nep-gth New Economics Papers
on Game Theory
Issue of 2015‒02‒16
twenty-one papers chosen by
László Á. Kóczy
Magyar Tudományos Akadémia

  1. Rent-seeking games and the all-pay auction By Christian Ewerhart
  2. Games with Strategic Complements and Substitutes By Andrew Monaco; Tarun Sabarwal
  3. The Effect of Belief Elicitation Game Play By Hoffmann, Timo
  4. On the Choice and the Effects of Rule-Based Contribution Schemes in Public Good Games By Gallier, Carlo; Kesternich, Martin; Sturm, Bodo
  5. The Bargaining Correspondence: When Edgeworth Meets Nash By Ching-jen Sun
  6. Optimal Mechanism Design: Type-Independent Preference Orderings By Hitoshi Matsushima
  7. Efficiency and Punishment in a Coordination Game: Voluntary Sanctions in the Minimum Effort Game By Fabrice Le Lec; Ondrej Rydval; Astrid Matthey
  8. Tailored Bayesian Mechanisms: Experimental Evidence from Two-Stage Voting Games By Dirk Engelmann, Dirk; Grüner, Hans Peter
  9. The ABC of Cooperation in Voluntary Contribution and Common Pool Extraction Games By Kölle, Felix; Gächter, Simon; Quercia, Simone
  10. Cooperation and Expectations in Networks Evidence from a Network Public Good Experiment in Rural India By Marcel Fafchamps; A. Stefano Caria
  11. The predominant role of signal precision in experimental beauty contests By Adam Zylbersztejn
  12. Game-theoretical models of the competitive dynamics in optical network service provision By Waldman, Helio; Bortoletto, Rodrigo Campos
  13. Insuring Customers of a Unionized Firm Against Loss of Network Benefits By Frankel, David M.
  14. Self-enforcing international environmental agreements and trade: taxes versus caps By Pethig, Rüdiger; Eichner, Thomas
  15. Fairness Concerns Revisited By Tahereh Rezaei Khavas; Stephanie Rosenkranz; Gustav Weitzel; Bastian Westbrock
  16. When Identifying Contributors is Costly: An Experiment on Public Goods By Samek, Anya; Sheremeta, Roman
  17. Experimental Evidence on Bargaining Power Within Couples By Beblo, Miriam; Beninger, Denis
  18. Pipeline Power: A Case Study of Strategic Network Investments By Cobanli, Onur; Hubert, Franz
  19. Honesty and Relational Contracts By Schmutzler, Armin; Holger, Herz; André, Volk
  20. Loss Aversion and Inefficient Renegotiation By Schmidt, Klaus; Herweg, Fabian
  21. Incomplete Contracting, Renegotiation, and Expectation-Based Loss Aversion By Herweg, Fabian; Karle, Heiko; Müller, Daniel

  1. By: Christian Ewerhart
    Abstract: This paper considers rent-seeking games in which a small percentage change in a player's bid has a large percentage impact on her odds of winning, i.e., on the ratio of her respective probabilities of winning and losing. An example is the Tullock contest with a high R. The analysis provides a fairly complete characterization of the equilibrium set. In particular, for "sufficiently generic" valuations, any equilibrium of the rent-seeking game is shown to be both payoff- and revenue-equivalent to the first-price all-pay auction. For general valuations, the analysis establishes a robustness property of the all-pay auction.
