nep-gth New Economics Papers
on Game Theory
Issue of 2009‒10‒03
ten papers chosen by
Laszlo A. Koczy
Budapest Tech and Maastricht University

  1. Uncertainty aversion and equilibrium existence in games with incomplete information By Azrieli, Yaron; Teper, Roee
  2. Voronoi languages: Equilibria in cheap-talk games with high-dimensional types and few signals By Gerhard Jäger; Lars Koch-Metzger; Frank Riedel
  3. The Incentives to Participate in, and the Stability of, International Climate Coalitions: A Game-theoretic Analysis Using the Witch Model By Valentina Bosetti; Carlo Carraro; Enrica De Cian; Romain Duval; Emanuele Massetti; Massimo Tavoni
  4. Self-enforcing Agreements on Water allocation By Erik Ansink
  5. Why is the Doha development agenda failing? And what can be done?: A computable general equilibrium-game theoretical approach By Bouet, Antoine; Laborde, David
  6. Pre-Electoral Coalitions and Post-Election Bargaining By Siddhartha Bandyopadhyay; Kalyan Chatterjee; Tomas Sjostrom
  7. Student Placement in Egyptian Colleges By Selim, Tarek; Salem, Sherif
  8. A Coordination Game Model of Charitable Giving and Seed Money Effect By Kentaro Hatsumi;
  9. Investments and the holdup problem in a matching market By Bester, Helmut
  10. Controlling externalities in the presence of rent seeking By Ian A. MacKenzie

