nep-gth New Economics Papers
on Game Theory
Issue of 2018‒08‒20
33 papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. "Games of Love and Hate" By Debraj Ray; Rajiv Vohra
  2. An indirect evolutionary justification of risk neutral bidding in fair division games By Paul Pezanis-Christou; Werner Güth
  3. Influence in Private-Good Economies By Madhav Raghavan
  4. Efficiency of Correlation in a Bottleneck Game By Rivera, Thomas J; Scarsini, Marco; Tomala, Tristan
  5. Stationary Nash Equilibria for Two-Player Average Stochastic Games with Finite State and Action Spaces By Lozovanu, Dmitrii; Pickl, Stefan
  6. Types of Equilibrium Points in Antagonistic Games with Ordered Outcomes By Rozen, Victor V.
  7. Cooperation in Dynamic Network Games By Gao, Hongwei; Pankratova, Yaroslavna
  8. Games with Incomplete Information on the Both Sides and with Public Signal on the State of the Game By Gavrilovich, Misha; Kreps, Victoria
  9. Insider networks By Erol, Selman; Lee, Michael Junho
  10. Gale's Fixed Tax for Exchanging Houses By Tommy ANDERSSON; Lars EHLERS; Lars-Gunnar SVENSSON; Ryan TIERNEY
  11. Blotto Games with Costly Winnings By Nowik, Irit; Nowik, Tahl
  12. Marriage Strategy Among the European Nobility By Stefania Marcassa; Jérôme Pouyet; Thomas Trégouët
  13. Frustration and Anger in the Ultimatum Game: An Experiment By Chiara Aina; Pierpaolo Battigalli; Astrid Gamba
  14. On the Conditions on the Integral Payoff Function in the Games with Random Duration By Gromova, Ekaterina V.; Malakhova, Anastasiya P.; Tur, Anna V.
  15. "An Index of Unfairness" By Victor H. Aguiar; Roland Pongou; Roberto Serrano; Jean-Baptiste Tondji
  16. Implementing the Median By Matías Núñez; Carlos Pimienta; Dimitrios Xefteris
  17. Regime Change in Large Information Networks By Joan de Martí; Pau Milán
  18. Nash Equilibrium Strategies and Survival Portfolio Rules in Evolutionary Models of Asset Markets By Sergei Belkov; Igor V. Evstigneev; Thorsten Hens
  19. Bundling Incentives in (Many-to-Many) Matching with Contracts By Jonathan Ma; Scott Duke Kominers
  20. Managing Competition on a Two-Sided Platform By Paul Belleflamme; Martin Peitz
  21. What Does 'We' Want? Team Reasoning, Game Theory, and Unselfish Behaviours By Guilhem Lecouteux
  22. Quantile-Based Risk Sharing with Heterogeneous Beliefs By Paul Embrechts; Haiyan Liu; Tiantian Mao; Ruodu Wang
  23. Shortfall Minimization for Game Options in Continuous Time By Yuri Kifer
  24. Relational Communication By Anton Kolotilin; Hongyi
  25. Information-Theoretic Limits of Strategic Communication By Le Treust, Maël; Tomala, Tristan
  26. Organizing Time Banks: Lessons from Matching Markets By Andersson, Tommy; Csehz, Ágnes; Ehlers , Lars; Erlanson, Albin
  27. Multilevel Marketing: Pyramid-Shaped Schemes or Exploitative Scams? By Antler, Yair
  28. Collective Mistakes: Intuition Aggregation for a Trick Question under Strategic Voting By Tajika, Tomoya
  29. Optimal Mechanism Design with Resale: An Ex-Ante Price Default Model By Weiye Cheny
  30. Multi-Pollutant Point-Nonpoint Trading with Participation Decisions: The Role of Transaction Costs By Carson Reeling; Richard D. Horan; Cloé Garnache
  31. Farmland Values and Bidder Behavior in First-Price Land Auctions By Croonenbroeck, Carsten; Odening, Martin; Hüttel, Silke
  32. Structural Analysis of First-Price Auction Data: Insights from the Laboratory By Paul Pezanis-Christou; Andrés Romeu
  33. Do Corporate Environmental Contributions Justify the Public Interest Defence? By Nigar Hashimzade; Gareth Myles

  1. By: Debraj Ray; Rajiv Vohra
    Abstract: A game of love and hate is one in which a player’s payoff is a function of her own action and the payoffs of other players. For each action profile, the associated payoff profile solves an interdependent utility system, and if that solution is bounded and unique for every profile we call the game coherent. Coherent games generate a standard normal form. Our central theorem states that every Nash equilibrium of such a game is Pareto optimal, in sharp contrast to the general prevalence of inefficient equilibria in the presence of externalities. While externalities in our model are restricted to flow only through payoffs there are no other constraints: they could be positive or negative, or of varying sign. We further show that our coherence and continuity requirements are tight.
