nep-gth New Economics Papers
on Game Theory
Issue of 2008‒04‒29
ten papers chosen by
Laszlo A. Koczy
University of Maastricht

  1. Delegation with Incomplete and Renegotiable Contracts By Levent Koçkesen; Emanuele Gerratana
  2. A Theory of Regular Markov Perfect Equilibria in Dynamic Stochastic Games: Genericity, Stability, and Purification By Doraszelski, Ulrich; Escobar, Juan
  3. Sequential coalition formation and the core in the presence of externalities By László Á. Kóczy
  4. Does Fairness of the Outside Option Matter? By Maroš Servátka; Radovan Vadovic
  5. Interdomain routing and games By Levin, Hagay; Schapira, Michael; Zohar, Aviv
  6. The Non-Linear Cournot Model as a Best-Response Potential Game By Davide Dragone; Luca Lambertini
  7. Conflict and Deterrence under Strategic Risk By Sylvain Chassang; Gerard Padro i Miquel
  8. Persuasion and Limited Communication By Itai Sher
  9. Strategy-proofness vs. Efficiency in Matching with Indifferences: Redisigning the NYC High School Match By Atila Abdulkadiroglu; Parag A Pathak; Alvin E Roth
  10. Do Benevolent Aspects Have Room in Explaining EU Budget Receipts? By Kauppi, Heikki; Widgrén, Mika

