nep-gth New Economics Papers
on Game Theory
Issue of 2018‒04‒30
eighteen papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Farsighted Rationality By Karos, Dominik; Kasper, Laura
  2. Approval Voting and Shapley Ranking By Pierre Dehez; Victor Ginsburgh
  3. Equilibrium Effort in Games with Homogeneous Production Functions and Homogeneous Valuation By Walter Ferrarese
  4. Feedback Pareto weights in cooperative NTU differential games By Simon Hoof
  5. How Social Preferences Influence the Stability of a Climate Coalition By Lin, Yu-Hsuan
  6. Dispersed Behavior and Perceptions in Assortative Societies By Mira Frick; Ryota Iijima; Yuhta Ishii
  7. Identification and Estimation of Large Network Games with Private Link Information By Eraslan, Hulya; Tang, Xun
  8. Excessive Search By Miao, Chun-Hui
  9. Simulating Mergers in a Vertical Supply Chain with Bargaining By Gloria Sheu; Charles Taragin
  10. Investment and Market Structure in Common Agency Games By Guillem Roig
  12. Bayesian Persuasion with Costly Information Acquisition By Ludmila Matyskova
  13. Pricing in Asymmetric Two-Sided Markets: A Laboratory Experiment By Jens Weghake; Claudia Keser; Martin Schmidt; Mathias Erlei
  14. Stochastic Petropolitics: The Dynamics of Institutions in Resource-Dependent Economies By Raouf Boucekkine; Fabien Prieur; Chrysovalantis Vasilakis; Benteng Zou
  15. Unintended consequences: The snowball effect of energy communities By Abada, I.; Ehrenmann, A.; Lambin, X.
  16. Information Flows, the Accuracy of Opinions, and Crashes in a Dynamic Network By Phillip Monin; Richard Bookstaber
  17. Spatial resource wars: A two region example By Giorgio Fabbri; Silvia Faggian; Giuseppe Freni
  18. A new irrelevance result in an endogenous timing with a consumer-friendly public firm By Garcia, Arturo; Leal, Mariel; Lee, Sang-Ho

  1. By: Karos, Dominik (General Economics 1 (Micro)); Kasper, Laura (universitaat des saarlandes; saarland university)
    Abstract: Farsighted deviations are based on agents' abilities to compare the outcome of a farsighted deviation to the status quo. However, agents do not account for deviations by others in case they do not change the status quo; so, they are not fully farsighted. We use extended expectation functions to capture a coalition's belief about subsequent moves of other coalitions in both cases. We provide three stability and optimality axioms on coalition behavior and show that an expectation function satisfies these axioms if and only if it corresponds to an equilibrium of the abstract game that is stable with respect to coalitional deviations. We provide applications of our solution for games in characteristic function form and matching problems.
    Keywords: abstract games, farsighted stability, expectation functions, coalition stable equilibrium
    JEL: C71 C72
    Date: 2018–04–26
  2. By: Pierre Dehez; Victor Ginsburgh
    Abstract: Approval voting allows voters to list any number of candidates. Their scores are obtained by summing the votes cast in their favor. Fractional voting instead follows the One-person-onevote principle by endowing voters with a single vote that they may freely distribute among candidates. In this paper, we show that to be fair, such a ranking requires a uniform distribution. It corresponds to Shapley ranking that was introduced to rank wines as the Shapley value of a cooperative game with transferable utility. We analyze the properties of these "ranking games" and provide an axiomatic foundation to Shapley ranking. We also analyze Shapley ranking as a social welfare function and compare it to approval ranking.
    Date: 2018–04
  3. By: Walter Ferrarese (University of Rome "Tor Vergata")
    Abstract: I focus on symmetric n-player games in which players exert effort to win part or all of a prize, whose value can either be exogenously given or endogenously determined. Under homogeneity assumptions on the functions mapping the vector of efforts into the part of the prize that each player receives and on the value of the prize, I derive an explicit solution for pure-strategy symmetric equilibria and show that such assumptions are sufficient to substantially simplify the derivation of the best response functions. I solve for equilibria in situations in which, not only relative efforts matter (homogeneity of degree zero), but efforts increase global production, the shares of global production and their value. The setup nests Malueg and Yates (2006), who study the implications of homogeneous contest success functions of degree zero in rent-seeking games.
    Keywords: Equilibrium effort, Homogeneous functions, Symmetric games.
    JEL: C70 D43 D72
    Date: 2018–04–26
  4. By: Simon Hoof (Paderborn University)
    Abstract: This note deals with agreeability in nontransferable utility (NTU) differential games. We introduce state feedback Pareto weights to enrich the set of efficient cooperative solutions. The framework is particularly useful if constant weights fail to support agreeability, but cooperation is desired nonetheless. The concept is applied to an adverting differential game.
