nep-gth New Economics Papers
on Game Theory
Issue of 2014‒02‒02
35 papers chosen by
Laszlo A. Koczy
Hungarian Academy of Sciences and Obuda University

  1. Strategic Ambiguity in Games By Riedel, Frank; Sass, Linda
  2. Claim games for estate division problems By Vermeulen A.J.; Schröder M.J.W.; Peters H.J.M.
  3. Voting in collective stopping games By Herings P.J.J.; Predtetchinski A.
  4. Rock, Paper, Scissors, Lizard, Spock: Two-Person circulant Games By Kern, Johannes; Granic, Dura-Georg
  5. Subgame perfect equilibria in majoritarian bargaining By Herings P.J.J.; Meshalkin A.V.; Predtetchinski A.
  6. Constitutions and Social Networks By Ana Mauleon; Nils Roehl; Vincent Vannetelbosch
  7. The Condorcet paradox revisited By Herings P.J.J.; Houba H
  8. Ex post Nash consistent representation of effectivity functions By Vermeulen A.J.; Schröder M.J.W.; Peters H.J.M.
  9. From sets of equilibria to structures of interaction underlying binary games of strategic complements By Tomas Rodriguez Barraquer
  10. The average tree permission value for games with a permission tree By Brink J.R. van den; Talman A.J.J.; Herings P.J.J.; Laan G. van der
  11. Majoritarian Contests with Asymmetric Battlefields: An Experiment By Montero García, Maria; Possajennikow, Alex; Sefton, Martín; Turocy, Theodore L.
  12. A Dominance Solvable Global Game with Strategic Substitutes By Rodrigo Harrison; Pedro Jara-Moroni
  13. Determinacy of Games with Stochastic Eventual Perfect Monitoring By Itai Arieliy; Yehuda (John) Levy
  14. Indirect control and power in mutual control structures By Peters H.J.M.; Karos D.
  15. Coordination under global random interaction and local imitation By Khan A.
  16. Imitation by price and quantity setting firms in a differentiated market By Khan A.; Peeters R.J.A.P.
  17. Reciprocal preferences and the unraveling of gift-exchange By Riedl A.M.; Dariel A.
  18. Constrained Interactions and Social Coordination By Staudigl, Mathias; Weidenholzer, Simon
  19. Why can’t we be friends? Entitlements and the costs of conflict By Kimbrough, Erik; Sheremeta, Roman
  20. Probabilistic Strategy-Proof Rules over Single-Peaked Domains By Storcken A.J.A.; Peters H.J.M.; Roy S.; Sen A.
  21. The Value of Information in Asymmetric All-Pay Auctions By Seel, Christian
  22. Risk allocation under liquidity constraints By Herings P.J.J.; Csóka P.
  23. Bargaining Power and Value Sharing in Distribution Networks: a Cooperative Game Theory Approach By Roberto Roson; Franz Hubert
  24. River Sharing and Water Trade By Weikard, Hans-Peter; Ansink, Erik; Gengenbach, Michael
  25. Relational Contracting, Repeated Negotiations, and Hold-Up By Kranz, Sebastian
  26. A Dynamic Model of Belief-Dependent Conformity to Social Norms By Sontuoso, Alessandro
  27. Mediation - Boon or Bane for the Stability and Efficiency of Marriage? By Rundshagen, Bianca
  28. Negotiating Environmental Agreements under Ratification Uncertainty By Köke, Sonja; Lange, Andreas
  29. Emergence of Cooperation in Heterogeneous Population: A Discrete-Time Replicator Dynamics Analysis By Escobedo Martínez, Ramón; Laruelle, Annick
  30. Single-basined choice By Bossert W.; Peters H.J.M.
  31. Incentives for Overbidding in Minimum-Revenue Core-Selecting Auctions By Ott, Marion; Beck, Marissa
  32. Lottery versus All-Pay Auction Contests: A Revenue Dominance Theorem By Franke, Jörg; Kanzow, Christian; Leininger, Wolfgang; Schwartz, Alexandra