    Keywords: Rent-seeking games, mixed-strategy Nash equilibrium, robustness of the all-pay auction, Tullock contest
    JEL: C72 D45 D72 L12
    Date: 2015–01
  2. By: Andrew Monaco (Department of Economics, University of Puget Sound); Tarun Sabarwal (Department of Economics, University of Kansas)
    Abstract: This paper studies games with both strategic substitutes and strategic complements, and more generally, games with strategic heterogeneity (GSH). Such games may behave differently from either games with strategic complements or games with strategic sub- stitutes. Under mild assumptions (on one or two players only), the equilibrium set in a GSH is totally unordered (no two equilibria are comparable in the standard product order). Moreover, under mild assumptions (on one player only), parameterized GSH do not allow decreasing equilibrium selections. In general, this cannot be strengthened to conclude increasing selections. Monotone comparative statics results are presented for games in which some players exhibit strategic substitutes and others exhibit strategic complements. For two-player games with linearly ordered strategy spaces, there is a char- acterization. More generally, there are sufficient conditions. The conditions apply only to players exhibiting strategic substitutes; no additional conditions are needed for players with strategic complements. Several examples highlight the results.
    Keywords: Lattice games, strategic complements, strategic substitutes, strategic hetero- geneity, equilibrium set, monotone comparative statics
    JEL: C70 C72
    Date: 2015–01
  3. By: Hoffmann, Timo
    Abstract: The assumptions that subjects hold beliefs and that the chosen actions are not altered by a proper elicitation of these beliefs are widely used in economics. In this paper I experimentally test whether the second assumption is correct. Especially controlling for different game properties, I nd that in dominance solvable two-player normal-form games belief elicitation results in a signi cant increase of equilibrium play. Therefore the elicitation of beliefs can affect the choices made by subjects and lead to more equilibrium actions being chosen. Surprisingly one major reason for this effect is the decreased play of own dominated actions. The results indicate that belief elicitation induces subjects to think harder about the presented decision situation, which results in a better understanding of the given situation and consequently in a modi cation of their beliefs. Therefore, in certain decision situations, belief elicitation affects the decisions made by subjects.
    JEL: C72 C91 D83
    Date: 2014
  4. By: Gallier, Carlo; Kesternich, Martin; Sturm, Bodo
    Abstract: In this experiment, we endogenize the choice of which contribution scheme is implemented in a public good game. We investigate three rule-based contribution schemes and a voluntary contribution mechanism (VCM). The game is implemented either as a Single- or a Multi-Phase Game. In the Single-Phase Game, the contribution schemes are exogenously implemented. In the Multi-Phase Game, we let subjects vote on the rule-based contribution schemes. If a scheme gets a sufficient majority it is implemented. In case a sufficient majority is failed, subjects have to make their contributions to the public good using the VCM. We find that the endogenous choice of a contribution scheme has an impact on the level of contributions. In case of a rule-based contribution scheme which equalizes payoffs, contributions are higher if subjects chose the scheme for themselves than in case the scheme is implemented exogenously. The contrary holds for the VCM. Contributions are higher if the VCM is implemented exogenously than in case a sufficient majority is failed and, therefore, subjects have to play the VCM.
    JEL: C72 C92 H41
    Date: 2014
  5. By: Ching-jen Sun
    Abstract: A new, more fundamental approach is proposed to the classical bargaining problem. The give-and-take feature in the negotiation process is explicitly modelled under the new framework. A compromise set consists of all allocations a bargainer is willing to accept as agreement. We focus on the relationship between the rationality principles (arguments) adopted by bargainers in making mutual concessions and the formation of compromise sets. The bargaining correspondence is then defined as the intersection of bargainers’ compromise sets. We study the non-emptyness, symmetry, efficiency and single-valuedness of the bargaining correspondence, and establish its connection to the Nash solution. Our framework provides the first rational foundation to Nash’s axiomatic approach, and hence bridges the “Edgeworth-Nash gap”.
    Keywords: Bargaining Correspondence, Compromise, Edgeworth-Nash Gap, Nash Solution
    JEL: C78 D74
    Date: 2015–02–05
  6. By: Hitoshi Matsushima (The University of Tokyo)
    Abstract: We investigate revenue maximization in general allocation problems with incomplete information, where we assume quasi-linearity, private values, independent type distributions, and single-dimensionality of type spaces. We require a mechanism to satisfy strategy-proofness and ex-post individual rationality. We assume that each player has a type-independent preference ordering over deterministic allocations. We show that the Myerson’s technique to solve the incentive-constrained revenue maximization problem in single-unit auctions can be applied to general allocation problems, where the incentive-constrained revenue maximization problem can be reduced to the simple maximization problem of the sum of players’ marginal revenues without imposing any incentive constraint.
