nep-gth New Economics Papers
on Game Theory
Issue of 2018‒06‒18
twenty papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Dynamic Legislative Bargaining with Veto Power: Theory and Experiments By Nunnari, Salvatore
  2. Common-Value Public Goods and Informational Social Dilemmas By Caleb A. Cox; Brock Stoddard
  3. Aggregate behavior in matching markets with flexible contracts and non-transferable representations of preferences By John K. Dagsvik; Zhiyang Jia
  4. Existence, Uniqueness, and Algorithm for Identifying Free Riders in Multiple Public Good Games: Replacement Function Approach By Ken-ichi Suzuki; Jun-ichi Itaya; Akitomo Yamanashi; Tatsuyoshi Miyakoshi
  5. Group size effects in social evolution By Nöldeke, Georg; Peña, Jorge
  6. On unification of solutions to the bargaining problem By Claus-Jochen Haake; Cheng-Zhong Qin
  7. Conditional Cooperation:Review and Refinement By Christian Thöni; Stefan Volk
  8. Bi and Branching Strict Nash Networks in Two-way Flow Models: a Generalized Sufficient Condition By Banchongsan Charoensook
  9. International Environmental Agreements - Stability with Transfers among Countries By Effrosyni Diamantoudi; Eftichios Sartzetakis; Stefania Strantza
  10. Happy family of stable marriages By Gershon Wolansky
  11. A Behavioral Theory of Allocation in the Dictator Game By Osório, António (António Miguel)
  12. Tax Evasion on a Social Network By Duccio Gamannossi degl'Innocenti; Matthew D. Rablen
  13. Carpooling and the Economics of Self-Driving Cars By Ostrovsky, Michael; Schwarz, Michael
  14. Sweet Lemons: Mitigating Collusion in Organizations By Colin von Negenborn; Martin Pollrich
  15. Price Customization and Targeting in Platform Markets By Gomes, Renato; Pavan, Alessandro
  16. Shareholder bargaining power and the emergence of empty creditors By Colonnello, Stefano; Efing, Matthias; Zucchi, Francesca
  17. The Insurance Is the Lemon: Failing to Index Contracts By Hartman-Glaser, Barney; Hebert, Benjamin
  18. Sales Performance and Social Preferences By Essl, Andrea; von Bieberstein, Frauke; Kosfeld, Michael; Kröll, Markus
  19. Taxing Direct Sales of Digital Services: A Plea for Regulated and Internationally Coordinated Profit Splitting By Wolfram F. Richter
  20. Duopolistic price competition with captives By Zakaria Babutsidze

  1. By: Nunnari, Salvatore
    Abstract: In many domains, committees bargain over a sequence of policies and a policy remains in effect until a new agreement is reached. In this paper, I argue that, in order to assess the consequences of veto power, it is important to take into account this dynamic aspect. I analyze an infinitely repeated divide-the-dollar game with an endogenous status quo policy. I show that, irrespective of legislators' patience and the initial division of the dollar, policy eventually gets arbitrarily close to full appropriation by the veto player; that convergence to this outcome is slower, and the power to veto less valuable, in more patient committees; and that the veto player supports reforms that decrease his allocation. These results stand in sharp contrast to the properties of models where committees bargain over a single policy. The main predictions of the theory find support in controlled laboratory experiments.
    Keywords: Dynamic Legislative Bargaining; Endogenous Status Quo; Laboratory experiments; Markov perfect equilibrium; Veto Power
    JEL: C72 C73 C78 C92 D71 D72 D78
    Date: 2018–05
  2. By: Caleb A. Cox; Brock Stoddard
    Abstract: We experimentally examine the role of private information and communication in a public goods environment with uncertain returns. We consider a public goods game in which the Marginal Per Capita Return (MPCR) is either high or low. Before contributing, three players observe private signals correlated with the true MPCR and then send cheap talk messages to one another. There are social gains from truthful communication, but a private incentive to exaggerate. We compare treatments with and without cheap talk, finding that messages are largely truthful and influence contribution decisions. In further treatments, we increase the incentive to exaggerate and find reduced truthfulness and smaller gains from communication Key Words: public goods, experiment, information, cheap talk, game theory, cooperation
    JEL: C72 D83 H41
    Date: 2018
  3. By: John K. Dagsvik; Zhiyang Jia (Statistics Norway)
    Abstract: This paper modifies and extends the aggregate equilibrium models for matching markets developed earlier in the literature. Agents in the matching market search for a match among potential partners, including agreements about a flexible contract, such as hours and wage combinations in the labor market. Under general utility representations that are non-transferable and assuming the matching is stable, we derive a probabilistic framework for the probability of realizing a particular match, including the choice of contract. We also show that the popular transferable utility model with transferable utilities can be viewed as a limiting case within our modelling framework. The framework is practical to apply for empirical analysis and is at the same time sufficiently general to accommodate essential features of matching markets with heterogeneous agents.
