nep-gth New Economics Papers
on Game Theory
Issue of 2013‒05‒05
nine papers chosen by
Laszlo A. Koczy
Hungarian Academy of Sciences and Obuda University

  1. Top Guns May Not Fire: Best-Shot Group Contests with Group-Specific Public Good Prizes By Chowdhury , Subhasish; Lee , Dongryul; Sheremeta , Roman
  2. Learning in a Black Box By Heinrich H. Nax; Maxwell N. Burton-Chellew; Stuart A. West; H. Peyton Young
  3. The evolution of mixed conjectures in the rent-extraction game By Brito, Paulo; Datta, Bipasa; Dixon, Huw
  4. Bubbles are rational By Pierre Lescanne
  5. Is Giving Equivalent to Not Taking in Dictator Games? By Korenok Oleg; Edward L. Millner; Laura Razzolini
  6. A game theoretical analysis of the design options of the real-time electricity market By Haikel Khalfallah; Vincent Rious
  7. Technology Agreements with Heterogeneous Countries By Hoel, Michael; de Zeeuw, Aart
  8. An Equilibrium Model of Credit Rating Agencies By Holden, Steinar; Natvig, Gisle James; Vigier, Adrien
  9. The Hidden Cost of Specialization By Fabio Landini; Antonio Nicolò; Marco Piovesan