    Date: 2015–02
  7. By: Fabrice Le Lec; Ondrej Rydval; Astrid Matthey
    Abstract: Using a laboratory experiment, we examine whether voluntary monetary sanctions induce subjects to coordinate more efficiently in a repeated minimum effort coordination game. While most groups first experience inefficient coordination in a baseline treatment, the efficiency increases substantially once ex post sanctioning opportunities are introduced, that is, when one can assign costly punishment points to other group members in order to reduce their payoffs. We compare the effect of this voluntary punishment possibility with the effect of ex post costless communication: in contrast to the punishment treatment, the latter only temporarily increases efficiency and fails to do so permanently. This suggests that decentralized sanctions can play an important role as a coordination device in Pareto-ranked coordination settings, such as teamwork in firms and other organizational contexts.
    Keywords: coordination; minimum effort; order-statistic game; punishment; sanction; weakest link;
    JEL: C72 C91 D01 D03
    Date: 2014–12
  8. By: Dirk Engelmann, Dirk; Grüner, Hans Peter
    Abstract: Optimal voting rules have to be adjusted to the underlying distribution of preferences. However, in practice there usually is no social planner who can perform this task. This paper shows that the introduction of a stage at which agents may themselves choose voting rules according to which they decide in a second stage may increase the sum of individuals' payoffs if players are not all completely selfish. We run three closely related experimental treatments (plus two control treatments) to understand how privately informed individuals decide when they choose voting rules and when they vote. Efficiency concerns play an important role on the rule choice stage whereas selfish behavior seems to dominate at the voting stage. Accordingly, in an asymmetric setting groups that can choose a voting rule do better than those who decide with a given simple majority voting rule.
    JEL: C91 D70 D82
    Date: 2014
  9. By: Kölle, Felix; Gächter, Simon; Quercia, Simone
    Abstract: We study the nature of cooperation in the provision of public goods (a "Give" game) and the appropriation of a common resource (a "Take" game). We introduce the "abc-framework" to analyze how cooperative attitudes and beliefs determine cooperation. Our experimental results establish that Give and Take dilemmas are different games even under equivalent incentives. We find striking differences in attitudes: people are substantially less likely to cooperate conditionally in Take than Give. Our experiments and simulations show that attitudes and beliefs, rather than "framing effects", can explain the variation of cooperation observed in the literature. Our results also suggest that cooperation is harder in commons problems than in the provision of public goods.
    JEL: C92 H41 D03
    Date: 2014
  10. By: Marcel Fafchamps; A. Stefano Caria
    Abstract: We play a one-shot public good game in rural India between farmers connected to an exogenous star network.  Contributions by the centre of the star reach more players and have a larger impact on aggregate payoffs than contributions by the spoke players.  Yet, we find that the centre player contributes just as much as the average of the spokes.  We elicit expectations about the decisions of the centre player and, in randomly selected sessions, we disclose the average expectation of the farmers in the network.  Farmers match the disclosed values frequently and do so more often when the monetary cost of making a contribution is reduced.  However, disclosure is not associated with higher contributions.  Our results support the predictions of a model of other-regarding preferences where players care about the expectations of others.  This model is helpful to understand barriers to improvement in pro-social behaviour when groups expect low pro-sociality.
    Date: 2014–12–06
  11. By: Adam Zylbersztejn (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France)
    Abstract: Several experiments show that feedback transmission mechanisms mitigate opportunistic behavior in social dilemmas. The source of this effect, especially in a repeated interaction, nonetheless remains obscure. This study provides a novel empirical testbed for channels by which feedback may affect behavior in a repeated public goods game. One is related to strategic signaling. The other involves aversion to others’ expressed disapproval. The presence of feedback is found to foster pro-social behavior. The data favour the non-monetary sanctioning explanation rather than the signaling hypothesis.
