nep-gth New Economics Papers
on Game Theory
Issue of 2013‒05‒24
eight papers chosen by
Laszlo A. Koczy
Hungarian Academy of Sciences and Obuda University

  1. The Condorcet paradox revisited By Herings P.J.J.; Houba H
  2. Imitation by price and quantity setting firms in a differentiated market By Peeters R.J.A.P.; Khan A.
  3. Ties matter: improving efficiency in course allocation by introducing ties By Chen, Ning; Li, Mengling
  4. Priming the charitable pump: An experimental investigation of two-stage raffles By Sebastian J. Goerg; John Lightle; Dmitry Ryvkin
  5. Freezeout, Compensation Rules and Voting Equilibria By Christian At; Sylvain Béal; Pierre-Henri Morand
  6. Appariement: des modèles de Lloyd Shapley à la conception de marchés d'Alvin Roth By Francoise Forges; Guillaume Haeringer; Vincent Iehlé
  7. A hot-potato game under transient price impact and some effects of a transaction tax By Alexander Schied; Tao Zhang
  8. Uncertainty and International Climate Change Negotiations By Yiyong Cai; Warwick J. McKibbin

  1. By: Herings P.J.J.; Houba H (GSBE)
    Abstract: We analyze the Condorcet paradox within a strategic bargaining model with majority voting, exogenous recognition probabilities, and no discounting. Stationary subgame perfect equilibria (SSPE) exist whenever the geometric mean of the players' risk coefficients, ratios of utility differences between alternatives, is at most one. SSPEs ensure agreement within finite expected time. For generic parameter values, SSPEs are unique and exclude Condorcet cycles. In an SSPE, at least two players propose their best alternative and at most one player proposes his middle alternative with positive probability. Players never reject best alternatives, may reject middle alternatives with positive probability, and reject worst alternatives. Recognition probabilities represent bargaining power and drive expected delay. Irrespective of utilities, no delay occurs for suitable distributions of bargaining power, whereas expected delay goes to infinity in the limit where one player holds all bargaining power. Contrary to the case with unanimous approval, a player benefits from an increase in his risk aversion.
    Keywords: Stochastic and Dynamic Games; Evolutionary Games; Repeated Games;
    Date: 2013
  2. By: Peeters R.J.A.P.; Khan A. (GSBE)
    Abstract: We study the evolution of imitation behaviour in a differentiated market where firms are located equidistantly on a (Salop) circle. Firms choose price and quantity simultaneously, leaving open the possibility for non-market clearing outcomes. The strategy of the most successful firm is imitated. Behaviour in the stochastically stable outcome depends on the level of market differentiation and corresponds exactly with the Nash equilibrium of the underlying game. For high level of differentiation, firms end up at the monopoly outcome. For intermediate level of differentiation, they gravitate to a ``mutually non-aggressive'' outcome where price is higher than the monopoly price. For low level of differentiation, firms price at a mark-up above the marginal cost. Market clearing always results endogenously.
    Keywords: Noncooperative Games;
    Date: 2013
  3. By: Chen, Ning; Li, Mengling
    Abstract: We study the course allocation system at Nanyang Technological University, where students submit strict preferences for courses and courses have implicit preferences for students. This formulates a many-to-many matching problem. We show the inefficiencies of the current mechanism and propose new competing mechanisms called Pareto-improving draft and dictatorship mechanisms, which introduce ties into students' preferences. Our mechanisms generate (group) stable and Pareto-efficient allocations, and the dictatorship mechanism can be implemented truthfully. Simulations on real data show that introducing ties into students' preferences can significantly improve efficiency, and the draft mechanism outperforms the dictatorship mechanism despite that the former is non-strategyproof.
    Keywords: matching, many-to-many, Pareto efficiency, stability, strategyproof
    JEL: C78 D82 I23
    Date: 2013–04–25
  4. By: Sebastian J. Goerg (Department of Economics, Florida State University); John Lightle (Department of Economics, Florida State University); Dmitry Ryvkin (Department of Economics, Florida State University)
    Abstract: We study experimentally two-stage self-financing raffles, a novel class of charity fund-raising mechanisms in which participants can buy tickets in two stages. The proceeds of the first stage are used as the seed money for the second stage. The mechanisms differ by what happens to the tickets purchased in the first stage. In the complete draw down two-stage raffle, the first stage tickets are eliminated from the active pool of tickets, while in the no draw down raffle they remain in the active pool. We find that both two-stage raffles initially perform better than the standard one-stage 50-50 raffle. Over time, the aggregate contribution level in the complete draw down raffle declines and approaches that of the one-stage raffle, while in the no draw down raffle contributions are stable and remain higher than in the other two mechanisms. In both two-stage raffles we observe a positive correlation between the proceeds of the first stage and the number of tickets bought in the second stage. Our results show promise for multi-stage self-financing fund-raising mechanisms, although not necessarily driven by equilibrium motives.