  33. Cheap talk with multiple strategically interacting audiences: An experimental study By Li X.; Peeters R.J.A.P.
  34. Preference Intensities in Repeated Collective Decision-Making By Drexl, Moritz; Kleiner, Andreas
  35. Delegation, worker compensation, and strategic competition By Güth, Werner; Pull, Kerstin; Stadler, Manfred

  1. By: Riedel, Frank; Sass, Linda
    Abstract: In classic game theory, agents use mixed strategies in the form of objective and probabilistically precise devices to conceal their actions. We introduce the larger set of probabilistically imprecise devices as strategies and study the consequences for the basic results of normal form games. While Nash equilibria remain equilibria in the extended game, there arise new Ellsberg equilibria with distinct outcomes, as we illustrate by negotiation games with three players. We characterize Ellsberg equilibria in two-person conflict and coordination games. These equilibria turn out to be consistent with experimental deviations from Nash equilibrium play. --
    JEL: C72 D81 C70
    Date: 2013
  2. By: Vermeulen A.J.; Schröder M.J.W.; Peters H.J.M. (GSBE)
    Abstract: This paper considers the estate division problem from a non-cooperative perspective. The integer claim game initiated by ONeill 1982 and extended by Atlamaz et al. 2011 is generalized by considering different sharing rules to divide every interval among the claimants. For problems with an estate larger than half of the total entitlements, we show that every sharing rule satisfying four fairly general axioms yields the same set of Nash equilibrium profiles and corresponding payoffs. Every rule that always results in such equilibrium payoff vector is characterized by the properties minimal rights first and lower bound of degree half. Well-known examples are the Talmud rule, the adjusted proportional rule and the random arrival rule. Then our focus turns to more specific claim games, i.e. games that use the constrained equal awards rule, the Talmud rule, or the constrained equal losses rule as a sharing rule. Also a variation on the claim game is considered by allowing for arbitrary instead of integer claims.
    Keywords: Noncooperative Games; Conflict; Conflict Resolution; Alliances;
    JEL: C72 D74
    Date: 2013
  3. By: Herings P.J.J.; Predtetchinski A. (GSBE)
    Abstract: At each moment in time, some alternative from a finite set is selected by a dynamic process. Players observe the alternative selected and sequentially cast a yes or a no vote. If the set of players casting a yes–vote is decisive for the alternative in question,the alternative is accepted and the game ends. Otherwise the next period begins.We refer to this class of problems as collective stopping problems. Collective choicegames, quitting games, and coalition formation games are particular examples that fit nicely into this more general framework.When the core of this game is non–empty, a stationary equilibrium in pure strategies is shown to exist. But in general, even mixed stationary equilibria may not exist in collective stopping games. We consider strategies that are pure and action–independent, and allow for a limited degree of history dependence. Under such individual behavior, aggregate behavior can be conveniently summarized by a collective strategy. We consider collective strategies that are simple and induced by two–step game–plans and provide a constructive proof that this collection always contains a subgame perfect equilibrium. The existence of such an equilibrium is shown to imply the existence of a sequential equilibrium in an extended model with incomplete information. Collective equilibria are shown to be robust to perturbations in the dynamic process and in utilities. We apply our approach to the case with three alternatives exhibiting a Condorcet cycle and to the Baron-Ferejohn model of redistributive politics.
    Keywords: Existence and Stability Conditions of Equilibrium; Noncooperative Games; Stochastic and Dynamic Games; Evolutionary Games; Repeated Games; Bargaining Theory; Matching Theory;
    JEL: C62 C72 C73 C78
    Date: 2013
  4. By: Kern, Johannes; Granic, Dura-Georg
    Abstract: This paper presents a class of finite n x n bimatrix (2-player) games we coin Circulant Games. In Circulant Games, each player's payoff matrix is a circulant matrix, i.e.\ each row vector is rotated one element relative to the preceding row vector. We show that when the payoffs in the first row of each payoff matrix are strictly ordered, a single parameter describing the rotation symmetry between the players' matrices fully determines the exact number and the structure of all Nash Equilibria in these games. The class of Circulant Games contains well-known games such as matching pennies, rock-scissors-paper, circulant coordination and common interest games. --
    JEL: C70 C72 D00
    Date: 2013
  5. By: Herings P.J.J.; Meshalkin A.V.; Predtetchinski A. (GSBE)
    Abstract: We study the division of a surplus under majoritarian bargaining in the three-person case. In a stationary equilibrium as derived by Baron and Ferejohn 1989, the proposer offers one third times the discount factor of the surplus to a second player and allocates no payoff to the third player, a proposal which is accepted without delay. Laboratory experiments show various deviations from this equilibrium, where different offers are typically made and delay may occur before acceptance. We address the issue to what extent these findings are compatible with subgame perfect equilibrium and characterize the set of subgame perfect equilibrium payoffs for any value of the discount factor. We show that for any proposal in the interior of the space of possible agreements there exists a discount factor such that the proposal is made and accepted. We characterize the values of the discount factor for which equilibria with one-period delay exist. We show that any amount of equilibrium delay is possible and we construct subgame perfect equilibria such that arbitrary long delay occurs with probability one.