  1. By: Azrieli, Yaron; Teper, Roee
    Abstract: We consider games with incomplete information a la Harsanyi, where the payoff of a player depends on an unknown state of nature as well as on the profile of chosen actions. As opposed to the standard model, players' preferences over state--contingent utility vectors are represented by arbitrary functionals. The definitions of Nash and Bayes equilibria naturally extend to this generalized setting. We characterize equilibrium existence in terms of the preferences of the participating players. It turns out that, given continuity and monotonicity of the preferences, equilibrium exists in every game if and only if all players are averse to uncertainty (i.e., all the functionals are quasi--concave). We further show that if the functionals are either homogeneous or translation invariant then equilibrium existence is equivalent to concavity of the functionals.
    Keywords: Games with incomplete information, equilibrium existence, uncertainty aversion, convex preferences.
    JEL: D81 C72
    Date: 2009–09–29
  2. By: Gerhard Jäger (Tübingen University); Lars Koch-Metzger (Institute of Mathematical Economics, Bielefeld University); Frank Riedel (Institute of Mathematical Economics, Bielefeld University)
    Abstract: We study a communication game of common interest in which the sender observes one of infinite types and sends one of finite messages which is interpreted by the receiver. In equilibrium there is no full separation but types are clustered into convex categories. We give a full characterization of the strict Nash equilibria of this game by representing these categories by Voronoi languages. As the strategy set is infinite static stability concepts for finite games such as ESS are no longer sufficient for Lyapunov stability in the replicator dynamics. We give examples of unstable strict Nash equilibria and stable inefficient Voronoi Languages. We derive efficient Voronoi languages with a large number of categories and numerically illustrate stability of some Voronoi languages with large message spaces and non-uniformly distributed types.
    Keywords: Cheap Talk, Signaling Game, Communication Game, Dynamic stability, Voronoi tesselation
    JEL: C72 C73 D82 D83
    Date: 2009–08
  3. By: Valentina Bosetti (Princeton University, FEEM and CCMC); Carlo Carraro (University of Venice, FEEM, CEPR, CESifo and CMCC); Enrica De Cian (FEEM); Romain Duval (OECD); Emanuele Massetti (FEEM and CCMC); Massimo Tavoni (Princeton University, FEEM and CCMC)
    Abstract: This paper uses WITCH, an integrated assessment model with a game-theoretic structure, to explore the prospects for, and the stability of broad coalitions to achieve ambitious climate change mitigation action. Only coalitions including all large emitting regions are found to be technically able to meet a concentration stabilisation target below 550 ppm CO2eq by 2100. Once the free-riding incentives of non-participants are taken into account, only a “grand coalition” including virtually all regions can be successful. This grand coalition is profitable as a whole, implying that all countries can gain from participation provided appropriate transfers are made across them. However, neither the grand coalition nor smaller but still environmentally significant coalitions appear to be stable. This is because the collective welfare surplus from cooperation is not found to be large enough for transfers to offset the free-riding incentives of all countries simultaneously. Some factors omitted from the analysis, which might improve coalition stability, include the co-benefits from mitigation action, the costless removal of fossil fuel subsidies, as well as alternative assumptions regarding countries’ bargaining behaviour.
    Keywords: Climate Policy, Climate Coalition, Game Theory, Free Riding
    JEL: C68 C72 D58 Q54
    Date: 2009–08
  4. By: Erik Ansink (Wageningen University)
    Abstract: Many water allocation agreements in transboundary river basins are inherently unstable. Due to stochastic river flow, agreements may be broken in case of drought. The objective of this paper is to analyse whether water allocation agreements can be self-enforcing. An agreement is modelled as the outcome of bargaining game on river water allocation. Given this agreement, the bargaining game is followed by a repeated extensive-form game in which countries decide whether or not to comply with the agreement. I assess under what conditions such agreements are self-enforcing, given stochastic river flow. The results show that, for sufficiently low discounting, every efficient agreement can be sustained in subgame perfect equilibrium. Requiring renegotiation-proofness may shrink the set of possible agreements to a unique self-enforcing agreement. The solution induced by this particular agreement implements the “downstream incremental distribution”, an axiomatic solution to water allocation that assigns all gains from cooperation to downstream countries.
    Keywords: Self-Enforcing Agreement, Repeated Extensive-Form Game, Water Allocation, Renegotiation-Proofness
    JEL: C73 Q25
    Date: 2009–09
  5. By: Bouet, Antoine; Laborde, David
    Abstract: "We herein use a world Computable General Equilibrium (CGE) model to simulate 143 potential trade reforms and seek solutions to the issues hampering progress in the Doha Development Agenda (DDA). Inside the domain defined by all these possible outcomes, we apply the axiomatic theory of bargaining and select the Nash solution of cooperative games. The solutions vary according to the objective functions adopted by the trade negotiators. When real income is the objective and services are excluded, or when optimizing terms of trade is the objective, the Nash solution is the status quo. Trade liberalization is feasible only when the negotiators focus on national exports or Gross Domestic Product (GDP). Our assessment of some possible solutions reveals that excluding members having a GDP below a certain threshold improves the bargaining process, regardless of the governments' objective. Formation of coalition, such as the G20, constitutes an option for its members to block outcomes imposed by rich members. We also find that side payments may be a solution, but represent a very high share of the global income gain." from authors' abstract
    Keywords: Trade negotiations, Computable general equilibrium (CGE) modeling, Nash solution, Side payments, Cooperative games, Globalization, Markets, Doha Development Agenda,
    Date: 2009
  6. By: Siddhartha Bandyopadhyay; Kalyan Chatterjee; Tomas Sjostrom
    Abstract: Pre-electoral coalitions occur frequently in parliamentary democracies. They influence post election coalition formation and surplus division. We study a game theoretic model where political parties can form coalitions both before (ex ante) and after (ex post) the elections. Ex ante coalitions can commit to a seat-sharing arrangement, but neither to a policy nor to a division of rents from office; coalition members are even free to break up and join other coalitions after the election. Equilibrium ex ante coalitions are not necessarily made up of the most ideologically similar parties, and they form under (national list) proportional representation as well as plurality rule. They do not form just to avoid "splitting the vote", but also because seat-sharing arrangements will influence the ex post bargaining and coalition formation. The ex post bargaining protocol matters greatly: there is more scope for coalition formation, both ex ante and ex post, under an Austen-Smith and Banks protocol than under "random recognition".
    Keywords: Ex ante coalition, ex post bargaining
    JEL: C72 D72 H19
    Date: 2009–09
  7. By: Selim, Tarek; Salem, Sherif
    Abstract: We study students placement in Egyptian colleges under the current demand/supply placement mechanism implemented in Egypt (e-mechanism). We show that the e-mechanism is not Pareto efficient nor strategy proof and, moreover, it can not be improved to accommodate Pareto efficiency nor strategy proofness. The final conclusion is that it is better, from an efficiency point of view, to adopt a matching algorithm, like the Gale-Shapley mechanism, in students placement.
    Keywords: Student placement; Gale-Shapley mechanism; e-mechanism; Egypt
    JEL: C78 D71
    Date: 2009–09
  8. By: Kentaro Hatsumi;
    Abstract: If potential donors for a charity project possess the warm-glow properties in their preferences, we can represent their behavior with a coordination game. Accordingly, we construct a simultaneous incomplete information game model of charitable giving based on a simple global coordination game. We demonstrate that merely by the effect of seed money to shift the threshold requirement of the donations for project success downwards, the proportion of donors and the total amount of donations strictly and continuously increase with the amount of seed money. This result is compatible with the field experimental evidence in List and Lucking-Reiley [List, J. A., Lucking-Reiley, D., 2002. The Effects of Seed Money and Refunds on Charitable Giving: Experimental Evidence from a University Capital Campaign. Journal of Political Economy 110 (1), 215-233].
    Date: 2009–04
  9. By: Bester, Helmut
    Abstract: This paper studies investment incentives in the steady state of a dynamic bilateral matching market. Because of search frictions, both parties in a match are partially locked-in when they bargain over the joint surplus from their sunk investments. The associated holdup problem depends on market conditions and is more important for the long side of the market. In the case of investments in homogenous capital only the agents on the short side acquire ownership of capital. There is always underinvestment on both sides of the market. But when market frictions become negligible, the equilibrium investment levels tend towards the first-best.
    Keywords: Holdup Problem,Matching Market,Investments
    JEL: C78 D23 D92
    Date: 2009
  10. By: Ian A. MacKenzie (CER-ETH - Center of Economic Research at ETH Zurich, Switzerland)
    Abstract: Contests are a common method to describe the distribution of many different types of rents. Yet in many of these situations the utilisation of the prize plays an important role in determining agents payoffs and incentives. In this paper, we investigate the incentives to expend effort for a prize that produces consumption externalities and consider alternative regulatory policies. We find relatively more global consumption externalities will increase (decrease) rent seeking when con- sumption externalities are negative (positive). We show how introducing Pigouvian taxation (possibly with revenue transfer) and Coasean bargaining alters equilib- rium effort and payoffs. Pigouvian taxation tends to reduce both effort and payoffs whereas this is not always the case for Coasean bargaining. In the presence of suf- ficiently large consumption externalities, establishing Pigouvian taxation coupled with some element of lump-sum transfer may reduce costly rent seeking effort and improve the welfare of some agents compared to other approaches.
    Keywords: externalities, contest, natural resources
    JEL: C72 D63 D62 D31 Q53
    Date: 2009–07

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