    Date: 2018
  2. By: Paul Pezanis-Christou (School of Economics, University of Adelaide); Werner Güth (Max Planck Institute for Research on Collective Goods (Bonn) and LUISS (Rome))
    Abstract: We justify risk neutral equilibrium bidding in commonly known fair division games with incomplete information in an evolutionary setup by postulating (i) minimal common knowledge assumptions, (ii) optimally responding agents to conjectural beliefs about how others behave and (iii) evolution of conjectural beliefs with fitness measured by expected payoffs. We axiomatically justify the game forms, derive the evolutionary games for first- and second-price fair division and determine the evolutionarily stable conjectures. The latter coincide with equilibrium bidding, irrespectively of the number of bidders, i.e., heuristic belief adaptation implies the same bidding behavior as equilibrium analysis based on common knowledge and counterfactual bids.
    Date: 2018–07
  3. By: Madhav Raghavan
    Abstract: Many private-good allocation rules allow for certain agents - when they change the preferences they report to the rule - to affect the welfare of other agents without affecting their own welfare. Classic examples are the agent-proposing Gale-Shapley rule for matching (Gale and Shapley, 1962) and the Vickrey rule for single-object auctions (Vickrey, 1961). We propose a new methodology, based on the study of this influence that agents might have on each other's welfare, that furthers our understanding of such rules. Moreover, we use structural conditions on influence to explain why some rules satisfy normatively desirable properties such as Pareto-efficiency, stability, weak Maskin monotonicity, non-wastefulness, and weak group-strategy-proofness, while others do not. Illustrative applications include the efficiency-adjusted deferred acceptance mechanism for matching (Kesten, 2010), and generalised absorbing top-trading-cycles rules in object-allocation models (Aziz and Keijzer, 2011).
    Keywords: Private-goods allocation; welfare; strategy-proofness; influence; matching; single-object auctions; object-allocation; non-bossiness; Pareto-efficiency; stability
    JEL: C78 D71
    Date: 2018–07
  4. By: Rivera, Thomas J (HEC Paris); Scarsini, Marco (LUISS, Dipartimento di Economia e Finanza); Tomala, Tristan (HEC Paris)
    Abstract: We consider a model of bottleneck congestion in discrete time with a penalty cost for being late. This model can be applied to several situations where agents need to use a capacitated facility in order to complete a task before a hard deadline. A possible example is a situation where commuters use a train service to go from home to office in the early morning. Trains run at regular intervals, take always the same time to cover their itinerary, and have a fixed capacity. Commuters must reach their office in time. This is a hard constraint whose violation involves a heavy penalty. Conditionally on meeting the deadline, commuters want to take the train as late as possible. With the intent of considering strategic choices of departure, we model this situation as a game and we show that it does not have pure Nash equilibria. Then we characterize the best and worst mixed Nash equilibria, and show that they are both inefficient with respect to the social optimum. We then show that there exists a correlated equilibrium that approximates the social optimum when the penalty for missing the deadline is sufficiently large.
    Keywords: Nash equilibrium; correlated equilibrium; efficiency of equilibria; price of anarchy; price of stability; price of correlated stability.
    JEL: C72 C73
    Date: 2018–07–25
  5. By: Lozovanu, Dmitrii; Pickl, Stefan
    Abstract: From Contributions to game theory and management, vol. X. Collected papers presented on the Tenth International Conference Game Theory and Management / Editors Leon A. Petrosyan, Nikolay A. Zenkevich. Ó SPb.: Saint Petersburg State University, 2017. Ó 404 p.
    Keywords: two-players stochastic games, average payoffs, stationary Nash equilibria, optimal stationary strategies,
    Date: 2017
  6. By: Rozen, Victor V.
    Abstract: in Contributions to game theory and management, vol. X. Collected papers presented on the Tenth International Conference Game Theory and Management / Editors Leon A. Petrosyan, Nikolay A. Zenkevich. Ó SPb.: Saint Petersburg State University, 2017. Ó 404 p.