    Keywords: NTU differential games, variable Pareto weights, agreeability
    JEL: C02 C61 C71
    Date: 2018–02
  5. By: Lin, Yu-Hsuan
    Abstract: This study examines the impact of social preferences on the individual incentives of participating in climate coalitions with laboratory experimental evidences. The theoretical result suggests that, when a player was inequality-neutral, a dominant strategy equilibrium could exist. However, individuals with social preference may lead a vacillated coalition formation. Joining or not joining depend on the player was critical or non-critical to an effective coalition respectively. The laboratory experimental result shows that players were inequality-averse and the coalition was usually larger than the equilibrium size but unstable. The inequality-averse attitudes have significantly positive impact on the incentives of participation. Particularly, when they are non-critical players, egalitarians are likely to give up the free riding benefit by joining a coalition. Our findings help to understand the climate coalition formation.
    Keywords: international environmental agreements; social preference; inequality-aversion; experimental design; climate coalition
    JEL: C91 D63 D71 Q54 Q58
    Date: 2018–03
  6. By: Mira Frick (Cowles Foundation, Yale University); Ryota Iijima (Cowles Foundation, Yale University); Yuhta Ishii (Harvard University)
    Abstract: Motivated by the fact that people’s perceptions of their societies are routinely incorrect, we study the possibility and implications of misperception in social interactions. We focus on coordination games with assortative interactions, where agents with higher types (e.g., wealth, political attitudes) are more likely than lower types to interact with other high types. Assortativity creates scope for misperception, because what agents observe in their local interactions need not be representative of society as a whole. To model this, we define a tractable solution concept, “local perception equilibrium” (LPE), that describes possible behavior and perceptions when agents’ beliefs are derived only from their local interactions. We show that there is a unique form of misperception that can persist in any environment: This is assortativity neglect, where all agents believe the people they interact with to be a representative sample of society as a whole. Relative to the case with correct perceptions, assortativity neglect generates two mutually reinforcing departures: A “false consensus effect,” whereby agents’ perceptions of average characteristics in the population are increasing in their own type; and more “dispersed” behavior in society, which adversely affects welfare due to increased miscoordination. Finally, we propose a comparative notion of when one society is more assortative than another and show that more assortative societies are characterized precisely by greater action dispersion and a more severe false consensus effect, and as a result, greater assortativity has an ambiguous effect on welfare.
    Keywords: Local interactions, Assortativity, Misperception
    JEL: C70 D80 D85
    Date: 2018–04
  7. By: Eraslan, Hulya (Rice University); Tang, Xun (Rice University)
    Abstract: We study the identification and estimation of large network games where each individual holds private information about its links and payoffs. Extending Galeotti, Goyal, Jackson, Vega-Redondo and Yariv (2010), we build a tractable empirical model of network games where the individuals are heterogenous with private link and payoff information, and characterize its unique, symmetric pure-strategy Bayesian Nash equilibrium. We then show that the parameters in individual payoffs are identified under "large market" asymptotics, whereby the number of individuals increases to infinity in a fixed and small number of networks. We also propose a consistent two-step m-estimator for individual payoffs. Our method is distribution-free in that it does not require parametrization of the distribution of shocks in individual payoffs. Monte Carlo simulation show that our estimator has good performance in moderate-sized samples.
    Date: 2017–12
  8. By: Miao, Chun-Hui
    Abstract: This paper nests "the contractors's game" in a simple consumer search model to study the impact of search cost in these markets. Under the assumption that the number of searches is private information, we find that, with a small search cost, there will be multiple search equilibria. Between the two price dispersion equilibria, only the Pareto-dominated one is stable. Moreover, in the stable equilibrium, (1) the expected equilibrium price decreases with the search cost of consumers; (2) consumers engage in excessive search that is detrimental to their own welfare, and (3) a decline in the search cost can leave consumers worse o¤, due to their lack of commitment. The model suggests the use of intermediaries as a commitment/coordination mechanism in such markets.
    Keywords: Bertrand competition, Contractors' game, Entry cost, Multiple equilibria, Search cost
    JEL: D40 L0
    Date: 2018–04–09
  9. By: Gloria Sheu (U.S. Department of Justice); Charles Taragin (U.S. Department of Justice)
    Abstract: We model a two-level supply chain where Nash bargaining occurs upstream, while firms compete in a differentiated products logit setting downstream. The parameters of this model can be calibrated with a discrete set of data on prices, margins, and market shares. Using a series of numerical experiments, we illustrate how the model can simulate the outcome of both horizontal and vertical mergers. In addition, we extend the framework to allow for downstream competition via a second score auction.