    Keywords: Matching markets; Aggregation; Latent choice sets; Random utility matching models
    JEL: J22 C51
    Date: 2018–05
  4. By: Ken-ichi Suzuki; Jun-ichi Itaya; Akitomo Yamanashi; Tatsuyoshi Miyakoshi
    Abstract: This study shows the uniqueness of Nash equilibrium in the model of multiple voluntarily supplied public goods with potential contributors possessing different Cobb-Douglas preferences. This study provides a sufficient condition for uniqueness using graph theory. This sufficient condition allows us to use the replacement function approach of Cornes and Hartley (2007) not only to develop an algorithm for identifying free riders, but also to provide an alternative proof for the uniqueness of a Nash equilibrium in multiple public goods models.
    Keywords: public good, voluntary provision, uniqueness, aggregate game, Nash equilibrium, algorithm
    JEL: H41 F13 D01
    Date: 2018
  5. By: Nöldeke, Georg; Peña, Jorge
    Abstract: How the size of social groups affects the evolution of cooperative behaviors is a classic question in evolutionary biology. Here we investigate group size effects in evolutionary games in which individuals choose whether to cooperate or defect. We find that increasing the group size decreases the proportion of cooperators at both stable and unstable rest points of the replicator dynamics. This implies that larger group sizes can have negative effects (by reducing the amount of cooperation at stable polymorphisms) and positive effects (by enlarging the basin of attraction of more cooperative outcomes) on the evolution of cooperation. These two effects can be simultaneously present in games whose evolutionary dynamics features both stable and unstable rest points, such as public goods games with participation thresholds. Our theory recovers and generalizes previous results and is applicable to a broad variety of social interactions that have been studied in the literature.
    Keywords: evolution of cooperation; evolutionary game theory; replicator dynamics; public goods games
    JEL: C73 H41
    Date: 2018–05
  6. By: Claus-Jochen Haake (Paderborn University); Cheng-Zhong Qin (University of California)
    Abstract: We establish axioms under which a bargaining solution can be found by the maximization of the CES function and is unique up to specification of the distribution and elasticity parameters. This solution is referred to as the CES solution which includes the NASH and egalitarian solutions as special cases. Next, we consider a normalization of the CES function and establish axioms, under which a bargaining solution can be found by the maximization of the normalized CES and is unique up to the specifications of the distribution and its substitution parameters. We refer to this solution as the normalized CES solution, which includes the Nash and Kalai-Smorodinsky solutions as special cases. Our paper contributes to bargaining theory by establishing unified characterizations of existing as well as a great variety of new bargaining solutions.
    Keywords: Bargaining problem, CES Function, Normalized CES Function, Nash solution, Kalai-Smorodinsky Solution, Egalitarian Solution.
    JEL: C78 D21
    Date: 2018–05
  7. By: Christian Thöni; Stefan Volk
    Abstract: Fischbacher, Gächter, and Fehr (2001), henceforth FGF, introduced an experimental design to measure conditional cooperation in public goods games. We collected data from 17 replication studies of FGF and observed that the criteria used to identify types are not always consistent. We refine FGF’s definition of types to resolve ambiguous cases in FGF and its replications. Using our new classification scheme, we find in our combined data set with more than 7,000 individual observations that FGF’s original findings are by-and-large stable: conditional cooperation is the predominant pattern; free-riding is frequent, while non-minimal, unconditional cooperation is very rare.
    Keywords: Conditional cooperation; public goods game; replication
    JEL: H41 C91 C72
    Date: 2018–06
  8. By: Banchongsan Charoensook (Keimyung Adams College, Keimyung University, Department of International Business)
    Abstract: Bi and branching networks are two classes of minimal networks often found in the literatures of two-way flow Strict Nash networks. Why so? In this paper, we answer this question by establishing a generalized condition that holds together many models in the literature, and then show that this condition is sufficient to guarantee their common result: every non-empty component of minimal SNN is either a branching or Bi network. This paper, therefore, contributes to the literature by providing a generalization of several existing works in the literature of two-way flow Strict Nash networks.
    Keywords: Network Formation, Strict Nash Network, Two-way Flow Network, Branching Network
    JEL: C72 D85
    Date: 2018–05
  9. By: Effrosyni Diamantoudi (Concordia University); Eftichios Sartzetakis (University of Macedonia); Stefania Strantza (Concordia University)
    Abstract: The paper examines the stability of self-enforcing International Environmental Agreements (IEAs) among heterogeneous countries, allowing for transfers. We employ a two-stage, non-cooperative model of coalition formation. In the first stage each country decides whether or not to join the agreement, while in the second stage countries choose their emissions simultaneously. Coalition members agree also to share the gains from cooperation in the first stage. We use quadratic benefit and environmental damage functions and assume two types of countries differing in their sensitivity to the global pollutant. In examining the impact of transfers on the coalition size, we apply the notion of Potential Internal Stability (PIS). Results show that transfers can increase cooperation among heterogeneous countries. However, the increase in the coalition size, relative to the case without transfers, comes only from countries belonging to the type with the lower environmental damages, which are drawn into the coalition by the transfers offered. Furthermore, the level of cooperation increases with the degree of heterogeneity. However, the reduction in aggregate emissions achieved by the enlarged coalition is very small leading to dismal improvement in welfare, which confirms the "paradox of cooperation".