    Keywords: game with ordered outcomes, saddle point, general equilibrium point, transitive equilibrium point,
    Date: 2017
  7. By: Gao, Hongwei; Pankratova, Yaroslavna
    Abstract: Collected papers presented on the Tenth International Conference Game Theory and Management /Editors Leon A. Petrosyan, Nikolay A. Zenkevich. Ó SPb.: Saint Petersburg State University, 2017. Ó 404 p.
    Keywords: dynamic games, cooperation, network,, pairwise interactions, time-consistency,
    Date: 2017
  8. By: Gavrilovich, Misha; Kreps, Victoria
    Abstract: Collected papers presented on the Tenth International Conference Game Theory and Management / Editors Leon A. Petrosyan, Nikolay A. Zenkevich. Ó SPb.: Saint Petersburg State University, 2017. Ó 404 p.
    Keywords: zero-sum game, incomplete information, asymmetry, finite automata,
    Date: 2017
  9. By: Erol, Selman (Carnegie Mellon University); Lee, Michael Junho (Federal Reserve Bank of New York)
    Abstract: This paper develops a model to study the formation and regulation of information transmission networks. We analyze a cat and mouse game between a regulator, who sets and enforces a regulatory environment, and agents, who form networks to disseminate and share insider information. For any given regulatory environment, agents adapt by forming networks that are sufficiently complex to circumvent prosecution by regulators. We show that regulatory ambiguity arises as an equilibrium phenomenon—regulators deliberately set broad regulatory boundaries in order to avoid explicit gaming by agents. As a response, we show that agents form a core-periphery network, with core members acting as conduits of information on behalf of their stakeholders, effectively intermediating all transmissions of information within the network.
    Keywords: network formation; insider trading; regulatory ambiguity; endogenous intermediation
    JEL: D85 G14 G20
    Date: 2018–08–01
  10. By: Tommy ANDERSSON; Lars EHLERS; Lars-Gunnar SVENSSON; Ryan TIERNEY
    Abstract: We consider the taxation of exchanges among a set of agents where each agent owns one object. Agents may have different valuations for the objects and they need to pay taxes for exchanges. Using basic properties, we show that if pairwise (or some) exchanges of objects are allowed, then all exchanges (in any possible manner) must be feasible. Furthermore, whenever any agent exchanges his object, he pays the same fixed tax (a lump sum payment which is identical for all agents) independently of which object he consumes. Gale’s top trading cycles algorithm finds the final allocation using the agents’ valuations adjusted with the fixed tax. Our mechanisms are in stark contrast to Clarke-Groves taxation schemes or the max-med schemes proposed by Sprumont (2013).
    Keywords: fixed tax, exchanges, top trading
    JEL: C71 C78 D63 D71 D78
    Date: 2018
  11. By: Nowik, Irit; Nowik, Tahl
    Abstract: From Contributions to game theory and management, vol. X. Collected papers presented on the Tenth International Conference Game Theory and Management / Editors Leon A. Petrosyan, Nikolay A. Zenkevich. Ó SPb.: Saint Petersburg State University, 2017. Ó 404 p.
    Date: 2017
  12. By: Stefania Marcassa (Université de Cergy-Pontoise); Jérôme Pouyet (ESSEC Business School); Thomas Trégouët (Université de Cergy-Pontoise THEMA)
    Abstract: We use a unique dataset to analyze marriage and union patterns of the European nobility from the 1500s to the 1800s. Historical evidence shows that: nobles tended to marry nobles with identical title; and, German marriages, whose dowry rules were more rigid, were characterized by a higher degree of homogamy in titles than English marriages. Moreover, we show that German data exhibit lower odds of intermarriage than English among high ranked titles, and hence provide evidence of a more stratified society. We propose a matching model that rationalizes our empirical findings: it predicts homogamy in title, and that more stringent constraints on the dowries lead to a higher degree of homogamy.