    Date: 2018–04
  10. By: Guillem Roig
    Abstract: I study the incentives of a common buyer to undertake cooperative investment with a group of suppliers providing a homogeneous input. In my model, investment is not directed to increase the gains from trade but to enhance the competitive pressure among suppliers. At the same time, however, investment may strengthen the bargaining position of suppliers. Which effect dominates depends on the intensity of competition in the trading game, which also determines the equilibrium distribution of investment. Then, the model reproduces different market structures, and a firm may have higher incentives to become active in markets where competition is expected to be vigorous.
    Keywords: Cooperative investment, Market structure, Competition, Bargaining position
    Date: 2018–04–01
  11. By: Emilio Calvo (Universidad de Valencia. ERI-CES)
    Abstract: This paper is devoted to analyzing the problem of how to distribute the public spending among the different regions of a country once all taxes are collected. We model the problem as a cooperative game in coalitional form. For that purpose, we need to specify how much tax is collected in every region (and coalition of regions) in the country under secession. In this way, we obtain the tax game of the problem, and its core is given by the set of stable tax allocations. Following such an approach, we are able to analyze the stability of a tax financing system. The Spanish case is considered and we show that the present regional financial system is unstable from this perspective.
    Keywords: fiscal federalism; fiscal stability; secessionism; coalitional games
    JEL: H72 H77 C71
    Date: 2017–07
  12. By: Ludmila Matyskova
    Abstract: A sender who chooses a signal to reveal to a receiver can often influence the receiver’s subsequent actions. Is persuasion more difficult when the receiver has her own sources of information? Does the receiver benefit from having additional information sources? We consider a Bayesian persuasion model extended to a receiver’s endogenous acquisition of information under an entropy-based cost commonly used in rational inattention. A sender’s optimal signal can be computed from standard Bayesian persuasion subject to an additional constraint: the receiver never gathers her own costly information. We further determine a finite set of the sender’s signals satisfying the additional constraint in which some optimal signal must be contained. The set is characterized by linear conditions using the receiver’s utility and information cost parameters. The new method is also applicable to a standard Bayesian persuasion model and can simplify, sometimes dramatically, the search for a sender’s optimal signal (as opposed to a standard concavification technique used to solve these models). We show that the ‘threat’ of additional learning weakly decreases the sender’s expected equilibrium payoff. However, the outcome can be worse not only for the sender, but also for the receiver.
    Keywords: Bayesian persuasion; rational inattention; costly information acquisition; information design;
    JEL: D72 D81 D82 D83
    Date: 2018–03
  13. By: Jens Weghake; Claudia Keser; Martin Schmidt; Mathias Erlei (Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal))
    Abstract: We conducted a laboratory experiment to study the price setting behavior in two-sided markets. We seek to answer two specific research questions: Do participants charge the equilibrium prices that can be derived from a theoretical model? How is the price setting affected by the characteristics of the Nash equilibrium? Our study shows that there are hardly any realizations of the Nash equilibrium. Participants seem to use simple heuristics. The increase in complexity caused by asymmetry has two effects: On the one hand, it makes finding the optimal pricing more difficult so that, on average, we find prices that are further away from optimal prices. On the other hand, higher complexity goes along with stronger signals against non-expedient heuristics so that, on an individual level, the equilibrium is reached in more markets.
    Keywords: two-sided market theory, experiment, duopoly, platform competition
    JEL: C72 C91 D43 L13
    Date: 2018
  14. By: Raouf Boucekkine (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université - EHESS - École des hautes études en sciences sociales, IMéRA - Institute for Advanced Studies - Aix-Marseille University, IUF - Institut Universitaire de France - M.E.N.E.S.R. - Ministère de l'Éducation nationale, de l’Enseignement supérieur et de la Recherche); Fabien Prieur (University Paris X-Nanterre); Chrysovalantis Vasilakis (University of Bangor - University of Bangor, UCL IRES - Institut de recherches économiques et sociales - UCL - Université Catholique de Louvain); Benteng Zou (CREA - Center for Research in Economic Analysis - - Université du Luxembourg)
    Abstract: We provide an analysis of institutional dynamics under uncertainty by means of a stochastic differential game of lobbying with two players (conservatives vs liberals) and three main ingredients. The first one is uncertainty inherent in the institutional process itself. The second considers resource windfalls volatility impact on economic and institutional outcomes. Last but not least, the resource windfall level matters in the relative bargaining power of the players. We compute a unique closed-loop equilibrium with linear feedbacks. We show that the legislative state converges to an invariant distribution. Even more importantly, we demonstrate that the most likely asymptotic legislative state is favorable to the liberals. However, the more volatile resource windfalls, the less liberal is the most likely asymptotic state. Finally, we assess the latter prediction on a database covering 91 countries over the period 1973-2005. We focus on financial liberalization policies. We find that as the resources revenues volatility increases, the financial liberalization index goes down. We also find that this property remains robust across different specifications and sample distinctions.
