nep-gth New Economics Papers
on Game Theory
Issue of 2010‒12‒11
sixteen papers chosen by
Laszlo A. Koczy
Obuda University

  1. Climate Change and Game Theory: A Mathematical Survey By Peter J. Wood
  2. Should I remember more than you? - On the best response to factor-based strategies - By René Levínský; Abraham Neyman; Miroslav Zelený
  3. Open loop and feedback solutions to an institutional game under non-quadratic preferences By Fabien NGENDAKURIYO
  4. Negative and Positive Effects of Competition in a Preemption Game By Toru Suzuki
  5. Fairness in Risky Environments: Theory and Evidence By Vitezslav Babicky; Andreas Ortmann; Silvester Van Koten
  6. Symmetric revealed cores and pseudocores, and Lawvere-Tierney closure operators By Stefano Vannucci
  7. Uncertainty in conflicts By Juan David Prada-Sarmiento
  8. Price-Based Combinatorial Auction Design: Representative Valuations By Hitoshi Matsushima
  9. On the construction of social preferences in lab experiments By Borgloh, Sarah; Dannenberg, Astrid; Aretz, Bodo
  10. Nonparametric Identification of Dynamic Games with Discrete and Continuous Choices By Jason R. Blevins
  11. "Pricing and Investments in Matching Markets",Second Version By George J. Mailath; Andrew Postlewaite; Larry Samuelson
  12. Piracy and P2P file-sharing networks. By Yang, Michael Shuo
  13. Collusion and the Choice of Auction: An Experimental Study By Jeroen Hinloopen; Sander Onderstal
  14. Entry Threats, and Inefficiency in ‘Efficient Bargaining’ By Rupayan Pal; Bibhas Saha
  15. The Formation of Preferences in Two-level Games: An Analysis of India’s Domestic and Foreign Energy Policy By Joachim Betz; Melanie Hanif
  16. The end of the Bertrand Paradox ? By Marie-Laure Cabon-Dhersin; Nicolas Drouhin

  1. By: Peter J. Wood (Resource Management in Asia-Pacific Program, Crawford School of Economics and Government, The Australian National University)
    Abstract: This paper examines the problem of achieving global cooperation to reduce greenhouse gas emissions. Contributions to this problem are reviewed from noncooperative game theory, cooperative game theory, and implementation theory. We examine the solutions to games where players have a continuous choice about how much to pollute, and games where players make decisions about treaty participation. The implications of linking cooperation on climate change with cooperation on other issues, such as trade, is also examined. Cooperative and non-cooperative approaches to coalition formation are investigated in order to examine the behaviour of coalitions cooperating on climate change. One way to achieve cooperation is to design a game, known as a mechanism, whose equilibrium corresponds to an optimal outcome. This paper examines some mechanisms that are based on conditional commitments, and their policy implications. These mechanisms could make cooperation on climate change mitigation more likely.
    Keywords: Climate change, negotiations, game theory, implementation theory
    JEL: Q54 C70
    Date: 2010–10
  2. By: René Levínský (Max Planck Institute of Economics, Jena); Abraham Neyman (Institute of Mathematics and Center for the Study of Rationality, The Hebrew University of Jerusalem); Miroslav Zelený (Department of Mathematical Analysis, Faculty of Mathematics and Physics, Charles University)
    Abstract: In this paper we offer a new approach to modeling strategies of bounded complexity, the so-called factor-based strategies. In our model, the strategy of a player in the multi-stage game does not directly map the set of histories to the set of her actions. Instead, the player's perception of is represented by a factor : -> where reflects the "cognitive complexity" of the player. Formally, mapping sends each history to an element of a factor space that represents its equivalence class. The play of the player can then be conditioned just on the elements of the set From the perspective of the original multi-stage game we say that a function from o is a factor of a strategy if there exists a function from to the set of actions of the player such that = In this case we say that the strategy is -factor-asedStationary strategies and strategies played by finite automata and strategies with bounded recall are the most prominent examples of factor-based strategies. In the discounted infinitely repeated game with perfect monitoring, a best reply to a profile of -factor-base strategies need not be a -factor-base strategy. However, if the factor is recursive, namely its value (1 , . . . , ) on a finite string of action profiles ( , . . . , ) is a function of (1 , . . . , - ) and , then for every profile of factor-based strategies there is a best reply that is a pure factor-based strategy. We also study factor-based strategies in the more general case of stochastic games.