    Keywords: Marriage, nobility, class, elite, history, assortative matching
    JEL: C78 J12 J16 N34 Z10
    Date: 2018–08
  13. By: Chiara Aina; Pierpaolo Battigalli; Astrid Gamba
    Abstract: In social dilemmas, choices may depend on belief-dependent motivations enhancing the credibility of promises or threats at odds with personal gain maximization. We address this issue theoretically and experimentally in the context of the Ultimatum Minigame, assuming that the choice of accepting or rejecting an unfair proposal is affected by a combination of frustration, due to unfulfilled expectations, and inequity aversion. We increase the responder's payoff from the default allocation (the proposer's outside option) with the purpose of increasing the responder's frustration due to the unfair proposal, and thus his willingness to reject it. In addition, we manipulate the method of play, with the purpose of switching on (direct response method) and off (strategy method) the responder's experience of anger. We found overwhelming evidence in support of belief-dependent preferences: in the direct method, the higher the responders' initial expectations of the default allocation, the more likely they are to reject the unfair proposal. In line with our predictions, the direct method increases the frequency of rejections. Instead, against our predictions, the payoff increase does not have such effect. Interestingly, the distribution of actions of male subjects is in line with the theory, but not that of females. Keywords: Experiments, psychological games, ultimatum minigame, frustration, anger, non-equilibrium analysis. JEL classification: C72, C91, D03
    Date: 2018
  14. By: Gromova, Ekaterina V.; Malakhova, Anastasiya P.; Tur, Anna V.
    Abstract: Collected papers presented on the Tenth International Conference Game Theory and Management /Editors Leon A. Petrosyan, Nikolay A. Zenkevich. Ó SPb.: Saint Petersburg State University, 2017. Ó 404 p.
    Keywords: differential games, random duration, environment, pollution control,
    Date: 2017
  15. By: Victor H. Aguiar; Roland Pongou; Roberto Serrano; Jean-Baptiste Tondji
    Abstract: Aguiar et al. (2018) propose the Shapley distance as a measure of the extent to which output sharing among the stakeholders of an organization can be considered unfair. It measures the distance between an arbitrary pay profile and the Shapley pay profile under a given technology, the latter profile defining the fair distribution. We provide an axiomatic characterization of the Shapley distance, and show that it can be used to determine the outcome of an underlying bargaining process. We also present applications highlighting how favoritism in income distribution, egalitarianism, and taxation violate the different ideals of justice that define the Shapley value. The analysis has implications that can be tested using real-world data sets.
    Date: 2018
  16. By: Matías Núñez (Universitè Paris-Dauphine, PSL Research University, CNRS, Lamsade); Carlos Pimienta (School of Economics, UNSW Business School); Dimitrios Xefteris (University of Cyprus, Department of Economics)
    Abstract: In the single-peaked domain, the median rules (Moulin, 1980) are of special interest. They are, essentially, the unique strategy-proof rules as well as the unique Nash implementable ones under complete information. We show that, under mild assumptions on admissible priors, they are also Bayes-Nash implementable by the means of ``detail-free'' mechanisms. That is, mechanisms that do not rely on the mechanism designer having detailed information about the priors that the agents hold. Furthermore, detail-free implementation of the median rules does not clash with truthful behavior. The provided mechanism is such that, in every equilibrium, all agents reveal their true peak with probability one.
    Keywords: Nash Implementation, Bayesian Implementation, Robust Implementation, Detail-free, Median rule, Strategy-proofness, Single-Peaked Preferences, Condorcet Winner.
    JEL: C9 D71 D78 H41
    Date: 2018–07
  17. By: Joan de Martí; Pau Milán
    Abstract: We study global games of regime change within networks of truthful communication. Agents can choose between attacking and not attacking a status quo, whose strength is unknown. Players share private signals on this state of the world with their immediate neighbors. Communication with neighboring players introduces local correlations in posterior beliefs and also allows for the pooling of information. In order to isolate the latter effect, we provide, as a methodological contribution, sparseness conditions on networks that allow for asymptotic approximations that eliminate covariances from equilibrium strategies. We ask how changes in the distribution of connectivities in the population affect the types of coordination in equilibrium as well as the likelihood of successful rally. We find that without a public signal strategic incentives align, and the probability of success remains independent of the type of network. With a public signal the distribution of degrees unambiguously affects the probability of success, although the direction of change is not monotone, and depends crucially on the cost of attack.
