nep-gth New Economics Papers
on Game Theory
Issue of 2016‒07‒02
seventeen papers chosen by
László Á. Kóczy
Magyar Tudományos Akadémia

  1. Institutionalize reciprocity to overcome the public goods provision problem By Hiroki Ozono; Yoshio Kamijo; Kazumi Shimizu
  2. Decentralized Clearing in Financial Networks By Peter Csoka; P. Jean-Jacques Herings
  3. Marriage Market Equilibrium By Robert A. Pollak
  4. Optimal Deterrence of Cooperation By Stéphane Gonzalez; Aymeric Lardon
  5. Equilibrium selection with coupled populations in hawk-dove games: Theory and experiment in continuous time By Benndorf, Volker; Martinez-Martinez, Ismael; Normann, Hans-Theo
  6. How Brexit affects European Union power distribution By Laszlo A. Koczy
  7. Cognitive Ability and Games of School Choice By Christian, Basteck; Marco, Mantovani
  8. Incomplete Information in Macroeconomics: Accommodating Frictions in Coordination By George-Marios Angeletos; Chen Lian
  9. Incentives and the Structure of Communication By Rivera, Thomas J
  10. Homophily and transitivity in dynamic network formation By Bryan S. Graham
  11. The Informational Theory of Legislative Committees: An Experimental Analysis Model By Marco Battaglini; Ernest K. Lair; Wooyoung Lim; Joseph Tao-yi Wang
  12. Team Vs. Individual Tournaments: Evidence From Prize Structure In Esports By Dennis Coates; Petr Parshakov
  13. Testing for Heterogeneity of Preferences in Randomized Experiments: A Satisfaction-Based Approach Applied to Multiplayer Prisoners’ Dilemmas By Leonardo Becchetti; Vittorio Pelligra; Francesco Salustri
  14. Credit where credit is due: An approach to education returns based on shapley values By Bilal Barakat; Jesus Crespo Cuaresma
  15. Protecting Unsophisticated Applicants in School Choice through Information Disclosure By Christian, Basteck; Marco, Mantovani;
  16. Carbon is Forever: a Climate Change Experiment on Cooperation By G. Calzolari; M. Casari; R. Ghidoni
  17. The microeconomics of corruption. A review of thirty years of research By Roberto Burguet; Juan José Ganuza; José Garcia Montalvo

  1. By: Hiroki Ozono (Kagoshima University); Yoshio Kamijo (School of Economics and Management, Kochi University of Technology); Kazumi Shimizu (Waseda University)
    Abstract: Cooperation is fundamental to human societies, and one of the important paths for its emergence and maintenance is reciprocity. In prisoner's dilemma (PD) experiments, reciprocal strategies are often effective at attaining and maintaining high cooperation. In many public goods (PG) games or n-person PD experiments, however, reciprocal strategies are not successful at engendering cooperation. In the present paper, we attribute this difficulty to a coordination problem against free riding among reciprocators: Because it is difficult for the reciprocators to coordinate their behaviors against free riders, this may lead to inequality among players, which will demotivate them from cooperating in future rounds. We propose a new mechanism, institutionalized reciprocity (IR), which refers to embedding the reciprocal strategy as an institution (i.e., institutionalizing the reciprocal strategy). We experimentally demonstrate that IR can prevent groups of reciprocators from falling into coordination failure and achieve high cooperation in PG games. In conclusion, we argue that a natural extension of the present study will be to investigate the possibility of IR to serve as a collective punishment system.
    Keywords: cooperation, public goods game, laboratory experiment, institutionalized reciprocity, raise the stakes strategy
    JEL: C72 C91 C92 M54
    Date: 2015–07
  2. By: Peter Csoka (Momentum Game Theory Research Group - Centre for Economic and Regional Studies, Hungarian Academy of Sciences and Corvinus University of Budapest - Corvinus Business School, Department of Finance); P. Jean-Jacques Herings (Department of Economics, Maastricht university, The Netherlands)
    Abstract: We consider a situation in which agents have mutual claims on each other, summarized in a liability matrix. Agents' assets might be insufficient to satisfy their liabilities leading to defaults. We assume the primitives to be denoted in some unit of account. In case of default, bankruptcy rules are used to specify the way agents are going to be rationed. We present a convenient representation of bankruptcy rules. A clearing payment matrix is a payment matrix consistent with the prevailing bankruptcy rules that satisfies limited liability and priority of creditors. Both clearing payment matrices and the corresponding values of equity are not uniquely determined. We provide bounds on the possible levels equity can take. We analyze decentralized clearing processes and show the convergence of any such process in finitely many steps to the least clearing payment matrix. When the unit of account is sufficiently small, all decentralized clearing processes lead essentially to the same value of equity as a centralized clearing procedure. As a policy implication, it is not necessary to collect and process all the sensitive data of all the agents simultaneously and run a centralized clearing procedure.