    Keywords: International Environmental Agreements, Heterogeneous Countries, Transfers
    JEL: Q5 Q54
    Date: 2018–05
  10. By: Gershon Wolansky
    Abstract: Some aspects of the problem of stable marriage are discussed. There are two distinguished marriage plans: the fully transferable case, where money can be transferred between the participants, and the fully non transferable case where each participant has its own rigid preference list regarding the other gender. We continue to discuss intermediate partial transferable cases. Partial transferable plans can be approached as either special cases of cooperative games using the notion of a core, or as a generalization of the cyclical monotonicity property of the fully transferable case (fake promises). We shall introduced these two approaches, and prove the existence of stable marriage for the fully transferable and non-transferable plans.
    Date: 2018–05
  11. By: Osório, António (António Miguel)
    Abstract: This paper attempts to explain the behavior observed in the dictator game without explicitly assuming a utility function. Alternatively, I consider the representative behavior of a society composed of heterogeneous individuals in terms of altruism and self-interest. Based on these two principles, I present an allocation that aggregates the society's preferences. The result depends crucially on the value of the resource under dispute for the dictator. Even if the value of the resource is extremely important for the dictator, the dictator cannot justify a share of the resource larger than 3/4 of the total. An allocation proposing more than this share of the resource cannot reach social consensus. On the other extreme, if the value of the resource is sufficiently unimportant for the society, an equal split of the resource emerges in the limit. Keyword: Dictator Game; Allocation Rules; Altruism; Self-interest; Conflict Resolution. JEL classifi cation: C91, D03, D63, D74.
    Keywords: Disseny d'experiments, Economia del benestar, Decisió de grup, 33 - Economia,
    Date: 2018
  12. By: Duccio Gamannossi degl'Innocenti; Matthew D. Rablen
    Abstract: We relate tax evasion behavior to a substantial literature on self and social comparison in judgements. Tax payers engage in tax evasion as a means to boost their expected consumption relative to others in their “local” social network, and relative to past consumption. The unique Nash equilibrium of the model relates optimal evasion to a (Bonacich) measure of network centrality: more central taxpayers evade more. The indirect revenue effects from auditing are shown to be ordinally equivalent to a related Bonacich centrality. We generate networks corresponding closely to the observed structure of social networks observed empirically. In particular, our networks contain celebrity taxpayers, whose consumption is widely observed, and who are systematically of higher wealth. In this context we show that, if the tax authority can observe the social network, it is able to raise its audit revenue by around six percent.
    Keywords: tax evasion, social networks, network centrality, optimal auditing, social comparison, self comparison, habit, indirect effects, relative consumption
    JEL: H26 D85 K42
    Date: 2018
  13. By: Ostrovsky, Michael (Stanford University); Schwarz, Michael (Microsoft)
    Abstract: We study the interplay between autonomous transportation, carpooling, and road pricing. We discuss how improvements in these technologies, and interactions among them, will affect transportation markets. Our main results show how to achieve socially efficient outcomes in such markets, taking into account the costs of driving, road capacity, and commuter preferences. An important component of the efficient outcome is the socially optimal matching of carpooling riders. Our approach shows how to set road prices and how to share the costs of driving and tolls among carpooling riders in a way that implements the efficient outcome.
    Date: 2018–02
  14. By: Colin von Negenborn; Martin Pollrich
    Abstract: This paper shows that the possibility of collusion between an agent and a supervisor imposes no restrictions on the set of implementable social choice functions (SCF) and associated payoff vectors. Any SCF and any payoff profile that are implementable if the supervisor’s information was public is also implementable when this information is private and collusion is possible. To implement a given SCF we propose a one-sided mechanism that endogenously creates private information for the supervisor vis-Ã -vis the agent, and conditions both players’ payoffs on this endogenous information. We show that in such a mechanism all collusive side-bargaining fails, similar to the trade failure in Akerlof’s (1970) car market and in models of bilateral trade.