    Date: 2018–07
  18. By: Sergei Belkov (University of Manchester); Igor V. Evstigneev (University of Manchester); Thorsten Hens (University of Zurich, Norwegian School of Economics and Business Administration (NHH), and Swiss Finance Institute)
    Abstract: We consider a stochastic model of a financial market with one-period assets and endogenous asset prices. The model was initially developed and analyzed in the context of Evolutionary Finance with the main focus on questions of "survival and extinction" of investment strategies (portfolio rules). In this paper we view the model from a different, game-theoretic, perspective and analyze Nash equilibrium properties of survival portfolio rules.
    Keywords: Stochastic games, Evolutionary finance, Capital growth theory, Random dynamical systems.
    JEL: C73 D52 G11
    Date: 2017–08
  19. By: Jonathan Ma (Harvard University); Scott Duke Kominers (Harvard Business School, Entrepreneurial Management Unit)
    Abstract: In many-to-many matching with contracts, the way in which contracts are specified can affect the set of stable equilibrium outcomes. Consequently, agents may be incentivized to modify the set of contracts upfront. We consider one simple way in which agents may do so: unilateral bundling, in which a single agent links multiple contracts with the same counterparty together. We show that essentially no stable matching mechanism eliminates incentives for unilateral bundling. Moreover, we find that unilateral bundling can sometimes lead to Pareto improvement?and other times produces market power that makes one agent better off at the expense of others.
    Keywords: Matching with contracts; Contract design; Bundling-proofness; Substitutability
    JEL: C62 C78 D44
    Date: 2018–08
  20. By: Paul Belleflamme (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Martin Peitz (Department of Economics and MaCCI, University of Mannheim)
    Abstract: On many two-sided platforms, users on one side not only care about user participation and usage levels on the other side, but they also care about participation and usage of fellow users on the same side. Most prominent is the degree of seller competition on a platform catering to buyers and sellers. In this paper, we address how seller competition affects platform pricing, product variety, and the number of platforms that carry trade.
    Keywords: network effects,two-sided markets,platform competition,intermediation,pricing,imperfect competition
    Date: 2018–06
  21. By: Guilhem Lecouteux (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis - UCA - Université Côte d'Azur - CNRS - Centre National de la Recherche Scientifique, UCA - Université Côte d'Azur)
    Date: 2018–07–12
  22. By: Paul Embrechts (Swiss Federal Institute of Technology Zurich and Swiss Finance Institute); Haiyan Liu (Michigan State University); Tiantian Mao (University of Science and Technology of China (USTC)); Ruodu Wang (University of Waterloo)
    Abstract: We study risk sharing games with quantile-based risk measures and heterogeneous beliefs, motivated by the use of internal models in finance and insurance. Explicit forms of Pareto-optimal allocations and competitive equilibria are obtained by solving various optimization problems. For Expected Shortfall (ES) agents, Pareto-optimal allocations are shown to be equivalent to equilibrium allocations, and the equilibrium price is unique. For Value-at-Risk (VaR) agents or mixed VaR and ES agents, a competitive equilibrium does not exist. Our results generalize existing ones on risk sharing games with risk measures and belief homogeneity, and draw an interesting connection to early work on optimization properties of ES and VaR.
    Keywords: Risk Sharing, Competitive Equilibrium, Belief Heterogeneity, Quantiles, Non-Convexity, Risk Measures
    Date: 2017–12
  23. By: Yuri Kifer
    Abstract: We prove existence of a self-financing strategy which minimizes shortfall for game options in discrete time
    Date: 2018–07
  24. By: Anton Kolotilin (School of Economics, UNSW Business School); Hongyi (School of Economics, UNSW Business School)
    Abstract: We study a communication game between an informed sender and an uninformed receiver with repeated interactions and voluntary transfers. Transfers motivate the receiver’s decision-making and signal the sender’s information. Although full separation can always be supported in equilibrium, partial or complete pooling is optimal if the receiver’s decision-making is too responsive to information. In this case, the receiver’s decision-making is disciplined by pooling extreme states, where she is most tempted to defect. In characterizing optimal equilibria, we establish new results on monotone persuasion.