    Keywords: institutional dynamics,petropolitics,lobbying games,revenue-dependent lobbying power,stochastic dynamic games,stochastic stability
    Date: 2018–04
  15. By: Abada, I.; Ehrenmann, A.; Lambin, X.
    Abstract: Following the development of decentralized generation and smart appliances, energy communities have become a phenomenon of increased interest. While the benefits of such communities have been discussed, there is increasing concern that inadequate grid tariffs may lead to excess adoption of such business models. Furthermore, snowball effects may be observed following the effects these communities have on grid tariffs. We show that restraining the study to a simple cost-benefit analysis is far from satisfactory. Therefore, we use the framework of cooperative game theory to take account of the ability of communities to share gains between members. The interaction between energy communities and the DSO then results in a non-cooperative equilibrium. We provide mathematical formulations and intuitions of such effects, and carry out realistic numerical applications where communities can invest jointly in solar panels and batteries. We show that such a snowball effect may be observed, but its magnitude and its welfare effects will depend on the grid tariff structure that is implemented, leading to possible PV over-investments.
    Keywords: Energy communities, Cooperative game theory, Non-cooperative game theory, Decentralized power production, Consumer participation, Micro-grids
    JEL: C61 C71 C72 D61 O13 Q42 Q49
    Date: 2018–04–18
  16. By: Phillip Monin (Office of Financial Research); Richard Bookstaber (University of California)
    Abstract: Markets coordinate the flow of information in the economy, aggregating it through the price mechanism. We develop a dynamic model of information transmission and aggregation in financial and other social networks in which continued membership in the network is contingent on the accuracy of opinions. Agents have opinions about a state of the world and form links to others in a directed fashion probabilistically. Agents update their opinions by averaging those of their connections, weighted by how long their connections have been in the system. Agents survive or die based on how far their opinions are from the true state. In contrast to the results in the extant literature on DeGroot learning, we show through simulations that for some parameterizations the model cycles stochastically between periods of high connectivity, in which agents arrive at a consensus opinion close to the state, and periods of low connectivity in which agents’ opinions are widely dispersed. We add varying degrees of homophily through a model parameter called tribal preference and find that crash frequency is decreasing in the degree of homophily. Our results suggest that the information aggregation function of markets can fail solely because of the dynamics of information flows, irrespective of shocks or news.
    Keywords: social networks, DeGroot learning, dynamic network formation, information transmission, nonlinear dynamical systems, crashes
    Date: 2017–03–02
  17. By: Giorgio Fabbri (GAEL - Laboratoire d'Economie Appliquée de Grenoble - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - INRA - Institut National de la Recherche Agronomique - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes); Silvia Faggian (Department of Economics, Ca' Foscari University of Venice); Giuseppe Freni (Department of Business and Economics, Parthenope University of Naples)
    Abstract: We develop a spatial resource model in continuous time in which two agents strategically exploit a mobile resource in a two-locations setup. In order to contrast the overexploitation of the resource (the tragedy of commons) that occurs when the player are free to choose where to fish/hunt/extract/harvest, the regulator can establish a series of spatially structured policies. We compare the three situations in which the regulator: (a) leaves the player free to choose where to harvest; (b) establishes a natural reserve where nobody is allowed to harvest; (c) assigns to each player a specific exclusive location to hunt. We show that when preference parameters dictate a low harvesting intensity, the policies cannot mitigate the overexploitation and in addition they worsen the utilities of the players. Conversely, in a context of harsher harvesting intensity, the intervention can help to safeguard the resource, preventing the extinction and also improving the welfare of both players.
    Keywords: Spatial harvesting problems, Markov perfect equilibrium, Environmental protec-,tion policies, Differential Games
    Date: 2018–04
  18. By: Garcia, Arturo; Leal, Mariel; Lee, Sang-Ho
    Abstract: This study considers a mixed duopoly with a consumer-friendly public firm and analyzes an endogenous timing game in the presence of output subsidy and emission tax. We provide a new irrelevance result concerning the choice of government policy in which regardless of the policy mix, the equilibrium of endogenous market structure is determined by the public firm’s concern on consumer surplus. We also show that the optimal policy mix can attain the first-best allocation for social welfare only when both firms have symmetric payoffs, which results in simultaneous-move outcome.
    Keywords: Keywords: irrelevance result; endogenous timing game; consumer-friendly public firm; emission tax; output subsidy
    JEL: L13 L32
    Date: 2018–04–01

This nep-gth issue is ©2018 by Sylvain Béal. 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.