  1. By: Chowdhury , Subhasish; Lee , Dongryul; Sheremeta , Roman
    Abstract: We analyze a group contest in which n groups compete to win a group-specific public good prize. Group sizes can be different and any player may value the prize differently within and across groups. Players exert costly efforts simultaneously and independently. Only the highest effort (the best-shot) within each group represents the group effort that determines the winning group. We fully characterize the set of equilibria and show that in any equilibrium at most one player in each group exerts strictly positive effort. There always exists an equilibrium in which only the highest value player in each active group exerts strictly positive effort. However, perverse equilibria may exist in which the highest value players completely free-ride on others by exerting no effort. We provide conditions under which the set of equilibria can be restricted and discuss contest design implications.
    Keywords: best-shot technology; group contest; group-specific public goods; free-riding
    JEL: C72 D70 D72 H41
    Date: 2013–04–27
  2. By: Heinrich H. Nax (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales [EHESS] - Ecole des Ponts ParisTech - Ecole normale supérieure de Paris - ENS Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Maxwell N. Burton-Chellew (Department of Zoology - University of Oxford (UK)); Stuart A. West (Department of Zoology - University of Oxford (UK)); H. Peyton Young (Department of Economics - University of Oxford (UK))
    Abstract: Many interactive environments can be represented as games, but they are so large and complex that individual players are in the dark about what others are doing and how their own payo s are a ected. This paper analyzes learning behavior in such 'black box' environments, where players' only source of information is their own history of actions taken and payoff s received. Speci fically we study repeated public goods games, where players must decide how much to contribute at each stage, but they do not know how much others have contributed or how others' contributions a effect their own payoff s. We identify two key features of the players' learning dynamics. First, if a player's realized payoff increases he is less inclined to change his strategy, whereas if his realized payo ff decreases he is more inclined to change his strategy. Second, if increasing his own contribution results in higher payoff s he will tend to increase his contribution still further, whereas the reverse holds if an increase in contribution leads to lower payo ffs. These two e ffects are clearly present when players have no information about the game; moreover they are still present even when players have full information. Convergence to Nash equilibrium occurs at about the same rate in both situations.
    Keywords: Learning ; Information ; Public goods games
    Date: 2013–04
  3. By: Brito, Paulo; Datta, Bipasa; Dixon, Huw (Cardiff Business School)
    Abstract: This paper adopts an evolutionary perspective on the rent-extraction model with conjectural variations (CV). We analyze the global dynamics of the model with three CVs under the replicator equation. We find that the end points of the evolutionary dynamics include the pure-strategy consistent CVs. However, there are also mixed-strategy equilibria that occur. These are on the boundaries between the basins of attraction of the pure-strategy sinks. We develop a more general notion of consistency which applies to mixed-strategy equilibria. In a three conjecture example, we find that in contrast to the pure-strategy equilibria, the mixed-strategy equilibria are not ESS: under the replicator dynamics, there are three or four mixed equilibria that may either be totally unstable, or saddle-stable. There also exist heteroclinic orbits that link equilibria together.
    Keywords: Rent-extraction; evolutionary dynamics; consistent conjectures; global dynamics; mixed-strategy
    JEL: D03 L15 H0
    Date: 2012–12
  4. By: Pierre Lescanne (LIP - Laboratoire de l'Informatique du Parallélisme - Université de Lyon - CNRS : UMR5668 - INRIA - École Normale Supérieure - Lyon - Université Claude Bernard - Lyon I)
    Abstract: As we show using the notion of equilibrium in the theory of infinite sequential games, bubbles and escalations are rational for economic and environmental agents, who believe in an infinite world. This goes against a vision of a self regulating, wise and pacific economy in equilibrium. In other words, in this context, equilibrium is not a synonymous of stability. We attempt to draw from this statement methodological consequences and a new approach to economics. To the mindware of economic agents (a concept due to cognitive psychology) we propose to add coinduction to properly reason on infinite games. This way we refine the notion of rationality.
    Keywords: economic game; infinite game;sequential game;bubble; escalation; microeconomics;speculative bubble; induction;coinduction.
    Date: 2013–04–30
  5. By: Korenok Oleg (Department of Economics, VCU School of Business); Edward L. Millner (Department of Economics, VCU School of Business); Laura Razzolini (Department of Economics, VCU School of Business)
    Abstract: We answer the question: Is giving equivalent to not taking? We show that, if giving is equivalent to not taking, impure altruism could account for List's (2007) finding that the payoff to recipients in a dictator game decreases when the dictator has the option to take. We examine behavior in dictator games with different taking options but equivalent final payoffs. We find that the recipients tend to earn more as the amount the dictator must take to achieve a given final payoff increases. We conclude that not taking is not equivalent to giving and agree with List (2007) that the current social preference models fail to rationalize the observed data.
    Keywords: Dictator Game; Impure Altruism; Taking
    JEL: C91 D01 D64 H30 H41
    Date: 2013–04
  6. By: Haikel Khalfallah (PACTE - Politiques publiques, ACtion politique, TErritoires - Institut d'Études Politiques [IEP] - Grenoble - CNRS : UMR5194 - Université Pierre Mendès-France - Grenoble II - Université Joseph Fourier - Grenoble I); Vincent Rious (Microeconomix - Microeconomix)
    Abstract: In this paper we study the economic consequences of two real-time electricity market designs (with or without penalties) taking into account the opportunistic behaviors of market players. We implement a two-stage dynamic model to consider the interaction between the forward market and the real-time market where market players compete in a Nash manner and rely on supply/demand function oligopoly competition. Dynamic programming is used to deal with the stochastic environment of the market and the mixed complementarity problem is employed to find a solution to the game. Numerical examples are presented to illustrate how the optimal competitor's strategies could change according to the adoption or no adoption of a balancing mechanism and to the level of the penalty imposed on imbalances, regarding a variety of producers' cost structures. The main finding of this study is that implementing balancing mechanisms would increase forward contracts while raising electricity prices. Moreover, possible use of market power would not be reduced when imbalances are penalized.
    Keywords: Electricity markets ; balancing mechanisms ; supply function equilibrium ; mixed complementarity problem
    Date: 2013–01
  7. By: Hoel, Michael (Dept. of Economics, University of Oslo); de Zeeuw, Aart (Tilburg University)
    Abstract: For sufficiently low abatement costs many countries might undertake significant emission reductions even without any international agreement on emission reductions. We consider a situation where a coalition of countries does not cooperate on emission reductions but cooperates on the development of new, climate friendly technologies that reduce the costs of abatement. The equilibrium size of such a coalition, as well as equilibrium emissions, depends on the distribution across countries of their willingness to pay for emission reductions. Increased willingness to pay for emissions reductions for any group of countries will reduce (or leave unchanged) the equilibrium coalition size. However, the effect of such an increase in aggregate willingness to pay on equilibrium emissions is ambiguous.
    Keywords: Technology agreement; Coalition stab ility; climate; International agreement
    JEL: C72 F42 O32 Q02
    Date: 2013–01–07
  8. By: Holden, Steinar (Dept. of Economics, University of Oslo); Natvig, Gisle James (Norges Bank); Vigier, Adrien (Dept. of Economics, University of Oslo)
    Abstract: We develop a model of credit rating agencies (CRAs) based on reputation concerns. Ratings aect investors' choice and, thereby, also issuers' access to funding and default risk. We show that in equilibrium { the informational content of credit ratings is inferior to that of CRAs' private information. We nd that CRAs have a pro-cyclical impact on default risk: in a liq- uidity boom CRAs help resolve investors' coordination problem, and lower the probability of default; in a liquidity crunch CRAs raise the probability of default. Furthermore, rating stan- dards tend to be pro-cyclical, while biased CRA-incentives will ultimately be self-defeating.
    Keywords: Credit rating agencies; global games; coordination failure
    JEL: C72 D82 G24 G33
    Date: 2012–12–18
  9. By: Fabio Landini (MEDAlics and CRIOS, Bocconi University); Antonio Nicolò (University of Padua); Marco Piovesan (Department of Food and Resource Economics, University of Copenhagen)
    Abstract: Given the advantages of specialization, employers encourage their employees to acquire distinct expertise to better satisfy clients’ needs. However, when the client is unaware of the employees’ expertise and cannot be sorted out to the most competent employee by means of a gatekeeper, a mismatch can occur. In this paper we attempt to identify the optimal condition so an employer can eliminate this mismatch and offer a team bonus that provides the first-contacted employee with an incentive to refer the client to the correct expert. We show that the profitability of this referral contract increases with the agents’ degree of specialization and decreases with the clients’ competence at identifying the correct expert. Interestingly, a referral contract may be more profitable than an individual contract -that does not pay a team bonus- even if the former provides less incentive to the agents to improve their expertise. Thus, we provide a new rationale for the use of team bonuses even when the production function depends on a single employee’s effort.
    Keywords: Team and Individual Contracts, Matching Client-Expert, Incentives to Refer
    JEL: C72 D01 D21 D86 M52
    Date: 2013–04

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