    Keywords: Mechanism Design, Collusion, Asymmetric Information, Correlation
    JEL: D82 D83 L51
    Date: 2018–05
  15. By: Gomes, Renato; Pavan, Alessandro
    Abstract: Recent technologies enable matching intermediaries to engage in unprecedented levels of targeting, whereby matches finely depend on the agents' characteristics, but also favor customized (i.e., match-specific) pricing. Yet, novel regulations on the transfer of personal data, as well as a renewed trend towards market decentralization, are expected to hinder price customization and favor uniform pricing (whereby the price of a match charged to agents on a given side of a market is invariant in the agents' observable characteristics). To assess the impact of these developments, we build a matching model in which agents' preferences are both vertically and horizontally differentiated. Mirroring current practices, we show how, absent regulations, platforms maximize profits through price customization, link the latter to structural elasticities, and assess the targeting effects of market power. Perhaps surprisingly, we show that uniform pricing may either increase or decrease targeting levels and consumer welfare, depending on testable properties of demand. The analysis has implications for online shopping, ad-exchanges, and media platforms.
    Keywords: asymmetric information; incentives; Many-to-many matching; platforms; price discrimination
    JEL: D82
    Date: 2018–05
  16. By: Colonnello, Stefano; Efing, Matthias; Zucchi, Francesca
    Abstract: Credit default swaps (CDSs) can create empty creditors who potentially force borrowers into inefficient bankruptcy but also reduce shareholders' incentives to default strategically. We show theoretically and empirically that the presence and the effects of empty creditors on firm outcomes depend on the distribution of bargaining power among claimholders. Firms are more likely to have empty creditors if these would face powerful shareholders in debt renegotiation. The empirical evidence confirms that more CDS insurance is written on firms with strong shareholders and that CDSs increase the bankruptcy risk of these same firms. The ensuing effect on firm value is negative.
    Keywords: empty creditors,credit default swaps,bargaining power,real effects
    JEL: G32 G33 G34
    Date: 2018
  17. By: Hartman-Glaser, Barney (University of California, Los Angeles); Hebert, Benjamin (Stanford University)
    Abstract: We model the widespread failure of contracts to share risk using available indices. A borrower and lender can share risk by conditioning repayments on an index. The lender has private information about the ability of this index to measure the true state the borrower would like to hedge. The lender is risk-averse, and thus requires a premium to insure the borrower. The borrower, however, might be paying something for nothing, if the index is a poor measure of the true state. We provide sufficient conditions for this effect to cause the borrower to choose a non-indexed contract instead.
    Date: 2017–12
  18. By: Essl, Andrea (University of Bern); von Bieberstein, Frauke (University of Bern); Kosfeld, Michael (Goethe University Frankfurt); Kröll, Markus
    Abstract: We use an incentivized experimental game to uncover heterogeneity in otherregarding preferences among salespeople in a large Austrian retail chain. Our results show that the majority of agents take the welfare of others into account but a significant fraction reveals self-regarding behavior. Matching individual behavior in the game with firm data on sales performance shows that higher concern for others is significantly associated with higher revenue per customer. At the same time, it is also associated with fewer sales per day. Both effects offset each other, so that the overall association with total sales revenue becomes insignificant. Our findings highlight the nuanced role of self- vs. other-regarding concerns in sales contexts with important implications for management and marketing research.
    Keywords: other-regarding preferences, sales performance, experimental games
    JEL: C91 D91 M31
    Date: 2018–04
  19. By: Wolfram F. Richter
    Abstract: The employment of capital is rival in nature. Small countries do not benefit from taxing its employment. By contrast, the use of digital services is non-rival and small countries do benefit from taxing expenditures on such services. In fact, some countries have already decided to tax digital activities. If such practice spreads, the development of digital services is negatively affected. It is argued that countries exporting digital services have reason to respond by promoting an international tax regime in which the right of taxing the profit earned on the direct sales of digital services is split between the countries involved.
    Keywords: taxing digital services, import tax, tax exemption, profit splitting, Shapley value
    JEL: H25 M48
    Date: 2018
  20. By: Zakaria Babutsidze (Observatoire français des conjonctures économiques)
    Abstract: We extend the Bertrand duopolistic competition to include captives. These are consumers that have no choice between the suppliers. Usual population of shoppers are modeled performing a sequential search in order to decide where to buy a homogenous good. These two simple departures from the original setup have sharp consequences. First, we find that duopolistic price competition is not robust to inclusion of captives. The equilibrium results starkly differ and the only possible equilibrium now includes duopolists charging monopolistic prices. Second, addition of sequential search introduces multiplicity of pure strategy Nash equilibria. In this setup, we observe perverse optimal response to competitor's price changes. Notably, we find that the firm might want to reduce the price in response to the competitor's price increase, which is at odds with the usual undercutting principle. Third, we investigate the behavior of equilibrium prices depending on the heterogeneity in consumer risk attitudes. We find that the higher consumer heterogeneity with respect to acceptance of risky gambles leads to higher prices in equilibrium.
    Date: 2016–09

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