    Keywords: two-stage raffle, charity, experiment
    JEL: C72 C92 D64
    Date: 2013–05
  5. By: Christian At (CRESE, Université de Franche-comté); Sylvain Béal (CRESE, Université de Franche-Comté); Pierre-Henri Morand (Université d'Avignon et des pays de Vaucluse)
    Abstract: A single proposer has the opportunity to generate a surplus by taking the assets of a group of individuals. These individuals are called upon to vote for accepting or rejecting the monetary offer made to them by the proposer, who needs the agreement of a qualified majority. The voters who rejected the offer while the qualified majority is met are frozen out but they can claim a compensation in exchange for their asset. This article analyses how compensation rules influence both the votes and the offer made by the proposer. We find that unanimity rule or compensation equals to the proposal or voters' initial wealth maximize the expected social surplus that entirely accrues to the proposer. We show that increasing the offer does not always increase the probability of acceptance, in sharp contrast to many close models. We identify the optimal offer when the compensation does not depend on the proposal. Increasing the compensation always reduces the expected social surplus and the expected profit of the proposer, but does not always benefit to the voters. Reinforcing the qualified majority always increases the expected profit of the proposer, and can decrease both the expected social surplus and the expected utility of the voters. When the compensation is based on the proposal we find that the success or the failure of the proposition depends crucially of the compensation's shape.
    Keywords: Voting games, Compensations, Fairness, Freezeout, Regulatory takings, Debt restructuring
    JEL: D72 K2
    Date: 2013–05
  6. By: Francoise Forges (LEDa - Laboratoire d'Economie de Dauphine - Université Paris IX - Paris Dauphine, CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris IX - Paris Dauphine); Guillaume Haeringer (Departament d'Economia i d'Història Econòmica - Universitat Autónoma de Barcelona); Vincent Iehlé (LEDa - Laboratoire d'Economie de Dauphine - Université Paris IX - Paris Dauphine, CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris IX - Paris Dauphine)
    Abstract: Alvin Roth et Lloyd Shapley ont reçu en 2012 le prix de sciences économiques de la Banque Royale de Suède à la mémoire d'Alfred Nobel, pour leurs travaux sur l'organisation centralisée de certains marchés économiques, qui dépendent de l'appariement d'agents de deux types distincts (des élèves et des écoles, par exemple). Shapley est le co-auteur, avec David Gale, de l'article fondateur du domaine, qui propose un algorithme pour atteindre un appariement stable. Roth a dirigé la restructuration de la procédure d'affectation des internes dans les hôpitaux aux Etats Unis et la conception d'un marché lié à la transplantation de reins. Après avoir rendu compte de ces contributions, nous évoquons aussi le rôle déterminant de Shapley en théorie des jeux.
    Keywords: appariement, conception de marché, jeu coopératif, stabilité
    Date: 2013–04–18
  7. By: Alexander Schied; Tao Zhang
    Abstract: Building on observations by Sch\"oneborn (2008), we consider a Nash equilibrium between two high-frequency traders in a simple market impact model with transient price impact and additional quadratic transaction costs. We show that for small transaction costs the high-frequency traders engage in a "hot-potato game", in which the same asset position is sold back and forth. We then identify a critical value for the size of the transaction costs above which all oscillations disappear and strategies become buy-only or sell-only. Numerical simulations show that for both traders the expected costs can be lower with transaction costs than without. Moreover, the costs can increase with the trading frequency when there are no transaction costs, but decrease with the trading frequency when transaction costs are sufficiently high. We argue that these effects occur due to the need of protection against predatory trading in the regime of low transaction costs.
    Date: 2013–05
  8. By: Yiyong Cai; Warwick J. McKibbin
    Abstract: This paper explores the failure of countries to coordinate climate policies as an equilibrium outcome of a game where countries optimize in the face of both unprecedented economic and environmental uncertainty. Because issues associated with climate change are historically unprecedented and thus policymakers do not have a prior distribution over possible outcomes, the usual theoretical framework based on governments maximizing expected utility may not be suitable for analyzing climate policy choice. Under an alternative plausible assumption that policymakers act strategically but choose the policy that incurs the highest possible gain in the worst-case scenario, this paper shows how coordination can be inferior to unilateralism in both carbon mitigation and economic loss minimization. In order to make progress in reaching a global agreement in this situation, additional restrictions that help to reduce uncertainty can lead to a coordinated outcome that benefits the environment and minimizes economic cost.
    Keywords: climate change, policy game, coordination, robust control
    JEL: C71 C72 Q52 Q54
    Date: 2013–03

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