    Keywords: Public goods game, Voluntary Contribution Mechanism, Feedback, Signaling, Non-monetary sanctioning
    JEL: C72 D83
    Date: 2014
  12. By: Waldman, Helio; Bortoletto, Rodrigo Campos
    Date: 2014
  13. By: Frankel, David M.
    Abstract: We study how optimally to insure customers of a unionized firm, such as an auto maker, against the loss of network benefits that occurs when other consumers abandon the firm.  The union first announces a wage.  A random demand shock is then realized.  The firm then chooses its price and, finally, consumers decide whether or not to buy from the firm.  Common knowledge of payoffs is perturbed slightly in order to obtain a unique outcome.  In this outcome the union chooses an excessive wage, leading consumers to abandon the firm too often.  The first best can be costlessly attained by providing consumers with countercyclical insurance.
    Keywords: insurance; Unions; Crises; network externalities; Network Benefits; Network Effects; Global games; Optimal Public Policy
    JEL: C72 D42 D62 H21
    Date: 2015–02–04
  14. By: Pethig, Rüdiger; Eichner, Thomas
    Abstract: This paper studies within a multi-country model with international trade the stability of international environmental agreements (IEAs) when countries regulate carbon emissions either by taxes or caps. Regardless of whether coalitions play Nash or are Stackelberg leaders the principal message is that the choice of caps or taxes matters. International trade and tax regulation turn out to be necessary conditions for the existence of the encompassing self-enforcing IEA, and that the latter is attained the more likely, the less severe the climate damage. Hence, cap regulation is inferior to tax regulation insofar as in case of the former there exist no large and effective self-enforcing IEAs, in particular not the encompassing self-enforcing IEA. Further results are that for the formation of encompassing self-enforcing IEAs it does not matter (much) whether climate coalitions play Nash or are Stackelberg leaders or whether fossil fuel is modeled as a consumer good or an intermediate good.
    JEL: C72 F18 Q54
    Date: 2014
  15. By: Tahereh Rezaei Khavas; Stephanie Rosenkranz; Gustav Weitzel; Bastian Westbrock
    Abstract: Experimental economics has provided evidence for fairness concerns, but their relative strength and even their stability is still under debate. We reconcile the seemingly inconsistent results by presenting a theory of marginal fairness concerns. The key assumption is that fairness concerns are stable across various decision situations, but individuals care only marginally about other individuals’ payoffs. This produces inequitable outcomes when the decision situation is ’unfair’ but equitable outcomes when the structure itself is ’fair’. An experimental horse race with competing theories of pure selfishness, pure fairness, and power-/need-based norms, applied across a range of (a)symmetric and (in)transitive experimental decision settings, supports our theory: 80% of the subjects in our experiment appear to be at most marginally fairness concerned.
    Keywords: fairness, lab experiment, local public goods game, heterogeneous influence stracture
    Date: 2014–09
  16. By: Samek, Anya; Sheremeta, Roman
    Abstract: Studies show that identifying contributors increases contributions to public goods. In practice, viewing identifiable information is costly, which may discourage people from accessing it. We design a public goods experiment in which participants can pay to view information about identities and contributions of group members. We compare this to a treatment in which there is no identifiable information, and a treatment in which all contributors are identified. Our main findings are that: (1) contributions in the treatment with costly information are as high as those in the treatment with free information, (2) participants rarely choose to view the information, and (3) being a high contributor is correlated with choosing to view information about others.
    Keywords: public-goods, information, recognition, laboratory experiment
    JEL: C72 C91 H41
    Date: 2015–02–02
  17. By: Beblo, Miriam; Beninger, Denis
    Abstract: We conducted an experiment on the nature of income sharing within 95 established couples in Germany. In a first step, the partners revealed their individual preferences by making consumption choices independently. In a second step, decisions were taken jointly over five different rounds with varying resource allocations between the partners. From this design we are able to derive a female bargaining power index without structural restrictions, reflecting the sharing rule within the couple. We observe this index to increase significantly with the female partner s money allocation. This effect is robust to the inclusion of socio-economic, distributional and behavioural features of the couple.
