nep-gth New Economics Papers
on Game Theory
Issue of 2014‒11‒01
sixteen papers chosen by
László Á. Kóczy
Magyar Tudományos Akadémia

  1. Spielräume für uni- und multilateralen Klimaschutz By Wolfgang Buchholz; Wolfgang Peters; Aneta Ufert
  2. On Repeated Games with Imperfect Public Monitoring: From Discrete to Continuous Time By Mathias Staudigl; Jan-Henrik Steg
  3. Information and Volatility By Dirk Bergemann; Tibor Heumann; Stephen Morris
  4. Natural Implementation with Partially-honest Agents in Economic Environments with Free-disposal By Lombardi, Michele; Yoshihara, Naoki
  5. A CHaracterization of Single-Peaked Preferences via Random Social Choice Functions By Shurojit Chatterji; Arunava Sen; Huaxia Zeng
  6. A Smooth, strategic communication By Deimen, Inga; Szalay, Dezsö
  7. Sequential Information Disclosure in Auctions By Dirk Bergemann; Achim Wambach
  8. Atomic Cournotian traders may be Walrasian By Giulio Codognato; Sayantan Ghosal; Simone Tonin
  9. One-Sided Matching with Limited Complementarities By Thanh Nguyen; Ahmad Peivandi; Rakesh Vohra
  10. Car License Auction: Theory and Experimental Evidence By Lijia Tan; Lijia Wei
  11. Strategic Behavior in Unbalanced Matching Markets By Peter Coles; Yannai Gonczarowski; Ran Shorrer
  12. New contest success functions By Satya R. Chakravarty; Bhargav Maharaj
  13. Optimal Monitoring and Mitigation of Systemic Risk in Financial Networks By Zhang Li; Xiaojun Lin; Borja Peleato-Inarrea; Ilya Pollak
  14. Penalizing Cartels: The Case for Basing Penalties on Price Overcharge By Yannis Katsoulacos; Evgenia Motchenkova; David Ulph
  15. Voting behavior, coalitions and government strength through a complex network analysis By Carlo Dal Maso; Gabriele Pompa; Michelangelo Puliga; Gianni Riotta; Alessandro Chessa
  16. Bargaining Power and the Effects of Joint Negotiation: The “Recapture Effect” By Craig T. Peters

  1. By: Wolfgang Buchholz (Department of Economics, University of Regensburg); Wolfgang Peters (Faculty of Business Administration and Economics, European University Viadrina, Frankfurt (Oder)); Aneta Ufert (Faculty of Business Administration and Economics, European University Viadrina, Frankfurt (Oder))
    Abstract: The failure of previous climate policy leads us back to the public good characteristic of climate protection. The first aim of this paper is to identify by a simple graphical representation of 2x2 games, the ranges of constellations between country-specific environmental benefits and abatement costs which entail the four relevant games: prisoners’ dilemma, chicken game, stag hunt game and harmony game. Moreover, we examine how fairness preferences and especially reciprocity change these ranges. In contrast to the hypothesis that fairness motivations will foster cooperation we show that reciprocity reduces the scope for unilateral climate protection. In a third step, we consider reciprocal subsidies of abatement efforts, which definitely increase the scope for successful climate protection without requiring contractual mitigation obligations.
    Date: 2014–09
  2. By: Mathias Staudigl (Center for Mathematical Economics, Bielefeld University); Jan-Henrik Steg (Center for Mathematical Economics, Bielefeld University)
    Abstract: Motivated by recent path-breaking contributions in the theory of repeated games in continuous time, this paper presents a family of discrete-time games which provides a consistent discrete-time approximation of the continuous-time limit game. Using probabilistic arguments, we prove that continuous-time games can be defined as the limit of a sequence of discrete-time games. Our convergence analysis reveals various intricacies of continuous-time games. First, we demonstrate the importance of correlated strategies in continuous-time. Second, we attach a precise meaning to the statement that a sequence of discrete-time games can be used to approximate a continuous-time game.