    Keywords: Bounded rationality, factor-based strategies, bounded recall strategies, finite automata
    JEL: C73
    Date: 2010–12–01
  3. By: Fabien NGENDAKURIYO (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: Until now most research in dynamic games focus on models with quadratic objective functions because of practical considerations. But in reality, all problems are not quadratic. In this paper, we solve a differential game where players have non-quadratic preferences. In particular we consider an institutional game governing a permanent interaction between civil society organizations and Government in the economy in the presence of corruption. At the first stage, we compute analytically and solve numerically the open loop and cooperative outcome of the differential game. At the second stage, we approximated analytically and solved numerically the feedback strategies at equilibrium. As results, we found that both open loop and cooperative solution are unique and stable while multiple feedback Nash equilibria should arise. As economic implications, we found that under cooperative play the magnitude of the civil monitoring effort is lower than the one in open loop game. This in turn is smaller than the magnitude of effort associated to the best feedback equilibrium. Total factor productivity effects always dominate the detrimental effect of individual effort devoted to production in almost all situations. Furthermore, institutions improve much faster under cooperative scenario than in open loop game. These results have a similar format with the ones obtained under linear quadratic differential game at least for open loop and cooperative games.
    Keywords: Institutions, corruption, civil society, dynamic games, dynamic programming, non-quadratic preferences, Markovian strategies
    JEL: C61 C62 C71 C72 C73 O43
    Date: 2010–09–30
  4. By: Toru Suzuki (Max Planck Institute of Economics, Jena)
    Abstract: Agents compete to acquire a limited economic opportunity of uncertain profitability. Each agent decides how much he acquires public signals before making investment under fear of preemption. I show that equilibria have various levels of efficiency under mild competition. The eect of competition on the equilibrium strategy is dierent depending on which class of equilibrium we focus on. However, when competitive pressure is sufficiently high, there exists a unique equilibrium. Finally, I show that the eect of competition on efficiency is dierent between the common value and the private value setting. Strong competition leads to the least efficient equilibrium for the common value setting but efficiency can be improved by competition in the private value setting.
    Keywords: Competition, Preemption game, Strategic real option
    JEL: C73 D83
    Date: 2010–12–02
  5. By: Vitezslav Babicky; Andreas Ortmann; Silvester Van Koten
    Abstract: Theories of fairness have typically used the assumption of ex-ante known pie size. Pie size, however, is rarely known ex ante. Using three simple allocation problems generally known as dictator, ultimatum and trust games, we explore the influence of ex-ante unknown pie size of varying degrees of risk on individual behavior. We derive theoretical predictions for two of these games using utility functions that capture additively separable constant relative risk aversion and inequity aversion. We test the theoretical predictions experimentally on two different subject pools: students of Czech Technical University and employees of Prague City Hall. We control for the risk attitude of our subjects through a variant of the Holt-Laury assessment instrument. We find statistically significant differences in giving behavior as a function of the degree of risk, and the degree of risk aversion, across individuals. We also find differences across the two subject pools but show that, once we control for various socio-demographic and cognitive characteristics, these differences evaporate. We discuss the policy and methodological implications of the results of our artefactual field experiment, as well as the implications for theories of fairness of reciprocity and their experimental test.
    Keywords: fairness, risk aversion, subject pool effects, economics experiments.
