nep-gth New Economics Papers
on Game Theory
Issue of 2013‒08‒31
ten papers chosen by
Laszlo A. Koczy
Hungarian Academy of Sciences and Obuda University

  1. House Allocation via Deferred-Acceptance By Lars Ehlers; Bettina Klaus
  2. Language, Meaning, and Games: Comment By Heller, Yuval
  3. Strategic Generation Capacity Choice under Demand Uncertainty: Analysis of Nash Equilibria in Electricity Markets By Gürkan, G.; Ozdemir, O.; smeers, Y.
  4. Bargaining order and delays in multilateral bargaining with asymmetric sellers By Amit Kumar Maurya; Shubhro Sarkar
  5. Axiomatic and game-theoretic analysis of bankruptcy and taxation problems: an update By William Thomson
  6. John von Neumann between Physics and Economics: A Methodological Note By Luca Lambertini
  7. An Axiomatic Approach to the Airline Emission Fees Problem By Yuntong Wang
  8. Limited higher order beliefs and the welfare effects of public information By Camille Cornand; Frank Heinemann
  9. Optimal Payoffs under State-dependent Constraints By Carole Bernard; Franck Moraux; Ludger Rueschendorf; Steven Vanduffel
  10. Additive cost sharing on a tree By Debing Ni; Yuntong Wang