    Keywords: Noncooperative Games; Bargaining Theory; Matching Theory;
    JEL: C72 C78
    Date: 2013
  6. By: Ana Mauleon (Saint-Louis University — Brussels); Nils Roehl (University of Paderborn); Vincent Vannetelbosch (CORE, University of Louvain)
    Abstract: The objective of the paper is to analyze the formation of social networks where individuals are allowed to engage in several groups at the same time. These group structures are interpreted here as social networks. Each group is supposed to have specific rules or constitutions governing which members may join or leave it. Given these constitutions, we consider a social network to be stable if no group is modified any more. We provide requirements on constitutions and players’ preferences under which stable social networks are induced for sure. Furthermore, by embedding many-to-many matchings into our setting, we apply our model to job markets with labor unions. To some extent the unions may provide job guarantees and, therefore, have influence on the stability of the job market.
    Keywords: Social networks, Constitutions, Stability, Many-to-Many Matchings.
    JEL: C72 C78 D85
    Date: 2014–01
  7. 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; Bargaining Theory; Matching Theory; Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior;
    JEL: C73 C78 D72
    Date: 2013
  8. By: Vermeulen A.J.; Schröder M.J.W.; Peters H.J.M. (GSBE)
    Abstract: We consider effectivity functions for finitely many players and alternatives. We assume that players have incomplete information with respect to the preferences of the other players. Our main result is the characterization of effectivity functions which have an ex post Nash consistent representation, i.e., there is a game form such that i the distribution of power among coalitions of players is the same as in the effectivity function and ii there is an ex post Nash equilibrium in pure strategiesfor any preference profile.
    Keywords: Existence and Stability Conditions of Equilibrium; Game Theory and Bargaining Theory: General; Asymmetric and Private Information; Mechanism Design;
    JEL: C62 C70 D82
    Date: 2013
  9. By: Tomas Rodriguez Barraquer
    Abstract: Consider a setting in which agents can each take one of two ordered actions and in which the incentive of any given agent to take the high action is positively reinforced by the number of other agents that take it. Furthermore, assume that we don't know any other details about the game being played. What can we say about the details of the structure of the interaction between actions and incentives when we observe a set or a subset of all possible equilibria? In this paper we study 3 nested classes of games: (a) binary games of strategic complements; (b) games in (a) that admit a network representation: and (c) games in (b) in which the network is complete. Our main results are the following: It has long been established in the literature that the set of pure strategy Nash equilibria of any binary game of strategic complements among a set N of agents can be seen as a lattice on the set of all subsets of N under the partial order defined by the set inclusion relation. If the game happens to be strict in the sense that agents are never indifferent among outcomes (games in (a)), then the resulting lattice of equilibria satisfies a straightforward sparseness condition. (1) We show that, in fact, the games in (a) express all such lattices. (2) We characterize the collection of subsets of N that can be weakly expressed as the set of equilibria of some game of thresholds (games in (b)). (3) We characterize the collection of subsets of N that can be weakly expressed as the set of equilibria of some game of thresholds on the complete graph (games in (c)).
    Date: 2013–12
  10. By: Brink J.R. van den; Talman A.J.J.; Herings P.J.J.; Laan G. van der (GSBE)
    Abstract: In the literature various models of games with restricted cooperation can be found. In those models, instead of allowing for all subsets of the set of players to form, it is assumed that the set of feasible coalitions is a proper subset of the power set of the set of players. In this paper we consider such sets of feasible coalitions that follow from a permission structure on the set of players, in which players need permission to cooperate with other players. We assume the permission structure to be an oriented tree. This means that there is one player at the top of the permission structure and for every other player there is a unique directed path from the top player to this player. We introduce a new solution for these games based on the idea of the Average Tree value for cycle-free communication graph games. We provide two axiomatizations for this new value and compare it with the conjunctive permission value.
