nep-gth New Economics Papers
on Game Theory
Issue of 2017‒08‒20
ten papers chosen by
László Á. Kóczy
Magyar Tudományos Akadémia

  1. Gaming modeling of self-enforcing agreements and free-rider problem By Sokolovskyi, Dmytro
  2. Hybrid lotteries for financing public goods By Sanchez Villalba, Miguel; Martinez Gorricho, Silvia
  3. Selling to Intermediaries: Optimal Auction Design in a Common Value Model By Dirk Bergemann; Benjamin Brooks; Stephen Morris
  4. Should the most efficient firm invest in its capacity? A value capture approach By Christian Trudeau; Zheng Wang
  5. Lucky Numbers in Simple Games By Irenaeus Wolff
  6. Embedding Cooperation in General-equilibrium Models By John E. Roemer
  7. Two-Sided Matching in Physician-Insurer Networks: Evidence from Medicare Advantage By Nosal, K.;
  8. Evolution of Trust and Trustworthiness between Cooperators and Non-Cooperators in Public Goods : Evidence from Field Experiment: Ethiopia By Kitessa, Rahel Jigi
  9. Robust policy schemes for R&D games with asymmetric information By Anton Bondarev; Frank C. Krysiak
  10. Central counterparty auction design By Ferrara, Gerardo; Li, Xin

  1. By: Sokolovskyi, Dmytro
    Abstract: The paper justifies the selection of formal conditions under which the rational-minded actors will tend to observe the implicit contract between them. Self-enforcing agreements are characterized by inappropriateness of arbitration support, primarily due to too high transaction costs of such support. It is an underdeveloped area of research of self-enforcing agreements does not operate categories of reputation directly. The question is: can there be such conditions for the relationship of agents, in which compliance with the agreement will be beneficial to both of them without them having a priori information? As the main method for research the problem selected the game theory. Is constructed the game model of subjects’ relationships and found the value of the payment functions for which there is Nash equilibrium in pure strategies “to comply with agreement“. It is shown, that above game simulate the relationship of agents, which can lead to a free-rider problem in the theory of collective goods. That is the solution of this game is also a solution to the free-rider problem, that demonstrate the dual tasks of self-enforcing agreements and the free-rider problem in the allocation of collective goods. The novelty of the study results is to obtain an analytical expression for the automatic compliance with the agreement conditions by rationally acting cognitively perfect agents and formal proof of their adequacy. The ability to analyze the behavior of economic agents in matters of free-riding by simple formal tools of the game theory makes presented results useful from a practical point of view.
    Keywords: contract theory; self-forced agreement; behavior of economic agents; game model; pure strategies; Nash equilibrium; free-rider problem
    JEL: C72 D01 D86
    Date: 2017–08–16
  2. By: Sanchez Villalba, Miguel; Martinez Gorricho, Silvia
    Abstract: We propose a new, voluntary mechanism (the "hybrid lottery") as a means for financing the provision of public goods. We find that, under some conditions, the mechanism can mitigate the free-riding problem and that, for each player, the (weakly) dominant strategy is the one that -in equilibrium- implements the first best. We also find that the mechanism is quite robust to modifications of the basic model, including heterogeneity in incomes and preferences, different utility functions and incomplete information. Finally, the mechanism is "self-financed"(i.e., it never runs out of money, neither on- nor off-equilibrium path) and -because of the use of dominant strategies- it is very easy to solve by players. Thus, the mechanism is simple to implement in the real world by charities and other organisations that rely on voluntary contributions.
    Keywords: Public Goods; Voluntary Contribution Mechanism; Subsidy Schemes; Laboratory Experiments
    JEL: C72 C92 H41
    Date: 2017
  3. By: Dirk Bergemann (Cowles Foundation, Yale University); Benjamin Brooks (Dept. of Economics, University of Chicago); Stephen Morris (Dept. of Economics, Princeton University)
    Abstract: We characterize revenue maximizing auctions when the bidders are intermediaries who wish to resell the good. The bidders have differential information about their common resale opportunities: each bidder privately observes an independent draw of a resale opportunity, and the highest signal is a sufficient statistic for the value of winning the good. If the good must be sold, then the optimal mechanism is simply a posted price at which all bidders are willing to purchase the good, and all bidders are equally likely to be allocated the good, irrespective of their signals. If the seller can keep the good, then under the optimal mechanism, all bidders make the same expected payment and have the same expected probability of receiving the good, independent of the signal. Conditional on the good being sold, the allocation discriminates in favor of bidders with lower signals. In some cases, the optimal mechanism again reduces to a posted price. The model provides a foundation for posted prices in multi-agent screening problems.