  1. By: Lars Ehlers; Bettina Klaus
    Abstract: We study the simple model of assigning indivisible and heterogenous objects (e.g., houses, jobs, offices, etc.) to agents. Each agent receives at most one object and monetary compensations are not possible. For this model, known as the house allocation model, we characterize the class of rules satisfying unavailable object invariance, individual rationality, weak non-wastefulness, resource-monotonicity, truncation invariance, and strategy-proofness: any rule with these properties must allocate objects based on (implicitly induced) objects' priorities over agents and the agent-proposing deferred-acceptance-algorithm.
    Keywords: Deferred-acceptance-algorithm, indivisible objects allocation, resource-monotonicity, strategy-proofness
    JEL: D63 D70
    Date: 2013
  2. By: Heller, Yuval
    Abstract: Demichelis and Weibull (2008 AER) show that adding lexicographic lying costs to coordination games with cheap talk yields a sharp prediction: only the efficient outcome is evolutionarily stable. I demonstrate that this result is caused by the discontinuity of preferences, rather than by small lying costs per se.
    Keywords: Lexicographic preferences, evolutionary stability, cheap talk.
    JEL: C73
    Date: 2013–08–29
  3. By: Gürkan, G.; Ozdemir, O.; smeers, Y. (Tilburg University, Center for Economic Research)
    Abstract: Abstract: We analyze a two-stage game of strategic firms facing uncertain demand and exerting market power in decentralized electricity markets. These firms choose their generation capacities at the first stage while anticipating a perfectly competitive future electricity spot market outcome at the second stage; thus it is a closed loop game. In general, such games can be formulated as an equilibrium problem with equilibrium constraints (EPEC) and examples have been posed in the literature that have multiple or no equilibria. Therefore, it is of interest to define general sets of conditions under which solutions exist and are unique, which would enhance the value of such models for policy andmarket intelligence purposes. In this paper, we consider various types of such a closed loop model regarding the underlying price-demand relations (elastic and inelastic demand), the assumed demand uncertainty with a broad class of continuous distributions, and any finite number of players with symmetric or asymmetric costs. We establish sufficient conditions for the random demand’s probability distribution which guarantee existence and uniqueness of equilibria in most of the cases of this closed loop model. We identify a broad class of commonly used continuous probability distributions satisfying these conditions.
    Keywords: electricity markets;strategic generation investment modeling;demand uncertainty;existence and uniqueness of equilibrium.
    JEL: C62 C68 C72 D43 L94
    Date: 2013
  4. By: Amit Kumar Maurya (Indira Gandhi Institute of Development Research); Shubhro Sarkar (Indira Gandhi Institute of Development Research)
    Abstract: In a multilateral bargaining problem with one buyer and two heterogeneous sellers owning perfectly complementary units, we find that there exists an equilibrium which leads to inefficient delays when the buyer negotiates with the higher-valuation seller first and where players are extremely impatient. We also find that the buyer prefers to negotiate with the lower-valuation seller first, except in an equilibrium where both the buyer and the lower-valuation seller choose to play strategies that lead negotiations between them to hold out.
    Keywords: Multilateral bargaining, Bargaining order, Asymmetric sellers, Complete information, Subgame Perfection
    JEL: C72 C78
    Date: 2013–08
  5. By: William Thomson (University of Rochester)
    Abstract: A group of agents have claims on a resource, but there is not enough of it to honor all of the claims. How should it be divided? A group of agents decide to undertake a public project that they can jointly afford. How much should each of them contribute? This essay is an update of Thomson (2003), a survey of the literature devoted to the study of such problems.
    Keywords: claims problems; constrained equal awards rule; constrained equal losses rule; proportional rule; axiomatic approach; game-theoretic approach
    JEL: C79 D63 D74
    Date: 2013–08
  6. By: Luca Lambertini (Department of Economics, University of Bologna, Italy)
    Abstract: A methodological discussion is proposed, aiming at illustrating an analogy between game theory in particular (and mathematical economics in general) and quantum mechanics. This analogy relies on the equivalence of the two fundamental operators employed in the two fields, namely, the expected value in economics and the density matrix in quantum physics. I conjecture that this coincidence can be traced back to the contributions of von Neumann in both disciplines.
    Keywords: expected value, density matrix, uncertainty, quantum games
    JEL: B25 B41 C70
    Date: 2013–07
  7. By: Yuntong Wang (Department of Economics, University of Windsor)
    Abstract: An airline lands in a number of airports in a region. An airport serves a number of airlines. Each airport charges a given amount of emission fees to those airlines using the airport. The total emission fees from all airports in the region must be shared among all airlines. We propose an axiomatic approach to this airline emission fees problem. We suggest a sharing rule called the Decomposition rule that is based on a few simple axioms. The Decomposition rule coincides with the Shapley value of the game associated with the problem and is shown in the core. Thus, no alliance of airlines can reduce their emission fees by forming an independent coalition. On the other hand, we also show that the Decomposition rule is split-proof. In other words, no airline has an incentive to split into two or more airlines.
    Keywords: Airline emission fees; Shapley value; core; split-proofness.
    JEL: C71 D61 D62
    Date: 2013–08–26
  8. By: Camille Cornand (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon); Frank Heinemann (Fachgebiet Makroökonomik - Technische Universität Berlin)
    Abstract: In games with strategic complementarities, public information about the state of the world has a larger impact on equilibrium actions than private information of the same precision, because the former is more informative about the likely behavior of others. This may lead to welfare-reducing 'overreactions' to public signals as shown by Morris and Shin (2002). Recent experiments on games with strategic complementarities show that subjects attach a lower weight to public signals than theoretically predicted. Aggregate behavior can be better explained by a cognitive hierarchy model where subjects employ limited levels of reasoning. This paper analyzes the welfare effects of public information under such limited levels of reasoning and argues that for strategies according with experimental evidence, public information that is more precise than private information cannot reduce welfare, unless the policy maker has instruments that are perfect substitutes to private actions.
    Keywords: coordination games; strategic uncertainty; private information; public information; higherorder beliefs; levels of reasoning
    Date: 2013–08–28
  9. By: Carole Bernard; Franck Moraux; Ludger Rueschendorf; Steven Vanduffel
    Abstract: Most decision theories including expected utility theory, rank dependent utility theory and the cumulative prospect theory assume that investors are only interested in the distribution of returns and not about the states of the economy in which income is received. Optimal payoffs have their lowest outcomes when the economy is in a downturn, and this is often at odds with the needs of many investors. We introduce a framework for portfolio selection that permits to deal with state-dependent preferences. We are able to characterize optimal payoffs in explicit form. Some applications in security design are discussed in detail. We extend the classical expected utility optimization problem of Merton to the state-dependent situation and also give some stochastic extensions of the target probability optimization problem.
    Date: 2013–08
  10. By: Debing Ni (School of Management, University of Electronic Science and Technology of China); Yuntong Wang (Department of Economics, University of Windsor)
    Abstract: This paper considers the cost sharing problem on a fixed tree network. It provides a characterization of the family of cost sharing methods satisfying the axioms of Additivity and the Independence of Irrelevant Costs. Additivity is a classical axiom. The Independence of Irrelevant Costs axiom is new and replaces the traditional Dummy axiom to capture the network structure of the model.
    Keywords: Cost sharing; tree network.
    JEL: C71 D70
    Date: 2013–08–25

This nep-gth issue is ©2013 by Laszlo A. Koczy. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.