    JEL: D13 C92 C71
    Date: 2014
  18. By: Cobanli, Onur; Hubert, Franz
    Abstract: We use the Shapley value and the nucleolus to analyze the impact of three controversial pipeline projects on the power structure in the Eurasian trade of natural gas. Two pipelines, `Nord Stream' and `South Stream', allow Russian gas to bypass transit countries, Ukraine and Belarus. The third project, `Nabucco', aims at diversifying Europe's gas imports by accessing producers in Middle East and Central Asia. For the Shapley Value we obtain a clear ranking of the projects which corresponds to the observed investment patterns. Nord Stream's strategic value is huge, easily justifying the high investment cost for Germany and Russia. The additional leverage obtained through South Stream is much smaller and Nabucco is not viable. For the nucleolus in contrast, none of the pipelines has any strategic relevance at all, which appears to be at odds with the empirical evidence.
    JEL: C71 L50 L95
    Date: 2014
  19. By: Schmutzler, Armin; Holger, Herz; André, Volk
    Abstract: We study the economic consequences of opportunities for dishonesty in an environment where efficiency relevant behaviour is not contractible, but rather incentivized by informal agreements in an ongoing relationship. We document the repeated interaction between a principal and an agent who, within our main treatment, was privately informed about the costs of effort provision being either high or low. At the beginning of the interaction, an agent could either truthfully report the cost type to the principal or choose to lie about it. We find that a substantial fraction of low cost agents decided to signal high costs. Dishonest low cost and honest high cost agents pool on the complete information outcome with high costs, as measured in our control treatment. The outcome of such pooling is less efficient than for honest low cost agents. Moreover, principals who face dishonest agents earn substantially less profits than those facing honest agents. Our evidence therefore suggests that informal agreements in a repeated interaction generate less efficient outcomes if dishonesty is possible but, at the same time, are robust to substantial degrees of deception. We furthermore show that our experimental findings can be organized using the logic of repeated games.
    JEL: C73 D23 D82
    Date: 2014
  20. By: Schmidt, Klaus; Herweg, Fabian
    Abstract: We propose a theory of inefficient renegotiation that is based on loss aversion. When two parties write a long-term contract that has to be renegoti- ated after the realization of the state of the world, they take the initial contract as a reference point to which they compare gains and losses of the renegotiated transaction. We show that loss aversion makes the renegotiated outcome sticky and materially inefficient. The theory has important implications for the optimal design of long-term contracts. First, it explains why parties often abstain from writing a beneficial long-term contract or why some contracts specify transactions that are never ex post efficient. Second, it shows under what conditions parties should rely on the allocation of ownership rights to protect relationship-specific investments rather than writing a specific performance contract. Third, it shows that employment contracts can be strictly optimal even if parties are free to rene- gotiate.
    JEL: C78 D03 D86
    Date: 2014
  21. By: Herweg, Fabian; Karle, Heiko; Müller, Daniel
    Abstract: We consider a simple trading relationship between an expectation-based loss-averse buyer and profit-maximizing sellers. When writing a long-term contract the parties have to rely on renegotiations in order to ensure materially efficient trade ex post. The type of the concluded long-term contract affects the buyer's expectations regarding the outcome of renegotiation. If the buyer expects renegotiation always to take place, the parties are always able to implement the materially efficient good ex post. It can be optimal for the buyer, however, to expect that renegotiation does not take place. In this case, a good of too high quality or too low quality is traded ex post. Based on the buyer's expectation management, our theory provides a rationale for ``employment contracts'' in the absence of non-contractible investments. Moreover, in an extension with non-contractible investments, we show that loss aversion can reduce the hold-up problem.
    JEL: C78 D82 D03
    Date: 2014

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