    Keywords: continuous-time game theory, stochastic optimal control, weak convergence
    Date: 2014–09
  3. By: Dirk Bergemann (Cowles Foundation, Yale University); Tibor Heumann (Dept. of Economics, Yale University); Stephen Morris (Dept. of Economics, Princeton University)
    Abstract: In an economy of interacting agents with both idiosyncratic and aggregate shocks, we examine how the structure of private information influences aggregate volatility. The maximal aggregate volatility is attained in a noise free information structure in which the agents confound idiosyncratic and aggregate shocks, and display excess response to the aggregate shocks, as in Lucas [14]. For any given variance of aggregate shocks, the upper bound on aggregate volatility is linearly increasing in the variance of the idiosyncratic shocks. Our results hold in a setting of symmetric agents with linear best responses and normal uncertainty. We establish our results by providing a characterization of the set of all joint distributions over actions and states that can arise in equilibrium under any information structure. This tractable characterization, extending results in Bergemann and Morris [8], can be used to address a wide variety of questions linking information with the statistical moments of the economy.
    Keywords: Incomplete information, Idiosyncratic shocks, Aggregate shocks, Volatility, Confounding information, Moment restrictions, Linear best responses, Quadratic payoffs, Bayes correlated equilibrium
    JEL: C72 C73 D43 D83
    Date: 2013–12
  4. By: Lombardi, Michele; Yoshihara, Naoki
    Abstract: We study Nash implementation by natural price-quantity mechanisms in pure exchange economies with free-disposal (Saijo et al., 1996, 1999) where agents have weak/strong intrinsic preferences for honesty (Dutta and Sen, 2012). Firstly, the Walrasian rule is shown to be non-implementable where all agents have weak (but not strong) intrinsic preferences for honesty. Secondly, the class of efficient allocation rules that are implementable is identifi?d provided that at least one agent has strong intrinsic preferences for honesty. Lastly, the Walrasian rule is shown to belong to that class.
    Keywords: Natural implementation, Nash equilibrium, exchange economies, intrinsic preferences for honesty
    JEL: C72 D71
    Date: 2014–09
  5. By: Shurojit Chatterji (School of Economics, Singapore Management University, Singapore, 178903); Arunava Sen (Indian Statistical Institute, New Delhi, India.); Huaxia Zeng (School of Economics, Singapore Management University, Singapore, 178903)
    Abstract: The paper proves the following result: every path-connected domain of preferences that admits a strategy-proof, unanimous, tops-only random social choice function satisfying a compromise property, is single-peaked. Conversely, every single-peaked domain admits a random social choice function satisfying these properties. Single-peakedness is dened with respect to arbitrary trees. We also show that a maximal domain that admits a strategy-proof, unanimous, tops-only random social choice function satisfying a stronger version of the compromise property, is single-peaked on a line. A converse to this result also holds. The paper provides justication of the salience of single-peaked preferences and evidence in favour of the Gul conjecture (Barbera (2010)).
    Keywords: Random Social Choice Functions, Strategy-proofness, Compromise, Single- peaked Preferences
    JEL: D71
    Date: 2014–09
  6. By: Deimen, Inga; Szalay, Dezsö
    Abstract: We study strategic information transmission in a Sender-Receiver game where players' optimal actions depend on the realization of multiple signals but the players disagree on the relative importance of each piece of news. We characterize a statistical environment - featuring symmetric loss functions and elliptically distributed parameters - in which the Sender's expected utility depends only on the first moment of his posterior. Despite disagreement about the use of underlying signals, we demonstrate the existence of equilibria in differentiable strategies in which the Sender can credibly communicate posterior means. The existence of smooth communication equilibria depends on the relative usefulness of the signal structure to Sender and Receiver, respectively. We characterize extensive forms in which the quality of information is optimally designed of equal importance to Sender and Receiver so that the best equilibrium in terms of ex ante expected payoffs is a smooth communication equilibrium. The quality of smooth equilibrium communication is entirely determined by the correlation of interests. Senders with better aligned preferences are endogenously endowed with better information and therefore give more accurate advice.