    Keywords: Cooperative Games;
    JEL: C71
    Date: 2013
  11. By: Montero García, Maria; Possajennikow, Alex; Sefton, Martín; Turocy, Theodore L.
    Abstract: We investigate a version of the classic Colonel Blotto game in which individual battles may have different values. Two players allocate a fixed budget across battlefields and each battlefield is won by the player who allocates the most to that battlefield. The winner of the game is the player who wins the battlefields with highest total value. We focus on the case where there is one large and several small battlefields, such that a player wins if he wins the large and any one small battlefield, or all the small battlefields. We compute the mixed strategy equilibrium for these games and compare this with choices from a laboratory experiment. The equilibrium predicts that the large battlefield receives more than a proportional share of the resources of the players, and that most of the time resources should be spread over more battlefields than are needed to win the game. We find support for the main qualitative features of the equilibrium. In particular, strategies that spread resources widely are played frequently, and the large battlefield receives more than a proportional share in the treatment where the asymmetry between battlefields is stronger.
    Keywords: Colonel Blotto, majoritarian contests, experiment
    JEL: C73 C91 D72
    Date: 2013–12
  12. By: Rodrigo Harrison; Pedro Jara-Moroni
    Abstract: Global games emerged as an approach to equilibrium selection. For a general setting with supermodular payoffs unique selection of equilibrium has been obtained through iterative elimination of strictly dominated strategies. For the case of global games with strategic substitutes, uniqueness of equilibrium has not been proved by iterative elimination of strictly dominated strategies, making the equilibrium less appealing. In this work we study a simple three player binary action global game with strategic substitutes for which we provide a condition for dominance solvability. This opens an unexplored research agenda on the study of global games with strategic substitutes.
    Date: 2013
  13. By: Itai Arieliy; Yehuda (John) Levy
    Abstract: We consider an infinite two-player stochastic zero-sum game with a Borel winning set, in which the opponent's actions are monitored via stochastic private signals. We introduce two conditions of the signalling structure: Stochastic Eventual Perfect Monitoring (SEPM) and Weak Stochastic Eventual Perfect Monitoring (WSEPM). When signals are deterministic these two conditions coincide and by a recent result due to [Shmaya (2011)] entail determinacy of the game. We generalize [Shmaya (2011)]'s result and show that in the stochastic learning environment SEPM implies determinacy while WSEPM does not.
    Date: 2014–01
  14. By: Peters H.J.M.; Karos D. (GSBE)
    Abstract: In a mutual control structure agents exercise control over each other. Typical examples occur in the area of corporate governance firms and investment companies exercise mutual control, in particular by owning each others stocks. In this paper we formulate a general model for such situations. There is a fixed set of agents, and a mutual control structure assigns to each subset coalition the subset of agents controlled by that coalition. Such a mutual control structure captures directcontrol. We propose a procedure in order to incorporate indirect control as well if S controls T, and S and T jointly control R, then S controls R indirectly. This way, invariant mutual control structures result. Alternatively, mutual control can be described by vectors of simple games, called simple gamestructures, each simple game describing who controls a certain player, and also those simple games can be updated in order to capture indirect control. We show that both approaches lead to equivalent invariant structures. In the second part of the paper, we axiomatically develop a class of power indices for invariant mutual control structures. We impose four axioms with a plausible interpretation in this framework, which together characterize a broad class of power indices based on dividends resulting both from exercising and from undergoing control. By adding an extra condition a unique power index is singled out. In this index, each player accumulates his Shapley-Shubik power index assignments from controlling other players, diminished by the sum of the Shapley-Shubik power index assignments to other players controlling him.
    Keywords: Cooperative Games; Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance;
    JEL: C71 G34
    Date: 2013
  15. By: Khan A. (GSBE)
    Abstract: We study stochastically stable behaviour in 2 x 2 coordination games where the risk-dominant equilibrium differs from the Pareto-efficient equilibrium. Individuals are randomly matched to another individual in the population (with full support) and they choose strategies by imitating the most successful individual they observe. So, while individuals interact globally, their observation, as determined by their social network, may be local. In the benchmark model, all individuals observe each other, and hence, an individual imitates the strategy of the most successful individual in the entire population; here, the stochastically stable outcome corresponds to the situation where everyone coordinates on the Pareto-efficient equilibrium. While this outcome is always stochastically stable even when observability is incomplete, the state where everyone plays the action of the risk-dominant equilibrium may be stochastically stable as well. Reasonably tight sufficient conditions for unique stochastic stability of the state where all individuals play the Pareto-efficient equilibrium strategy include each individual observing at least four other individuals or when each individual observes the same number of other individuals.