    Keywords: Optimal auction, Intermediaries, Posted price, Guaranteed demand auction, Common values, Revenue maximization, Revenue equivalence, First-price auction, Second-price auction, Resale, Maximum value game, Descending auction, Local incentive constraints, Global incentive constraints
    JEL: C72 D44 D82 D83
    Date: 2016–12
  4. By: Christian Trudeau (Department of Economics, University of Windsor); Zheng Wang (Capital University of Business and Economics)
    Abstract: Recently, cooperative game theory and the stand-alone core have been introduced to value capture theory to establish lower and upper bounds on the profits of firms. Where within these bounds firms end up depends on many unobservable factors, including individual bargaining abilities and market-specific practices. Gans and Ryall (2017), in their survey of the recent papers using this theory, provide an example of a matching market in which the firm with the cost advantage might actually be worse off when it decides to expand its capacity to take over the full market. We show that this paradox is extremely persistent and can resist to most extensions of the model, including the presence of additional buyers that were not served originally and economies of scale for the expanding firm. By expanding, the firm now has to attract more consumers, which considerably limits its bargaining power.
    Keywords: Value capture; expansion; bargaining power; core
    JEL: C71 C78 L13 L25 M11
    Date: 2017–08
  5. By: Irenaeus Wolff
    Abstract: Simple game structures such as coordination, discoordination, hide-and seek, and Colonel-Blotto games have been used to model a wide range of economically relevant situations. Yet, Nash-equilibrium, and alternative theories that have been proposed in the literature, notoriously fail to explain observed behaviorinthesegames. Thispaperproposesabounded-rationalityapproachinwhich players lexicographically employ team reasoning, choose ‘lucky numbers’ (the choice they would pick in a lottery), and randomise uniformly. This three-step procedure is able to organise the data across many diferent frames for coordination, discoordination, and hide-and-seek games. Moreover, it predicts three general regularities that bear out on the existing data and additional data from a Colonel-Blotto game and a Rock-Paper-Scissors-type of game.
    Keywords: Bounded Rationality, Level-k, Salience, Heuristic, Hide & Seek, Discoordination, Rock-Paper-Scissors, Colonel Blotto, Representativeness
    Date: 2017
  6. By: John E. Roemer (Dept. of Political Science & Cowles Foundation, Yale University)
    Abstract: Humans cooperate a great deal in economic activity, but our two major models of equilibrium – Walrasian competitive in markets and Nash in games – portray us as only non-cooperative. In earlier work, I have proposed a model of cooperative decision making (Kantian optimization); here, I embed Kantian optimization in general equilibrium models and show that ‘Walras-Kant’ equilibria exist and often resolve inefficiencies associated with income taxation, public goods and bads, and non-traditional firm ownership, which typically plague models where agents are Nash optimizers. In four examples, introducing Kantian optimization in one market – often the labor market – suffices to internalize externalities, generating Pareto efficient equilibria in their presence. The scope for efficient decentralization via markets appears to be significantly broadened with cooperative behavior.