    JEL: C90 C91 C92 D81
    Date: 2010–10
  6. By: Stefano Vannucci
    Abstract: A choice function is a symmetric revealed core if there exists a symmetric irreflexive ‘dominance’ digraph such that choice sets consist precisely of the locally undominated outcomes of the latter. Symmetric revealed pseudocores are similarly defined by omitting the irreflexivity requirement on the underlying digraph. Lawvere-Tierney (LT) closure operators are those closure operators which are meet-homomorphic: they may be regarded as an algebraic representation of a geometric modality denoting ‘locally true’, and provide the mathematical backbone of a generalized version of so-called ‘Grothendieck topologies’ in categories. The classes of symmetric revealed cores and pseudocores are characterized, and their basic order-theoretic structure is studied. In particular, it is shown that their respective posets are sub-meet-semilattices of the canonical lattice of choice functions. An order duality theorem concerning the posets of symmetric revealed pseudocores and LT closure operators on a given ground set is also established.
    Keywords: Choice function, game solution, core, pseudocore, symmetric digraph, Lawvere-Tierney closure
    JEL: C70 C71 D01
    Date: 2010–10
  7. By: Juan David Prada-Sarmiento
    Abstract: This paper theoretically assesses the role that uncertainty plays in the intensity of conflicts. The standard two-player rent-seeking contest model (Tullock, 1980) is extended to allow for privately known subjective values of the prize. The conflict is modeled as a Bayesian game on which each player’s valuation is drawn independently from arbitrary distributions. We find sufficient conditions for when first-order and second-order stochastic refinements in the distributions cause predictable movements in the conflict’s dissipation. We focus on arbitrary contest success functions and arbitrary independent distributions for each player, allowing us to extend our analysis beyond the case of symmetric equilibria.
    Date: 2010–10–04
  8. By: Hitoshi Matsushima (Department of Economics, University of Tokyo)
    Abstract: We investigate price-based mechanisms with connectedness in combinatorial auctions, where with restrictions of privacy and complexity, the auctioneer asks a limited number of prices to buyers who provide demand responses. Consistent with the price-based property, several necessary and sufficient conditions are presented for the existence of the VCG mechanism, strategy-proofness with participation constraints, approximate strategy-proofness, Nash equilibrium, efficiency, core, and others. In all cases, the concept of the representative valuation function, which assigns the minimal valuation in both absolute and relative terms to any revealed package, plays the central role in determining whether these conditions are satisfied.
    Keywords: Combinatorial Auctions, Price-Based Mechanisms, VCG Mechanisms, Connectedness, Representative Valuation Functions
    JEL: D44 D61 D82
    Date: 2010–11
  9. By: Borgloh, Sarah; Dannenberg, Astrid; Aretz, Bodo
    Abstract: This paper studies the construction of social preferences in the lab. Experimental subjects have the opportunity to donate to a charity and to allocate money in a conventional dictator game. The results show that charitable donations and dictator game allocations are positively correlated. The correlation is only significant, however, if the dictator game follows the donation decision. Furthermore, while donation behavior is independent from the order of play, dictator game behavior is not. In line with the constructive-preference approach, we argue that preferences are instable and sensitive to outside influences when subjects are confronted with a new decision situation, while in a well-known situation preferences are more stable. --
    Keywords: social preferences,charitable donations,dictator game,experiment
    JEL: C91 C93 D01 D64
    Date: 2010
  10. By: Jason R. Blevins (Department of Economics, Ohio State University)
    Abstract: This paper shows that the payoff functions in a class of dynamic games of incomplete information are nonparametrically identified under standard assumptions currently used in applied work. Models of this kind are prevalent in empirical industrial organization where, for example, firms in oligopolistic industries make discrete entry and exit decisions followed by continuous investment or pricing decisions. We also provide results for single-agent models, a leading special case which is commonly employed in applied microeconomics more generally.
    Keywords: dynamic games, dynamic discrete choice, nonparametric identification
    JEL: C5 C14 C73
    Date: 2010–11
  11. By: George J. Mailath (Department of Economics, University of Pennsylvania); Andrew Postlewaite (Department of Economics, University of Pennsylvania); Larry Samuelson (Department of Economics, Yale University)
    Abstract: Different markets are cleared by different types of prices---seller-specific prices that are uniform across buyers in some markets, and personalized prices tailored to the buyer in others. We examine a setting in which buyers and sellers make investments before matching in a competitive market. We introduce the notion of premuneration values---the values to the transacting agents prior to any transfers---created by a buyer-seller match. Personalized price equilibrium outcomes are independent of premuneration values and exhibit inefficiencies only in the event of "coordination failures," while uniform-price equilibria depend on premuneration values and in general feature inefficient investments even without coordination failures. There is thus a trade-off between the costs of personalizing prices and the inefficient investments under uniform prices. We characterize the premuneration values under which uniform-price equilibria similarly exhibit inefficiencies only in the event of coordination failures.