    JEL: C73 D03
    Date: 2013
  16. By: Khan A.; Peeters R.J.A.P. (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; Stochastic and Dynamic Games; Evolutionary Games; Repeated Games; Firm Behavior: Theory; Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection; Production, Pricing, and Market Structure; Size Distribution of Firms; Oligopoly and Other Imperfect Markets;
    JEL: C72 C73 D21 D43 L11 L13
    Date: 2013
  17. By: Riedl A.M.; Dariel A. (GSBE)
    Abstract: We elicit reciprocal preferences in a firm-worker gift-exchange setting and relate them to actual behavior in a repeated gift-exchange game. We find that only a small minority of 10 percent of workers is materially selfish whereas 90 percent exhibit reciprocal preferences. However, the intensity of reciprocal preferences is weak in the sense that firms maximize profits by not relying on gift-exchange but by offering the lowest possible wage. Workers behavior in the repeated gift-exchange game is predicted by their elicited preferences, but the correlation between preferences and behavior is imperfect. Together with profit maximizing behavior of firms these observations can explain the observed unraveling of gift-exchange over time in our experiment and some recent field experiments.
    Keywords: Noncooperative Games; Design of Experiments: Laboratory, Group Behavior; Labor-Management Relations, Trade Unions, and Collective Bargaining: Other;
    JEL: C72 C92 J59
    Date: 2013
  18. By: Staudigl, Mathias; Weidenholzer, Simon
    Abstract: We consider a co-evolutionary model of social coordination and network formation where agents may decide on an action in a 2x2 - coordination game and on whom to establish costly links to. We fi nd that a payo ff dominant convention is selected for a wider parameter range when agents may only support a limited number of links as compared to a scenario where agents are not constrained in their linking choice. The main reason behind this result is that under constrained interactions agents face a trade-off between the links they have and those they would rather have. --
    JEL: C73 C72 D85
    Date: 2013
  19. By: Kimbrough, Erik; Sheremeta, Roman
    Abstract: We design an experiment to explore the impact of earned entitlements on the frequency and intensity of conflicts in a two-stage conflict game where players may attempt to use non-binding side-payments to avoid conflict. In this game, Proposers make offers and Responders decide simultaneously whether to accept the offers and whether to engage in a conflict. A simple theoretical analysis suggests that Proposers should never offer side-payments because Responders should always accept them and then still choose to enter conflict; however, our experiment reveals that some individuals use this non-binding mechanism to avoid conflict. Moreover, when subjects earn their roles (Proposer or Responder), conflicts are 44% more likely to be avoided than when roles are assigned randomly. Earned entitlements impact behavior in three important ways: (1) Proposers who have earned their position persistently make larger offers; (2) larger offers lead to a lower probability of conflict, but (3) Proposers whose offers do not lead to conflict resolution respond spitefully with greater conflict expenditure. Hence, with earned rights, the positive welfare effects of reduced conflict frequency are offset by higher conflict intensity. This result differs from previous experimental evidence from ultimatum games in which earned entitlements tend to encourage agreement and increase welfare; thus, our findings highlight the important consequences of endogenizing the costs of conflict. Our analysis suggests that earned entitlements alter behavior by influencing the beliefs of Proposers about the willingness of Responders to accept a peaceful resolution. As a result, these Proposers make persistent high offers, and when their beliefs are disappointed by a Responder’s decision to accept a side-payment and still enter conflict, they retaliate.
    Keywords: contests, conflict resolution, side-payments, entitlements, experiments
    JEL: C72 C91 D72
    Date: 2014
  20. By: Storcken A.J.A.; Peters H.J.M.; Roy S.; Sen A. (GSBE)
    Abstract: It is proved that every strategy-proof, peaks-only or unanimous, probabilistic rule defined over a minimally rich domain of single-peaked preferences is a probability mixture of strategy-proof, peaks-only or unanimous, deterministic rules over the same domain. The proof employs Farkas Lemma and the max-flow min-cut theorem for capacitated networks.