    Keywords: Networks, Bankruptcy Problems, Systemic Risk, Decentralized Clearing, Indivisibilities.
    JEL: C71 G10
    Date: 2016–01
  3. By: Robert A. Pollak
    Abstract: The standard Beckerian analysis of marriage market equilibrium assumes that allocation within marriage implements agreements made in the marriage market. This paper investigates marriage market equilibrium when allocation within marriage is determined by bargaining in marriage and compares that model with the standard model. When bargaining in marriage determines allocation within marriage, the marriage market is the first stage of a two-stage game. The second stage, bargaining in marriage, determines allocation within each marriage. This analysis is consistent with any bargaining model with a unique equilibrium as well as with Becker's "altruist model," the model that underlies the Rotten Kid Theorem. Marriage-market participants are assumed to rank prospective spouses on the basis of the allocations they foresee emerging from bargaining in marriage. The first stage game, the marriage market, determines both who marries and, among those who marry, who marries whom (assortative marriage). When bargaining in marriage determines allocation within marriage, the appropriate framework for analyzing marriage market equilibrium is the Gale-Shapley matching model, not the Koopmans-Beckmann assignment model. These models have different implications for who marries, for who marries whom, and for the Pareto efficiency of marriage market equilibrium.
    JEL: D1 J12 K36
    Date: 2016–06
  4. By: Stéphane Gonzalez (Univ Lyon, UJM Saint-Etienne, France; GATE L-SE CNRS UMR 5824); Aymeric Lardon (University of Nice Sophia Antipolis, France; GREDEG CNRS)
    Abstract: We introduce axiomatically a new solution concept for cooperative games with transferable utility inspired by the core. While core solution concepts have investigated the sustainability of cooperation among players, our solution concept, called contraction core, focuses on the deterrence of cooperation. The main interest of the contraction core is to provide a monetary measure of the robustness of cooperation into the grand coalition. We motivate this concept by providing optimal fine imposed by competition authorities for the dismantling of cartels in oligopolistic markets. We characterize the contraction core on the set of balanced cooperative games with transferable utility by four axioms: the two classic axioms of non-emptiness and individual rationality, a superadditivity principle and a new axiom of consistency.
    Keywords: TU-game, contraction core, optimal fine, Cournot oligopoly, axiomatization
    JEL: C71 D43
    Date: 2016–06
  5. By: Benndorf, Volker; Martinez-Martinez, Ismael; Normann, Hans-Theo
    Abstract: Standard one- and two-population models for evolutionary games are the limit cases of a uniparametric family combining intra- and intergroup interactions. Our setup interpolates between both extremes with a coupling parameter k. For the example of the hawk-dove game, we analyze the replicator dynamics of the coupled model. We confirm the existence of a bifurcation in the dynamics of the system and identify three regions for equilibrium selection, one of which does not appear in common one- and two-population models. We also design a continuous-time experiment, exploring the dynamics and the equilibrium selection. The data largely confirm the theory.
    Keywords: evolutionary game theory,experiment in continuous time,hawk-dove game,replicator dynamics
    JEL: C62 C73 C91 C92
    Date: 2016
  6. By: Laszlo A. Koczy (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and Keleti Faculty of Business and Management Óbuda University)
    Abstract: The possible exit of the United Kingdom from the European Union will have profound economic and political effects. Here we look at a particular aspect, the power distribution in the Council of the European Union. Since the Lisbon treaty the exit does not require new negotiations as the success of a voting initiative only depends on the number and total population of the supporting member states. Using the Shapley-Shubik power index we calculate the member states' powers with and without the United Kingdom and update earlier power forecasts using the Eurostat's latest population projections. There is a remarkably sharp relation between population size and the change in power: Brexit increases the largest members', while decreases the smallest ones' powers.
    Keywords: European Union, Council of the European Union, qualified majority voting, power index, a priori voting power, demographics
    JEL: C71 D72
    Date: 2016–05
  7. By: Christian, Basteck; Marco, Mantovani
    Abstract: We take school admission mechanisms to the lab to test whether the manipulable Boston mechanism disadvantages students of lower cognitive ability and whether this leads to ability segregation across schools. Results show this is the case: lower ability participants receive a lower average payoff and are over-represented at the worst school. Under the strategy-proof Deferred Acceptance mechanism, payoff differences between high and low ability participants are reduced, and distributions by ability across schools are harmonized. Hence, we find support for the argument that a move to strategy-proof mechanisms would “level the playing field†. However, we document a trade-off between equality and efficiency in the choice of school admission mechanisms since average payoffs are larger under Boston than under Deferred Acceptance.