    Keywords: Kantian optimization, Cooperation, General equilibrium, Market socialism, Global emissions control, Worker-owned firms, Externalities, Public goods
    JEL: D50 D60 D62 D70 D91 E19 H21 H23 H41
    Date: 2017–08
  7. By: Nosal, K.;
    Abstract: Many health insurance plans in the U.S. restrict enrollees to choose from a set of providers the insurer has contracted with. These provider networks are formed via bilateral bargaining between insurers and providers. Provider networks are an important tool for product differentiation and cost containment for insurers and also put real restrictions on consumers’ choice of providers. In this paper, I analyze matching between insurers offering Medicare Advantage Plans and physicians, using a unique data set consisting of all insurer-physician links in several counties. I estimate parameters of a two-sided, many-to-many matching model which describes formation of provider networks, using the Maximum Score estimator of Fox (2010). This method uses implications of a pairwise stability condition to estimate a joint surplus function which depends on insurer-physician links. The surplus function accounts for the role of physician and insurer characteristics in determining their match values, and also for interactions between physicians linked to the same insurer, whose services may be complements or substitutes. The results indicate that insurers prefer on the margin to link with physicians who increase the specialty concentration of their network and who are located near other physicians in the network. Physicians are negatively affected by having a broader referral network,as defined by having a larger set of physicians with whom they have insurer links in common. Finally, compared with regional insurers, nationally active insurers benefit more from matching with physicians with U.S. medical degree. Preliminary counterfactual analyses suggest that insurers and physicians would be collectively better off if all physicians were matched to all insurers– that is, if selective contracting were eliminated entirely.
    Date: 2017–08
  8. By: Kitessa, Rahel Jigi (Tilburg University, Center For Economic Research)
    Abstract: The standard economic theory predicts that collective action problem arise because the selfish agents have no incentive to contribute to public goods. However, considerable shares of mankind, conditional cooperators, contribute to public goods as revealed by numerous empirical and experimental findings. Ostrom (2000) revised collective action problems predicts that as time passes with proper social norm institution in place, and information about the types of agent is known, the share of such cooperators will grow in population and the cooperative behavior will be a dominant economic decision. This is because, the conditional cooperators are in general more trusted, whereas, selfish agents are less trusted which enables the cooperators to drive higher payoff. I tested this hypothesis in a setting that let participants who are members of collaborative forest management group (CFM), and non- members (non-CFM) to play a trust game. Using this experiment, the finding in this study support the hypothesis that high trust is placed on the cooperators than non-cooperators. Therefore, the cooperator type receives more money, but send and return less to non-cooperators which allow them to receive consistently higher pay off.
    Keywords: collective action; trust and trustworthiness; field experiment; forestry; public goods
    JEL: C12 C93 D64 D71 H41 O31
    Date: 2017
  9. By: Anton Bondarev; Frank C. Krysiak (University of Basel)
    Abstract: We consider an abstract setting of the di fferential r&d game, where participating firms are allowed for strategic behavior. We assume the information asymmetry across those fi rms and the government, which seeks to support newer technologies in a socially optimal manner. We develop a general theory of robust subsidies under such one-sided uncertainty and establish results on relative optimality, duration and size of di fferent policy tools available to the government. It turns out that there might exist multiple sets of second-best robust policies, but there always exist a naturally induced ordering across such sets, implying the optimal choice of a policy exists for the government under different uncertainty levels.
    Keywords: technology lock-in, technological change, strategic interaction, uncertainty, robust policy sets, uncertainty thresholds, robust welfare improving policy
    JEL: C61 O31 O38
    Date: 2017
  10. By: Ferrara, Gerardo (Bank of England); Li, Xin (University of Westminster)
    Abstract: We analyze the role of auctions in managing the default of a clearing member in a generic central counterparty (CCP). We first consider three established alternative sealed bid auction formats in which clearing members simultaneously submit bids for a defaulting clearing member’s portfolio: first price without penalty, first price with penalty, and first price with budget constraints. Under our assumptions regarding bidders’ behaviour, although the revenue of the portfolio by the CCP might be the same for these auction formats mentioned above, there could be significant differences in the externalities arising from each of them. Additionally, this paper considers how mechanisms to incentivize competitive bidding could, in some circumstances, have adverse implications for financial stability by inefficiently distributing losses to surviving clearing members. In response to these potential adverse implications, we propose a fourth auction type — second price with loss sharing — which takes into account a bidder’s consideration that may bear part of the CCP’s losses.
    Keywords: Auction; default management; central counterparty
    JEL: D44 G18
    Date: 2017–08–14

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