    Keywords: strategic information transmission; multi-dimensional cheap talk; monotone strategies; endogenous information; elliptical distributions
    JEL: D82
    Date: 2014–09
  7. By: Dirk Bergemann (Cowles Foundation, Yale University); Achim Wambach (Dept. of Economics, University of Cologne)
    Abstract: We propose a sequential auction mechanism for a single object in which the seller jointly determines the allocation and the disclosure policy. A sequential disclosure rule is shown to implement an ascending price auction in which each losing bidder learns his true valuation, but the winning bidder's information is truncated from below. As the auction ends, the winning bidder only has limited information, namely that his valuation is sufficiently high to win the auction. The sequential mechanism implements the allocation of the handicap auction of Esö and Szentes [10] but strengthens the participation constraints of the bidders from interim to posterior constraints. Due to the limited disclosure of information, the participation constraints (and incentive constraints) of all the bidders are satisfied with respect to all information revealed by the mechanism. In the special case in which the bidders have no private information initially, the seller can extract the entire surplus.
    Keywords: Independent private value auction, Sequential disclosure, Ascending auctions, Information structure, Interim equilibrium, Posterior equilibrium
    JEL: C72 D44 D82 D83
    Date: 2013–07
  8. By: Giulio Codognato; Sayantan Ghosal; Simone Tonin
    Abstract: In a bilateral oligopoly, with large traders, represented as atoms, and small traders, represented by an atomless part, when is there a non-empty intersection between the sets of Walras and Cournot-Nash allocations? Using a two commodity version of the Shapley window model, we show that a necessary and sufficient condition for a Cournot- Nash allocation to be a Walras allocation is that all atoms demand a null amount of one of the two commodities. We provide two exam- ples which show that this characterization holds non-vacuously. When our condition fails to hold, we also confirm, through some examples, the result obtained by Okuno, Postlewaite, and Roberts (1980): small traders always have a negligible influence on prices, while the large traders keep their strategic power even when their behavior turns out to be Walrasian in the cooperative framework considered by Gabszewicz and Mertens (1971) and Shitovitz (1973).
    JEL: C71 C72 D51
    Date: 2014–08
  9. By: Thanh Nguyen (Krannert School of Management, Purdue University); Ahmad Peivandi (Department of Economics, Northwestern University); Rakesh Vohra (Department of Economics, University of Pennsylvania)
    Abstract: The problem of allocating bundles of indivisible objects without transfers arises in the assignment of courses to students, of computing resources like CPU time, memory and disk space to computing tasks and the truck loads of food to food banks. In these settings the complementarities in preferences are small compared with the size of the market. We exploit this to design mechanisms satisfying efficiency, envy-freeness and asymptotic strategy-proofness. Informally, we assume that agents do not want bundles that are too large. There will be a parameter k such that the marginal utility of any item relative to a bundle of size k or larger is zero. We call such preferences k-demand preferences. Given this parameter we show how to represent probability shares over bundles as lotteries over approximately (deterministic) feasible integer allocations. The degree of infeasibility in these integer allocations will be controlled by the parameter k. In particular, ex-post, no good is over allocated by at most k -1 units.
    Keywords: Fair Allocation, Indivisible Goods
    JEL: C61 D63
    Date: 2014–03–01
  10. By: Lijia Tan (The Wang Yanan Institute for Studies in Economics and MOE Key Laboratory in Econometrics, Xiamen University); Lijia Wei (School of Economics and Management, Wuhan University)
    Abstract: In Singapore and many Chinese cities, tens of thousands of people participate in car license auctions each month. In a car license auction, many car licenses are sold but each participant can only bid for one license. We examine the theoretical properties of three auction formats: Shanghai auction, Guangzhou auction, and Singapore auction. Our main results are that (1) No equilibrium of the Shanghai auction can guarantee an efficient allocation, (2) the Singapore auction allocates objects efficiently if and only if a unique market clearing price does not exist, and (3) the Guangzhou auction is efficient if bidders are symmetric. The experimental evidence confirms our theoretical prediction. Our experiment also shows that the learning effects over time are quite different among these auction formats.