    Keywords: laboratory experiment, school choice, strategy-proofness, cognitive ability, mechanism design
    JEL: C78 C91 D82 I24
    Date: 2016–06–21
  8. By: George-Marios Angeletos; Chen Lian
    Abstract: This chapter studies how incomplete information helps accommodate frictions in coordination, leading to novel insights on the joint determination of expectations and macroeconomic outcomes. We review and synthesize recent work on global games, beauty contests, and their applications. We elaborate on the distinct effects of strategic uncertainty relative to fundamental uncertainty. We demonstrate the potential fragility of workhorse macroeconomic models to relaxations of common knowledge; the possibility of operationalizing the notions of “coordination failure” and “animal spirits” in a manner that unifies unique- and multiple-equilibrium models; and the ability of incomplete information to offer a parsimonious explanation of important empirical regularities. We provide a general treatment of these ideas, as well as specific applications in the context of business cycles, financial crises, and asset pricing.
    JEL: C7 D8 E01 E3 E40 G1
    Date: 2016–06
  9. By: Rivera, Thomas J
    Abstract: This paper analyzes the incentives that arise within an organization when communication is restricted to a particular network structure (e.g., a hierarchy). We show that restricting communication between the principal and agents may create incentives for the agents to misbehave when transmitting information and tasks throughout the organization. To remedy this issue, we provide necessary and sufficient conditions on the topology of the network of communication such that restricting communication to a particular network does not restrict the set of outcomes that the principal could otherwise achieve. We show that for any underlying incentives and any outcome available when communication is unrestricted, there exists a communication scheme restricted to a particular network that implements this outcome (i.e., does not induce agents to misbehave in the communication phase) if and only if that network satisfies our conditions.
    Keywords: Communication; Incentives; Principal Agent; Information Transmission; Communication Networks; Organizational Behaviour; Correlated Equilibrium; Communication Equilibrium; Secure Communication
    JEL: C72 D83
    Date: 2015–10–01
  10. By: Bryan S. Graham (Institute for Fiscal Studies and University of California, Berkeley)
    Abstract: In social and economic networks linked agents often share additional links in common. There are two competing explanations for this phenomenon. First, agents may have a structural taste for transitive links – the returns to linking may be higher if two agents share links in common. Second, agents may assortatively match on unobserved attributes, a process called homophily. I study parameter identifiability in a simple model of dynamic network formation with both effects. Agents form, maintain, and sever links over time in order to maximize utility. The return to linking may be higher if agents share friends in common. A pair-specific utility component allows for arbitrary homophily on time-invariant agent attributes. I derive conditions under which it is possible to detect the presence of a taste for transitivity in the presence of assortative matching on unobservables. I leave the joint distribution of the initial network and the pair-specific utility component, a very high dimensional object, unrestricted. The analysis is of the 'fixed effects' type. The identification result is constructive, suggesting an analog estimator, whose single large network properties I characterize.
    Keywords: Strategic Network Formation, Homophily, Transitivity, Triads, Assortative Matching, Initial Conditions Problem, Panel Data, Fixed Effects
    JEL: C31 C33 C35
    Date: 2016–04–15
  11. By: Marco Battaglini (Department of Economics, Cornell University and EIEF); Ernest K. Lair (Department of Economics, Lehigh University); Wooyoung Lim (Department of Economics, The Hong Kong University of Science and Technology); Joseph Tao-yi Wang (Department of Economics, National Taiwan University)
    Abstract: We experimentally investigate the informational theory of legislative committees first proposed by Gilligan and Krehbiel [1987, 1989]. Two committees provide policy-relevant information to a legislature under two different procedural rules. Under the open rule, the legislature is free to make any decision; under the closed rule, the legislature is constrained to choose between a committee¡¦s proposal and an exogenous status quo. Our experiment shows that even in the presence of conflicts of interests, legislative committees help improve the legislature¡¦s decision by providing useful information. We further obtain evidence in support of three theoretical predictions: the Outlier Principle, according to which more extreme preferences of the committees reduce the extent of information transmission; the Distributional Principle, according to which the open rule is more distributionally efficient than the closed rule; and the Restrictive-rule Principle, according to which the closed rule better facilitates the informational role of legislative committees. We, however, obtain mixed evidence for the Heterogeneity Principle, according to which more information can be extracted in the presence of multiple committees with heterogeneous preferences. Our experimental findings provide overall support for the equilibrium predictions of Gilligan and Krehbiel [1989], some of which have been controversial in the literature.