  1. By: Levent Koçkesen (Koç University); Emanuele Gerratana
    Abstract: It is well known that delegating the play of a game to an agent via incentive contractsmay serveas a commitment device and hence provide a strategic advantage. Previous literature has shown that any Nash equilibrium outcome of an extensive-form principals-only game can be supported as a sequential equilibrium outcome of the induced delegation game when contracts are unobservable and non-renegotiable. In this paper we characterize equilibriumoutcomes of delegation games with unobservable and incomplete contractswith andwithout renegotiation opportunities under the assumption that the principal cannot observe every history in the game when played by her agent. We show that incompleteness of the contracts restricts the set of outcomes to a subset of Nash equilibrium outcomes and renegotiation imposes further constraints. Yet, there is a large class of games in which non-subgame perfect equilibrium outcomes of the principals-only game can be supported even with renegotiable contracts, and hence delegation still has a bite.
    Keywords: Strategic Delegation, Incomplete Contracts, Renegotiation.
    JEL: C72 C78 D86 L13
    Date: 2008–04
  2. By: Doraszelski, Ulrich; Escobar, Juan
    Abstract: This paper develops a theory of regular Markov perfect equilibria in dynamic stochastic games. We show that almost all dynamic stochastic games have a finite number of locally isolated Markov perfect equilibria that are all regular. These equilibria are essential and strongly stable. Moreover, they all admit purification.
    Keywords: computation; dynamic stochastic games; essentiality; estimation; finiteness; genericity; Markov perfect equilibrium; purifiability; regularity; repeated games; strong stability
    JEL: C61 C62 C73
    Date: 2008–04
  3. By: László Á. Kóczy (Budapest Tech)
    Abstract: The sequential coalition formation model of Bloch (1996) to solve cooperative games with externalities exhibits some anomalies when related to classical concepts. We elaborate on these problems, define a modification of Bloch's model and show that its order-independent equilibria coincide with the (pessimistic) recursive core.
    Keywords: Core, externalities, sequential coalition formation, order-independent equilibria
    JEL: C71 C72
    Date: 2006–02
  4. By: Maroš Servátka (University of Canterbury); Radovan Vadovic
    Abstract: Experimental evidence suggests that the size of the foregone outside option does not affect the behavior of the opponent in a lost wallet and pie sharing games but that it matters in a mini-ultimatum game. In this paper we experimentally test a conjecture that it is the fairness property of the outside option which could be responsible for this effect. We compare the behavior of subjects in the lost wallet game when they face a fully unequal (“unfair”) outside option, i.e., the first mover gets 10 and the second mover gets nothing, and when they face an equal (“fair”) outside option, i.e., both get an equal amount of 5. Contrary to our conjecture we do not find a significant difference.
    Keywords: Experimental economics; Outside option; Fairness
    JEL: C72 C78 C91
    Date: 2008–04–13
  5. By: Levin, Hagay; Schapira, Michael; Zohar, Aviv
    Abstract: We present a game-theoretic model that captures many of the intricacies of \emph{interdomain routing} in today's Internet. In this model, the strategic agents are source nodes located on a network, who aim to send traffic to a unique destination node. The interaction between the agents is dynamic and complex -- asynchronous, sequential, and based on partial information. Best-reply dynamics in this model capture crucial aspects of the only interdomain routing protocol de facto, namely the Border Gateway Protocol (BGP). We study complexity and incentive-related issues in this model. Our main results are showing that in realistic and well-studied settings, BGP is incentive-compatible. I.e., not only does myopic behaviour of all players \emph{converge} to a ``stable'' routing outcome, but no player has motivation to unilaterally deviate from the protocol. Moreover, we show that even \emph{coalitions} of players of \emph{any} size cannot improve their routing outcomes by collaborating. Unlike the vast majority of works in mechanism design, our results do not require any monetary transfers (to or by the agents).
    Keywords: Interdomain Routing; Network Games; BGP protocol;
    JEL: D7 D8 D85
    Date: 2008–01–30
  6. By: Davide Dragone (Department of Economics, University of Bologna, Italy); Luca Lambertini (Department of Economics, University of Bologna and The Rimini Centre for Econonic Analisys, Italy)
    Abstract: WeshowthattheCournotoligopolygamewithnon -linearmarketdemandcanbereformulatedasab est-responsepotentialgamewherethebest-re sponsepotentialfunctionislinear-quadrati c.
    Keywords: potential function, potential game, Cournot oligopoly
    JEL: C72 L13
    Date: 2007–07
  7. By: Sylvain Chassang; Gerard Padro i Miquel
    Abstract: We examine the mechanics of deterrence and intervention when fear is a motive for conflict. We contrast results obtained in a complete information setting, where coordination is easy, to those obtained in a setting with strategic risk, where players have different assessments of their environment. These two strategic settings allow us to define and distinguish predatory and preemptive incentives as determinants of conflict. We show that while weapons have an unambiguous deterrent effect under complete information, this does not hold anymore under strategic risk. Rather, we find that increases in weapon stocks can have a non-monotonic effect on the sustainability of peace. We also show that under strategic risk, inequality in military strength can ac- tually facilitate peace and that anticipated peace-keeping interventions may improve incentives for peaceful behavior.
    JEL: C72 C73 D74
    Date: 2008–04
  8. By: Itai Sher (Department of Economics, University of Minnesota)
    Abstract: This paper studies persuasion as a game. A speaker must decide which arguments to present and a listener which arguments to accept. Glazer and Rubinstein (2006) showed that a listener's optimal persuasion rule is credible in the sense that commitment has no value for the listener. This paper provides an algorithm for nding an optimal persuasion rule in persuasion problems without time constraints along with the speaker's strategy in the credible implementation of the rule. The credibility result, as well as the algorithm, is extended to the case where the listener's decision is not binary under a concavity assumption. Qualitative properties of optimal rules are derived. In particular, in the absence of time constraints there exists an optimal rule that treats equivalent evidence equivalently whereas this may fail with time constraints. All of the results depend on a relation between the persuasion problem
    Keywords: communication, optimal persuasion rules, credibility, commitment, evidence, maximum flow problem.
    JEL: C61 D82 D83
    Date: 2008–04–14
  9. By: Atila Abdulkadiroglu; Parag A Pathak; Alvin E Roth
    Date: 2008–04–18
  10. By: Kauppi, Heikki; Widgrén, Mika
    Abstract: This paper evaluates the determination of receipts from EU budget by considering a richer institutional structure than in earlier studies. We assume that the member states have self-interested objectives in CM trying to minimize their contributions within the given framework of the EU budget whereas EP is supposed to support benevolent objectives using its competence in non-compulsory expenditure, i.e. structural spending, internal and external policies and administration. CM exerts power in the allocation of both compulsory expenditure, mainly consisting of agricultural spending, and in non-compulsory expenditure. The purpose of this paper is not, however, to evaluate EP's influence but rather how the assumed benevolent objectives of EP and income differences turn into member states' budget receipts in a power politics based model.
    Keywords: EU budget; European integration; voting power
    JEL: C71 D70 D72
    Date: 2008–04

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