    Date: 2013
  21. By: Seel, Christian
    Abstract: This paper analyzes a two-player all-pay auction with incomplete information. More precisely, one bidder is uncertain about the size of the initial advantage of his rival modeled as a head start in the auction. I derive the unique Bayesian Nash equilibrium outcome for a large class of cumulative distribution functions over head starts. In equilibrium, the stronger player generates an informational rent if and only if his head start distribution is not stochastically dominated by a uniform distribution. This result introduces a new perspective on lobbying contests and procurement contests. --
    JEL: C72 C73 D72
    Date: 2013
  22. By: Herings P.J.J.; Csóka P. (GSBE)
    Abstract: Risk allocation games are cooperative games that are used to attribute the risk of a financial entity to its divisions. In this paper, we extend the literature on risk allocation games by incorporating liquidity considerations. A liquidity policy specifies state-dependent liquidity requirements that a portfolio should obey. To comply with the liquidity policy, a financial entity may have to liquidate part of its assets, which is costly. The definition of a risk allocation game under liquidity constraints is not straight-forward, since the presence of a liquidity policy leads to externalities. We argue that the standard worst case approach should not be used here and present an alternative definition. We show that the resulting class of transferable utility games coincides with the class of totally balanced games. It follows from our results that also when taking liquidity considerations into account there is always a stable way to allocate
    Keywords: Cooperative Games; General Financial Markets: General (includes Measurement and Data);
    JEL: C71 G10
    Date: 2013
  23. By: Roberto Roson (Department of Economics, University Of Venice Cà Foscari); Franz Hubert (Humboldt University, Berlin)
    Abstract: This paper illustrates a methodology for analyzing bargaining games on network markets, by means of numerical models that can be calibrated with real data. Economic incentives to join or to expand a network depend on how the network surplus is being distributed, which in turn depends on a variety of factors: position of each agent (e.g., a country) in a specific network, its reliability in the cooperation scheme (e.g., geo-political stability), existence of market distortions and availability of outside options (e.g., alternative energy sources). This study is aimed at presenting a game theory methodology that can be applied to real world cases, having the potential to shed light on several political economy issues. The methodology is presented and illustrated with application to a fictitious network structure. The method is based on a two-stage pro- cess: first, a network optimization model is used to generate payoff values under different coalitions and network structures; a second model is subsequently employed to identify cooperative game solutions. Any change in the network structure entails both a variation in the overall welfare level and in the distribution of surplus among agents, as it affects their relative bargaining power. Therefore, expected costs and benefits, at the aggregate as well as at the individual level, can be compared to assess the economic viability of any investment in network infrastructure. A number of model variants and extensions are also considered: changing demand, exogenous instability factors, market distortions, externalities and outside options.
    Keywords: Network Markets, Cooperative Games, Distribution Networks, Bargaining.
    JEL: C63 C71 L95
    Date: 2014
  24. By: Weikard, Hans-Peter; Ansink, Erik; Gengenbach, Michael
    Abstract: We analyse river sharing games in which a set of agents located along a river shares the available water. Using coalition theory, we find that the potential benefits of water trade may not be su cient to make all agents in the river cooperate and acknowledge property rights as a prerequisite for trade. Specifically, a complete market for river water may not emerge if there are four or more agents along the river. Instead, a partial market may emerge where a subset of agents trades river water, with the possibility that other agents take some of the river water that passes their territory. --
    JEL: C79 D71 P14
    Date: 2013
  25. By: Kranz, Sebastian
    Abstract: We propose a unified framework to study relational contracting and hold-up problems in infinite horizon stochastic games. We first illustrate that with respect to long run decisions, the common formulation of relational contracts as Pareto-optimal public perfect equilibria is in stark contrast to fundamental assumptions of hold-up models. We develop a model in which relational contracts are repeatedly newly negotiated during relationships. Negotiations take place with positive probability and cause bygones to be bygones. Traditional relational contracting and hold-up formulations are nested as opposite corner cases. Allowing for intermediate cases yields very intuitive results and sheds light on many plausible trade-offs that do not arise in these corner cases. We establish a general existence result and a tractable characterization for stochastic games in which money can be transferred. --
    JEL: C73 C78 L14
    Date: 2013
  26. By: Sontuoso, Alessandro
    Abstract: Human conduct is often guided by “conformist preferences”, which thrive on behavioral expectations within a society, with conformity being the act of changing one’s behavior to match the purported beliefs of others. Despite a growing research line considering preferences for a fair outcome allocation, economic theories do not explain the fundamental conditions for some social norm – whether of fairness or not – to be followed. Inspired by Bicchieri’s account of norms (C.Bicchieri, The Grammar of Society. CambridgeUP [2006]), I develop a behavioral theory of norm conformity building on the Battigalli-Dufwenberg “psychological” framework (P.Battigalli and M.Dufwenberg, Dynamic Psychological Games, J.Econ.Theory, 144:1-35 [2009]).
