development. The flow of aid falls at a faster and faster rate as the target is approached. An increase in corruption will increase the flow of aid in this model. <P>On présente deux modèles d’aide internationale dans lesquels deux pays avancés s’engagent dans un jeu dynamique. Dans le premier modèle, les aides apportent aux donateurs des gains moraux. On montre qu’une hausse de la corruption du pays sous-développé peut augmenter les aides. Il y a une multiplicité d’équilibres de Nash, qui peuvent être ordonnés sous le critère de Pareto. Dans le deuxième modèle, les pays donateurs cessent de donner aussitôt que le niveau du développement atteint un but fixé. On montre que l’équilibre de ce modèle implique que le flux d’aide devient de plus en plus faible au fur et à mesure que le niveau de développement s’approche du but fixé. Les pays avancés donnent plus si le taux de corruption augmente.
    Keywords: development aid, corruption, dynamic games, differential games, aide internationale, corruption, jeux dynamiques, jeux différentiels
    JEL: O11
    Date: 2007–11–01
  12. By: Goldreich, David; Pomorski, Lukasz
    Abstract: We study bargaining at the end of high-stakes poker tournaments, in which participants often negotiate a division of the prize money rather than bear the risk of playing the game until the end. This setting is ideal for studying bargaining: the stakes are substantial, there are no restrictions on the negotiations or the terms of a deal, outside options are clearly defined, there are no agency conflicts, and there is little private information. Even in this setting, we find that risk-reducing deals often are not completed or even proposed. As expected, we find that players are more likely to negotiate when the gains to trade are large and when the coordination costs are lower. Surprisingly, although the likelihood of a successful deal is increasing in the stakes, this relation is driven only by the tournaments with the very largest prizes. It is also puzzling that the success of a proposal depends on who makes it, but initiating a proposal does not affect the proposing player's payoff in a completed deal. Divisions of prizes are closely related to players' outside options, while at the same time one of two focal points are often chosen. We also find intriguing differences between two-player deals and deals with three or more players.
    Keywords: Bargaining; Negotiations; Poker
    JEL: C78 C93 D7
    Date: 2007–11
  13. By: Ryo Arawatari (Graduate School of Economics, Osaka University); Kazuo Mino (Graduate School of Economics, Osaka University)
    Abstract: In this paper, we construct a simple dynamic two-party electoral competition model in which the degree of political instability is endogenously determined. We consider the campaign contributions as stock variable which is gradually accumulated by both partyfs direct investment and induced the Markov-perfect Nash equilibrium. We then examine the stability of the symmetric steady state and find that it may be either totally stable or unstable depending on the parameter values involved in the model. We also found that under certain conditions, at least near the symmetric steady state, there exists indeterminacy of equilibrium path: there exist both stable and unstable paths, that is, under given levels of political assets, both high instability political system and low instability political system can emerge depending on expectations of political parties.
    Keywords: Political assets; Dynamic political economy; Differential game; Markovperfect Nash equilibrium; Two-party model
    JEL: C73 D72 D78
    Date: 2007–08

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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