    Keywords: Directed search, matching, premuneration value, prematch investments, search
    JEL: C78 D40 D41 D50 D83
    Date: 2010–01–26
  12. By: Yang, Michael Shuo (Maastricht University)
    Date: 2010
  13. By: Jeroen Hinloopen (University of Amsterdam); Sander Onderstal (University of Amsterdam)
    Abstract: We experimentally examine the collusive properties of two commonly used auctions: the English auction (EN) and the first-price sealed-bid auction (FPSB). In theory, both tacit and overt collusion are always incentive compatible in EN while both can be incentive compatible in FPSB if the auction is repeated and bidders are patient enough. We find that the auctions do not differ in subjects’ propensity to collude overtly and in the likelihood that subjects defect from a collusive agreement. Moreover, the average winning bid does not differ between the auctions unless subjects can collude overtly. Under overt collusion, stable cartels buy at a lower price in EN than in FPSB resulting in a lower average winning bid in EN.
    Keywords: Collusion; English auction; First-price sealed-bid auction; Laboratory experiments
    JEL: C92 D44 L41
    Date: 2010–11–30
  14. By: Rupayan Pal; Bibhas Saha (Indira Gandhi Institute of Development Research)
    Abstract: We examine whether the outcome of bargaining over wage and employment between an incumbent firm and a union remains efficient under entry threat. The workers\' reservation wage is not known to the entrant, and entry is profitable only against the high reservation wage. The entrant observes the pre-entry price, but not necessarily the wage agreements. When wage is not observed, contracts feature over-employment. Under separating equilibrium the low type is over-employed, and under pooling equilibrium the high type is over-employed. But when wage is observed, pooling equilibrium may not always exist, and separating equilibrium does not involve any inefficiency.
    Keywords: Efficient Bargaining, Entry Threat, Signalling, Inefficiency
    JEL: J51 L12 D43 J58
    Date: 2010
  15. By: Joachim Betz; Melanie Hanif
    Abstract: This paper examines the formation of India’s energy-policy strategy as an act of doubleedged diplomacy. After developing an analytical framework based on the two-level game approach to international relations (IR), it focuses on the domestic context of policy preference formation. India’s energy strategy is shaped by a shortage of energy and the scarcity of indigenous reserves; these problems have together resulted in a growing import dependence in order to sustain economic growth rates, outdated cross-subsidies, overregulation, and nontransparent bureaucratic structures which are adverse to private investment. The Indian government still dominates the energy sector, but large electoral constituencies within the country exert a considerable indirect influence. The paper analyzes how all these domestic necessities combine with India’s general foreign policy goals and traditions to form an overall energy strategy. We finally discuss how this strategy plays out in a competitive international environment where global resources are shrinking (with most claims already distributed) and environmental concerns are on the rise.
    Keywords: preferences in two-level games, Indian foreign policy, energy security
    Date: 2010–09
  16. By: Marie-Laure Cabon-Dhersin (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Nicolas Drouhin (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: This paper analyzes price competition in the case of two firms operating under constant returns to scale with more than one production factor. Factors are chosen sequentially in a two-stage game implying a convex short term cost function in the second stage of the game. We show that the collusive outcome is the only predictable issue of the whole game i.e. the unique non Pareto-dominated pure strategy Nash Equilibrium. Technically, this paper bridges the capacity constraint literature on price competition with the one of convex cost function, solving the Bertrand Paradox in the line of Edgeworth's research program.
    Keywords: Price competition, collusion, convex cost, Bertrand Paradox, capacity constraint, constant returns-to-scale.
    Date: 2010–10

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