    Keywords: strategic communication, monotone persuasion, relational contracts
    JEL: C73 D82 D83
    Date: 2018–07
  25. By: Le Treust, Maël (ENSEA/ETIS - UMR CNRS 8051); Tomala, Tristan (HEC Paris)
    Abstract: In this article, we investigate strategic information transmission over a noisy channel. This problem has been widely investigated in Economics, when the communication channel is perfect. Unlike in Information Theory, both encoder and decoder have distinct objectives and choose their encoding and decoding strategies accordingly. This approach radically differs from the conventional Communication paradigm, which assumes transmitters are of two types: either they have a common goal, or they act as opponent, e.g. jammer, eavesdropper. We formulate a point-to-point source-channel coding problem with state information, in which the encoder and the decoder choose their respective encoding and decoding strategies in order to maximize their long-run utility functions. This strategic coding problem is at the interplay between Wyner-Ziv’s scenario and the Bayesian persuasion game of Kamenica-Gentzkow. We characterize a single-letter solution and we relate it to the previous results by using the concavification method. This confirms the benefit of sending encoded data bits even if the decoding process is not supervised, e.g. when the decoder is an autonomous device. Our solution has two interesting features: it might be optimal not to use all channel resources; the informational content impacts the encoding process, since utility functions capture preferences on source symbols.
    Keywords: strategic information transmission; strategic coding problem;
    JEL: D82 D83
    Date: 2018–07–13
  26. By: Andersson, Tommy (Department of Economics, Lund University); Csehz, Ágnes (Hungarian Academy of Sciences, Institute of Economics); Ehlers , Lars (Département de sciences économiques, Université de Montréal); Erlanson, Albin (Stockholm School of Economics, Department of Economics)
    Abstract: A time bank is a group of individuals and/or organizations in a local community that set up a common platform to trade services among themselves. There are several well-known problems associated with this type of banking, e.g., high overhead costs for record keeping and difficulties to identify feasible trades. This paper demonstrates that these problems can be solved by organizing time banks as a centralized matching market and, more specifically, by organizing trades based on a non-manipulable mechanism that selects an individually rational and time-balanced allocation which maximizes exchanges among the members of the time bank (and those allocations are efficient). Such a mechanism does not exist on the general preference domain but on a smaller yet natural domain where agents classify services as unacceptable and acceptable (and for those services agents have specific upper quotas representing their maximum needs). On the general preference domain, it is demonstrated that the proposed mechanism at least can prevent some groups of agents from manipulating the mechanism without dispensing individual rationality, efficiency, or time-balance.
    Keywords: market design; time banking; priority mechanism; non-manipulability
    JEL: D82
    Date: 2018–07–21
  27. By: Antler, Yair
    Abstract: We identify the conditions on the tendency of agents to spread information by word of mouth, under which a principal can design a pyramid scam to exploit a network of boundedly rational agents whose beliefs are coarse. Our main result is that a pyramid scam is sustainable only if its underlying reward scheme compensates the participants based on multiple levels of their downlines (e.g., for recruiting new members to the pyramid and for recruitments made by these new members). Motivated by the growing discussion on the legitimacy of multilevel marketing schemes and their resemblance to pyramid scams, we use our model to compare the two phenomena based on their underlying compensation structure.
    Keywords: pyramid scams; multilevel marketing; analogy-based expectations; coarse feedback; bounded rationality.
    Date: 2018–07
  28. By: Tajika, Tomoya
    Abstract: We consider a situation in which voters collectively answer a binary question. Each voter obtains an intuition about the answer to the question, but whether the question is intuitive or counterintuitive is not known to any voter. If each voter receives an independent signal on whether the question is intuitive or not, the majority rule under sincere voting correctly aggregates the intuitions with a large electorate; however, it is not an equilibrium. We show that in a unique pure-strategy equilibrium with a large electorate, majority voting makes an incorrect decision with a probability that can be sufficiently close to 1.
    Keywords: Information aggregation, inefficiency, counterintuitive question, strategic voting
    JEL: C72 D72
    Date: 2018–07
  29. By: Weiye Cheny (Graduate School of Economics, Osaka University)
    Abstract: This paper investigates the optimal ex-ante price mechanism design of selling a single indivisible object in a market that comprises one public risky buyer and one regular risky buyer under unlimited or limited liability where resale is allowed. First, we propose an endogenous liquidation rule requiring that the public buyer acquires the object in the liquidation stage. Next, we design an optimal bankruptcy transfer to prevent the buyer's strategic default. On the basis of this liquidation rule, the optimal ex-ante price mechanism is designed to achieve the seller's upper bound revenue under unlimited and limited liability when resale cannot be prohibited prior to the liquidation stage. Comparing the two mechanisms, the results illustrate that the effect on the seller's behavior and that revenue over the liability and information change in each case. In other words, (i) when faced with limited liability buyers, the regular buyer will obtain the object in the initial market, whereas they will become the loser under the unlimited liability case; (ii) the seller's expected revenue under unlimited liability is weakly higher than that under limited liability; and (iii) when faced with the risky buyer, the seller prefers the buyer's resale behavior and is averse to the speculator only under the limited liability case.