    Keywords: Auction; Car License; Laboratory Experiment
    JEL: C92 D02 D04 D44
    Date: 2014–09–02
  11. By: Peter Coles; Yannai Gonczarowski; Ran Shorrer
    Abstract: In this paper we explore how the balance of agents on the two sides of a matching market impacts their potential for strategic manipulation. Coles and Shorrer [2014] previously showed that in large, balanced, uniform markets using the Men-Proposing Deferred Acceptance Algorithm, each woman's best response to truthful behavior by all other agents is to truncate her list substantially. In fact, the optimal degree of truncation for such a woman goes to 100% of her list as the market size grows large. Recent findings of Ashlagi et. al. [2014] demonstrate that in unbalanced random markets, the change in expected payoffs is small when one reverses which side of the market “proposes,†suggesting there is little potential gain from manipulation. Inspired by these findings, we study the implications of imbalance on strategic behavior in the incomplete information setting. We show that the “long†side has significantly reduced incentives for manipulation in this setting, but that the same doesn't always apply to the “short†side. We also show that risk aversion and correlation in preferences affect the extent of optimal manipulation.
    Date: 2014–10
  12. By: Satya R. Chakravarty (Indian Statistical Institute, Kolkata, India); Bhargav Maharaj (Ramakrishna Mission Vidyamandira, Belur, India)
    Abstract: Skaperdas (1996) characterized the contest success function (CSF), which stipulates the winning probabilities of the contestants, using respectively the scale invariance and translation invariance axioms. This paper first characterizes the entire family of CSFs that fulfils a convex mixture of the two axioms. This family contains the Skaperdas CSFs as special cases. Next, we consider two ordinal axioms, scale consistency and translation consistency, and characterize the respective classes of CSFs. While the former consists of the Skaperdas scale invariant and translational invariant CSFs and some new functional forms, the latter contains the Skaperdas translation invariant CSF and some additional CSFs that were not considered in the literature earlier.
    Keywords: contest, success function, invariance axioms, ordinal axioms.
    JEL: C70 D72 D74
    Date: 2014–09
  13. By: Zhang Li; Xiaojun Lin; Borja Peleato-Inarrea; Ilya Pollak
    Abstract: This paper studies the problem of optimally allocating a cash injection into a financial system in distress. Given a one-period borrower-lender network in which all debts are due at the same time and have the same seniority, we address the problem of allocating a fixed amount of cash among the nodes to minimize the weighted sum of unpaid liabilities. Assuming all the loan amounts and asset values are fixed and that there are no bankruptcy costs, we show that this problem is equivalent to a linear program. We develop a duality-based distributed algorithm to solve it which is useful for applications where it is desirable to avoid centralized data gathering and computation. Since some applications require forecasting and planning for a wide variety of different contingencies, we also consider the problem of minimizing the expectation of the weighted sum of unpaid liabilities under the assumption that the net external asset holdings of all institutions are stochastic. We show that this problem is a two-stage stochastic linear program. To solve it, we develop two algorithms based on Monte Carlo sampling: Benders decomposition algorithm and projected stochastic gradient descent. We show that if the defaulting nodes never pay anything, the deterministic optimal cash injection allocation problem is an NP-hard mixed-integer linear program. However, modern optimization software enables the computation of very accurate solutions to this problem on a personal computer in a few seconds for network sizes comparable with the size of the US banking system. In addition, we address the problem of allocating the cash injection amount so as to minimize the number of nodes in default. For this problem, we develop a heuristic algorithm which uses reweighted l1 minimization. We show through numerical simulations that the solutions calculated by our algorithm are close to optimal.