    Keywords: Conformist Preferences; Social Norms; Social Dilemmas; Psychological Game Theory; Behavioral Economics
    JEL: A13 C72 C92 D63 H41
    Date: 2013–12–27
  27. By: Rundshagen, Bianca
    Abstract: Using non-cooperative game theory the effects of mediation on the divorce rate and on the utility of the spouses are analysed. Two kinds of mediation are considered: restricted mediation that reduces the costs of divorce and extended mediation that additionally may prevent divorces by demonstrating the potential for Pareto-improvements within marriage to the spouses. It is shown that restricted mediation not only may increase the divorce rate but that also both kinds of mediation are not necessarily welfare improving compared to the reference scenario without mediation. --
    JEL: D13 C72 C73
    Date: 2013
  28. By: Köke, Sonja; Lange, Andreas
    Abstract: In this paper we analyze how rati cation uncertainty impacts the optimal terms of international environmental agreements (IEAs). We relax the frequent assumption of countries as unitary actors by modeling the rati cation stage through uncertain preferences of a ratifying agent (e.g. the pivotal voter). With this, we combine the literature on IEAs with the one on two-level games of rati cation. We nd that rati cation uncertainty reduces both the strength of the commitment as well as the participation threshold, thereby a ecting intensive as well as extensive margins of expected international cooperation. Similar comparative statics arise under uncertainty when pivotal voters' and negotiators' preferences diverge. This is a rst step towards linking individual voters' preferences to the outcome of IEAs. --
    JEL: Q54 C72 H41
    Date: 2013
  29. By: Escobedo Martínez, Ramón; Laruelle, Annick
    Abstract: The emergence of cooperation is analyzed in heterogeneous populations where individuals can be classified in two groups according to their phenotypic appearance. Phenotype recognition is assumed for all individuals: individuals are able to identify the type of every other individual, but fail to recognize their own type, and thus behave under partial information conditions. The interactions between individuals are described by 2 × 2 symmetric games where individuals can either cooperate or defect. The evolution of such populations is studied in the framework of evolutionary game by means of the replicator dynamics. Overlapping generations are considered, so the replicator equations are formulated in discrete-time form. The well-posedness conditions of the system are derived. Depending on the parameters of the game, a restriction may exist for the generation length. The stability analysis of the dynamical system is carried out and a detailed description of the behavior of trajectories starting from the interior of the state-space is given. We find that, provided the conditions of well-posedness are verified, the linear stability of monomorphic states in the discrete-time replicator coincides with the one of the continuous case. Specific from the discrete-time case, a relaxed restriction for the generation length is derived, for which larger time-steps can be used without compromising the well-posedness of the replicator system.
    Keywords: discrete-time replicator dynamics, stability, evolutionary games
    JEL: C02 C65 D74
    Date: 2013–12
  30. By: Bossert W.; Peters H.J.M. (GSBE)
    Abstract: Single-basined preferences generalize single-dipped preferences by allowing for multiple worst elements. These preferences have played an important role in areas such as voting, strategy-proofness and matching problems. We examine the notion of single-basinedness in a choice-theoretic setting. In conjunction with independence of irrelevant alternatives, single-basined choice implies a structure that conforms to the motivation underlying our definition. We also establish the consequences of requiring single-basined choice correspondences to be upper semicontinuous, and of the revealed preference relation to be Suzumura consistent.