    Keywords: Mechanism design Bankruptcy Endogenous bankruptcy recovery Resale
    JEL: D82 G33
    Date: 2018–07
  30. By: Carson Reeling; Richard D. Horan; Cloé Garnache
    Abstract: High transaction costs and thin participation plague water quality trading and prevent markets from delivering expected efficiency gains. Point sources generate a single pollutant, while nonpoint sources generate multiple, complementary pollutants. We develop a dynamic search model of point-nonpoint trading that includes transactions costs. These costs affect participation decisions and generate strategic complementarities with multiple large or small market participation levels equilibria. Integrated markets—with trading across pollutants—lead to lower transactions costs for both sources and a larger basin of attraction around the full-participation equilibrium, and thus may improve pollution trading efficiency relative to distinct markets.
    Keywords: credit stacking, multi-pollutant trading, participation, strategic complementarities, transactions costs
    JEL: Q53 Q58
    Date: 2018
  31. By: Croonenbroeck, Carsten; Odening, Martin; Hüttel, Silke
    Abstract: Within this paper, we aim to investigate asymmetries among bidders in land auctions that may entail non-competitive prices. Using representative data for Eastern Germany including winning bids, bidder characteristics, and land amenities, we pursue a structural approach to derive distributions of latent land values for different bidder groups. By applying nonparametric techniques, we cannot find evidence for asymmetric bidder structures while differentiating between legal entities, tenancy status, and nationality of bidders. Our findings challenge the hypothesis that land privatization via auctions discriminates against certain buyer groups—an argument that is often used to justify stricter regulation of agricultural land markets.
    Keywords: Agricultural and Food Policy, Agricultural Finance, Land Economics/Use
    Date: 2018–02–28
  32. By: Paul Pezanis-Christou (School of Economics, University of Adelaide); Andrés Romeu (Fundamentos del Analisis Economico, Universidad de Murcia)
    Abstract: We use laboratory data from first-price auctions and manipulate the quantity and the quality of information available to assess the robustness of structural inferences (i.e., estimates, revenue predictions and optimal reserve price recommendations). We show that the latter are sensitive to the quantity of information when quality is low such as in field settings, and that improving quality in such settings dampens the effect of quantity and unveils out-of-equilibrium bidding patterns. Yet, a counterfactual analysis of the seller's revenues and optimal reserve prices indicates that behavior is best explained by the usual Nash equilibrium model with either risk aversion or a power form of probability misperception. When the information available is of the highest quality, as in laboratory settings, this model is typically rejected because of a nonlinear bidding behavior. We consider two rationales for such behavior and find that they leave revenue predictions and optimal price recommendations hardly affected.
    Keywords: first-price sealed bid auctions, structural econometrics of auctions, constant relative risk aversion, probability misperception, expected revenue predictions, optimal reserve prices, experiments
    JEL: C9 D44 L1
    Date: 2018–05
  33. By: Nigar Hashimzade (Durham University and CESifo); Gareth Myles (University of Adelaide, Institute for Fiscal Studies, and CESifo)
    Abstract: Corporations make significant direct contributions to environmental improvement and also indirect contributions, through expenditure on process and product innovation. Environmental protection is a public good and so may be under-supplied in a competitive environment. European law requires competition authorities to consider public interest arguments. The public interest defence for allowing a cartel to operate is based on the argument that the additional profitability induces cartel members to make greater environmental contributions that more than offset the welfare loss due to non-competitive pricing. We explore profit-seeking motivations for the corporate environmental expenditures, leaving aside corporate social responsibility concerns. Two motives are considered: environmental improvement leading to reduced production costs, and publicized environmental expenditures boosting brand image. Allowing the operational firms to form a cartel and raise prices above Nash equilibrium levels always reduces environmental quality and consumer welfare. As a consequence, we find no support for the public interest defence.
    Date: 2018–06

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