    Keywords: Legislative Committees; Strategic Information Transmission; Laboratory Experiment
    JEL: C72 D82 D83
    Date: 2016–05
  12. By: Dennis Coates; Petr Parshakov (National Research University Higher School of Economics)
    Abstract: This study tests the implications of tournament theory using data on eSports (video game) competitions. We incorporate team production with the theory of rank order elimination tournaments since in our analysis, competitors in an elimination tournament are groups rather than individuals. In this setting, the issue of proper incentives becomes more complicated than in the normal tournament model. Our findings demonstrate that the prize structure is convex in rank order which means that the contestants in eSports tournaments are risk averse. The results for the team games are more consistent with the tournament theory than the results for individual games. From the practical point of view, we provide decision-makers in both sports and business with the insights about the compensation design with respect to importance of the competition and its type.
    Keywords: tournament theory, eSports, video games, team production.
    JEL: Z20 J3
    Date: 2016
  13. By: Leonardo Becchetti (University of Rome Tor Vergata); Vittorio Pelligra (University of Cagliari, CRENoS); Francesco Salustri (DEDI, University of Rome "Tor Vergata")
    Abstract: We use experimental data from the “vote with the wallet” multiplayer prisoner’s dilemma to investigate with a finite mixture approach the effect of a responsible purchase on players’ satisfaction. We find clear-cut evidence of heterogeneity of preferences with two groups of players that differ significantly in terms of effects of the responsible choice on satisfaction.
    Keywords: randomized experiment, multiplayer prisoners’ dilemma, mixture models, satisfaction
    JEL: C92 D03 D12 D60 D71
    Date: 2016–06–10
  14. By: Bilal Barakat (Vienna Institute for Demography); Jesus Crespo Cuaresma (Department of Economics, Vienna University of Economics and Business)
    Abstract: We propose the use of methods based on the Shapley value to assess the fact that private returns to lower levels of educational attainment should incorporate prospective returns from higher attainment levels, since achieving primary education is a necessary condition to enter secondary and tertiary educational levels. We apply the proposed adjustment to a global dataset of private returns to different educational attainment levels and find that the corrected returns to education imply a large shift of returns from tertiary to primary schooling in countries at all income levels.
    Keywords: Returns to education, Shapley value
    JEL: I26 I25 C71
    Date: 2016–06
  15. By: Christian, Basteck; Marco, Mantovani;
    Abstract: Unsophisticated applicants can be at a disadvantage under manipulable and hence strategically demanding school choice mechanisms. Disclosing information on applications in previous admission periods makes it easier to asses the chances of being admitted at a particular school, and hence may level the playing field between applicants who differ in their cognitive ability. We test this conjecture experimentally for the widely used Boston mechanism. Results show that, absent this information, there exist a substantial gap between subjects of higher and lower cognitive ability, resulting in significant differences in payoffs, and ability segregation across schools. The treatment is effective in improving applicants’ strategic performance. However, because both lower and higher ability subjects improve when they have information about past demands, the gap between the two groups shrinks only marginally, and the instrument fails at levelling the playing field.
    Keywords: laboratory experiment, school choice, strategy-proofness, cognitive ability, mechanism design
    JEL: C78 C91 D82 I24
    Date: 2016–06–16
  16. By: G. Calzolari; M. Casari; R. Ghidoni
    Abstract: Greenhouse gases generate impacts that can last longer than human civilization itself. Such persistence may affect the behavioral ability to cooperate. Here we study mitigation efforts within a framework that reflects key features of climate change and then contrasts a dynamic versus a static setting. In a treatment with persistence, the pollution cumulates and generates damages over time while in another treatment it has only immediate effects and then disappears. We find that cooperation is not hampered, on average, by pollution persistence. Mitigation efforts, though, should not be delayed, because cooperation levels appear to deteriorate for high stocks of pollution.
    JEL: C70 C90 D03 Q54
    Date: 2016–05
  17. By: Roberto Burguet; Juan José Ganuza; José Garcia Montalvo
    Abstract: We review microeconomic research on corruption from the last thirty years. We start by analyzing the seminal models of corruption built on three-tier, delegation models. Then, go into more details of the context of corrupt deals, and discuss the main economic factors that a¤ect corruption. We discuss incentives and compensation in bureaucracies, and the interplay of market and bureaucratic structure. Competition and contract design will also be reviewed in relation to procurement under corruptible agents. After reviewing the theoretical contributions, we turn to the empirical evidence. We begin discussing measurement issues, and then move to the analysis of the empirical evidence relative to the theoretical models discussed in previous sections. Finally, we cover several anti-corruption mechanisms proposed in the literature and discuss their relative merits as devices to control or eliminate illegal activities.
    Keywords: Corruption, Bribes, Deterrence, Bureaucracy, Competition, Game Theory, and Mechanism Design.
    JEL: C73 D72 D73 K42
    Date: 2016–05

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