    Keywords: Consumer Economics: Theory; Social Choice; Clubs; Committees; Associations;
    JEL: D11 D71
    Date: 2013
  31. By: Ott, Marion; Beck, Marissa
    Abstract: We find new equilibria of minimum-revenue core-selecting (MRCS) auctions that, in contrast to previously identified equilibria, involve overbidding - bidding more than one's true value for some packages of goods. With full information, every MRCS auction in every possible setting has equilibria with overbidding and these equilibria have different properties than the previously known equilibria with bid shading. Namely, they can lead to strictly higher revenues for the seller and larger price differences among bidders. Previous studies of MRCS games with incomplete information assumed restricted strategy spaces that prevented overbidding. In this paper, we allow bidders access to their complete strategy sets and show that, in some settings, overbidding occurs in all Bayesian equilibria in undominated strategies. In a simple setting with independent private values, equilibrium strategies of a particular set of MRCS auctions employ a mixture of bid shading and overbidding. These new equilibria improve expected effi ciency relative to equilibria with restricted strategy spaces and lead to higher expected revenues than those from the Vickrey package auction. A second incomplete-information setting demonstrates that equilibria with overbidding can be in some sense unique. In this setting, every Bayesian equilibrium in undominated strategies of every MRCS auction has at least one bidder who overbids and there is no bid shading on winning packages. Overbidding eliminates the threshold problem, leading to an effi cient assignment and payoffs that are in the core with respect to the true values. --
    JEL: D44 D02 L13
    Date: 2013
  32. By: Franke, Jörg; Kanzow, Christian; Leininger, Wolfgang; Schwartz, Alexandra
    Abstract: We allow a contest organizer to bias a contest in a discriminatory way; i.e., she can favor specific contestants by designing the contest rule in order to maximize total equilibrium effort (resp. revenue). The two predominant contest regimes are considered, all-pay auctions and lottery contests. For all-pay auctions the optimal bias is derived in closed form: It implies extreme competitive pressure among active contestants and low endogenous entry. Moreover, the exclusion principle advanced by Baye et al. (1993) becomes obsolete in this case. In contrast, the optimally biased lottery induces larger entry of contestants due to softer competition. Our main result regarding total revenue comparison under the optimal biases reveals that the all-pay auction revenue dominates the lottery contest for all levels of heterogeneity among contestants. The incentive effect due to a strongly discriminating contest rule (all-pay auction) dominates the participation effect due to a weakly discriminating contest rule (lottery). --
    JEL: C72 D72 C62
    Date: 2013
  33. By: Li X.; Peeters R.J.A.P. (GSBE)
    Abstract: We consider a cheap-talk setting that mimics the situation where an incumbent firm the sender is endowed with incentives to understate the true size of the market demand to two potential entrants the receivers. Although our experimental data reveals that senders messages convey truthful information and this is picked up by the receivers, this overcommunication relative to standard theoretical prediction does not enhance efficient entry levels and payoffs to beyond what can be achieved without any communication. The reason is that receivers fail to optimally translate the information received in their entry decision, possibly due to overcautiousness.
    Keywords: Noncooperative Games; Design of Experiments: Laboratory, Group Behavior; Asymmetric and Private Information; Mechanism Design; Search; Learning; Information and Knowledge; Communication; Belief;
    JEL: C72 C92 D82 D83
    Date: 2013
  34. By: Drexl, Moritz; Kleiner, Andreas
    Abstract: We study decision rules for committees that repeatedly take a binary decision. Committee members are privately informed about their payoffs and monetary transfers are not feasible. In static environments, the only strategy-proof mechanisms are voting rules which are criticized for being inefficient as they do not condition on preference intensities. The dynamic structure of repeated decision-making allows for richer decision rules that overcome this inefficiency by making use of information on preference intensities. Nonetheless, we show that often simple voting is optimal for two-person committees. This holds for many prior type distributions and irrespective of the agents' patience. --
    JEL: D72 D82 C61
    Date: 2013
  35. By: Güth, Werner; Pull, Kerstin; Stadler, Manfred
    Abstract: We study interfirm competition on a product market where effort decisions are delegated to the firms' workers. Intrafirm organization is captured by a principal-multiagent framework where firm owners implement alternative compensation schemes for the workers. We show that the value of delegation as well as the optimal design of the compensation scheme crucially depend on the intensity of competition. In particular, our model explains why piece rates and performance-based revenue sharing may be observed in different markets at the same time. --
    Keywords: delegation,agency theory,compensation schemes
    JEL: C72 L22 M52
    Date: 2014

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