    Date: 2014–10
  14. By: Yannis Katsoulacos (Athens University of Economics and Business); Evgenia Motchenkova (VU University Amsterdam); David Ulph (University of St Andrews)
    Abstract: In this paper we set out the welfare economics based case for imposing cartel penalties on the cartel overcharge rather than on the more conventional bases of revenue or profits (illegal gains). To do this we undertake a systematic comparison of a penalty based on the cartel overcharge with three other penalty regimes: fixed penalties; penalties based on revenue, and penalties based on profits. Our analysis is the first to compare these regimes in terms of their impact on both (i) the prices charged by those cartels that do form; and (ii) the number of stable cartels that form (deterrence). We show that the class of penalties based on profits is identical to the class of fixed penalties in all welfare-relevant respects. For the other three types of penalty we show that, for those cartels that do form, penalties based on the overcharge produce lower prices than those based on profit) while penalties based on revenue produce the highest prices. Further, in conjunction with the above result, our analysis of cartel stability (and thus deterrence), shows that penalties based on the overcharge out-perform those based on profits, which in turn out-perform those based on revenue in terms of their impact on each of the following welfare criteria: (a) average overcharge; (b) average consumer surplus; (c) average total welfare.
    Keywords: Antitrust Enforcement, Antitrust Law, Cartel, Oligopoly, Repeated Games
    JEL: L4 K21 D43 C73
    Date: 2014–09–24
  15. By: Carlo Dal Maso (IMT Lucca Institute for Advanced Studies); Gabriele Pompa (IMT Lucca Institute for Advanced Studies); Michelangelo Puliga (IMT Lucca Institute for Advanced Studies); Gianni Riotta (Princeton University; IMT Lucca Institute for Advanced Studies); Alessandro Chessa (IMT Lucca Institute for Advanced Studies)
    Abstract: We analyze the network of relations between parliament members according to their voting behavior. In particular, we examine the emergent community structure with respect to political coalitions and government alliances. We rely on tools developed in the Complex Network literature to explore the core of these communities and use their topological features to develop new metrics for party polarization, internal coalition cohesiveness and government strength. As a case study, we focus on the Chamber of Deputies of the Italian Parliament, for which we are able to characterize the heterogeneity of the ruling coalition as well as parties specific contributions to the stability of the government over time. We find sharp contrast in the political debate which surprisingly does not imply a relevant structure based on establised parties. We take a closer look to changes in the community structure after parties split up and their effect on the position of single deputies within communities. Finally, we introduce a way to track the stability of the government coalition over time that is able to discern the contribution of each member along with the impact of its possible defection. While our case study relies on the Italian parliament, whose relevance has come into the international spotlight in the present economic downturn, the methods developed here are entirely general and can therefore be applied to a multitude of other scenarios.
    Keywords: Parliamentary Network, Party Cohesion, Government Strength
    JEL: D72
    Date: 2014–09
  16. By: Craig T. Peters (Economic Analysis Group, U.S. Department of Justice)
    Abstract: This paper considers the effects of joint negotiation when suppliers and intermediaries engage in bilateral negotiation over inclusion of a supplier’s product in an intermediary’s network. I identify conditions under which joint negotiation by two suppliers increases the suppliers’ bargaining power even when the suppliers’ products are not substitutes for each other. In particular, joint negotiation increases the suppliers’ bargaining power if suppliers face smaller losses from disagreement when they negotiate jointly. If joint negotiation causes an intermediary to lose more of its consumers to competing intermediaries in the event of disagreement, and if the suppliers sell their products through these competing intermediaries, the suppliers will be able to recapture more of the sales that they would otherwise have lost in the event of disagreement. As a result, joint negotiation reduces the suppliers’ losses from disagreement, and thus enhances their bargaining power. I show that these conditions arise under a wide range of assumptions about consumer preferences.
    Date: 2014–09

This nep-gth issue is ©2014 by László Á. Kóczy. 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.