nep-gth New Economics Papers
on Game Theory
Issue of 2018‒10‒22
nineteen papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Incomplete Information Games with Ambiguity Averse Players By Eran Hanany; Peter Klibanoff; Sujoy Mukerji
  2. Policy Experimentation, Redistribution and Voting Rules By Renee Bowen; Vincent Anesi
  3. Catalog Competition: Equilibrium Characterization and experimental evidence By Dimitrios Xefteris; Iván Barreda-Tarrazona; Aurora García-Gallego; Nikolaos Georgantzis
  4. Team production By Adhen Benlahlou
  5. Mean-Field Games with Differing Beliefs for Algorithmic Trading By Philippe Casgrain; Sebastian Jaimungal
  6. Evolutionary Models of Preference Formation By Alger, Ingela; Weibull, Jörgen W.
  7. Superstar Economists: Coauthorship networks and research output By Hsieh, Chih-Sheng; Konig, Michael D.; Liu, Xiaodong; Zimmermann, Christian
  8. Insurance and Inequality with Persistent Private Information By Bloedel, Alex; Krishna, R. Vijay; Leukhina, Oksana
  9. License Complementarity and Package Bidding: The U.S. Spectrum Auctions By Mo Xiao; Zhe Yuan
  10. Beliefs, Plans, and Perceived Intentions in Dynamic Games By Pierpaolo Battigalli; Nicodemo De Vito
  11. Fair Competition Design By Ritxar Arlegi; Institute for Advanced Research in Business and Economics (INARBE); Dinko Dimitrov
  12. Renewal of water-related infrastructure and user\'s contribution: a few benchmarks By Epiphane Assouan; Tina Rambonilaza; Bénédicte Rulleau
  13. Strategic investment and learning with private information By KLEIN, Nicolas; WAGNER, Peter
  14. Talking Behind Your Back: Asymmetric Communication in a Three-person Dilemma By Klaus Abbink; Lu Dong; Lingbo Hugang
  15. A Game-Theoretic Model of Crop Flood Indemnity in South Florida By Brown, Christina E.; Bhat, Mahadev
  16. A structural model of firm collaborations with unobserved heterogeneity By Shweta Gaonkar; Angelo Mele
  17. Ethnic Distribution, Effective Power and Conflict By Matija Kovacic; Claudio Zoli
  18. Culture and Colonial Legacy: Evidence from Public Goods Games By Chaudhary, L.; Rubin, J.; Iyer, S.; Shrivastava, A.
  19. Agency Pricing and Bargaining: Evidence from the E-Book Market By Babur De los Santos; Daniel P. O'Brien; Matthijs R. Wildenbeest

  1. By: Eran Hanany (Faculty of Engineering, Tel Aviv University); Peter Klibanoff (Department of Managerial Economics and Decision Sciences, Kellogg School of Management, North-western University); Sujoy Mukerji (Queen Mary University of London)
    Abstract: We study incomplete information games with ambiguity averse players. Our focus is on equilibrium concepts satisfying sequential optimality each player's strategy is optimal at each information set given opponents' strategies. We show sequential optimality, which does not make any explicit assumption on updating, is equivalent to sequential optimality with respect to beliefs updated using a particular generalization of Bayesian updating. Ambiguity aversion expands the set of equilibria compatible with players sharing common ambiguous beliefs. We connect ambiguity aversion with belief robustness. Examples illustrate new strategic behavior, including strategic use of ambiguity, under ambiguity aversion.
    Keywords: Ambiguity aversion, dynamic games, incomplete information, multi-stage games, sequential optimality, sequential equilibrium with ambiguity, ambiguous strategies, smooth ambiguity model
    JEL: C72 D82 D81
    Date: 2018–09–13
  2. By: Renee Bowen; Vincent Anesi
    Abstract: We study optimal policy experimentation by a committee. We consider a dynamic bargaining game in which committee members choose either a risky reform or a safe alternative each period. When no redistribution is allowed the unique equilibrium outcome is generically inefficient. When redistribution is allowed (even small amounts), there always exists an equilibrium that supports optimal experimentation for any voting rule without veto players. With veto players, however, optimal policy experimentation is possible only with a sufficient amount of redistribution. We conclude that veto rights are more of an obstacle to optimal policy experimentation than constraints on redistribution.
    JEL: C73 C78 D61 D78 H61
    Date: 2018–09
  3. By: Dimitrios Xefteris (Dept. of Economics, University of Cyprus, Cyprus); Iván Barreda-Tarrazona (LEE & Economics Department, Universitat Jaume I, Castellón-Spain); Aurora García-Gallego (LEE & Economics Department, Universitat Jaume I, Castellón-Spain); Nikolaos Georgantzis (Burgundy School of Wines and Spirits Business, Dijon-France and LEE-Universitat Jaume I, Castellón-Spain)
    Abstract: This paper studies a catalog competition game: two competing rms decide at the same time product characteristics and prices in order to maximize pro ts. In the unique symmetric equilibrium of this one-stage Hotelling (1929) game, rms employ mixed strategies which make them produce more often a mainstream product variety than any of the specialized ones and always charge higher prices than their marginal costs (also, prices for mainstream products are found to be lower than prices for specialized products). We experimentally test and con rm the main predictions of the model, and we also compare it to the rst-location-then-pricing original setup.
    Keywords: catalog competition; Hotelling; mixed equilibrium; experiment
    JEL: C72 C92 D43 D90
    Date: 2018
  4. By: Adhen Benlahlou (Univ Lyon, UJM Saint-Etienne, GATE UMR 5824, F-42023 Saint-Etienne, France)
    Abstract: This paper investigates games played on bipartite networks by introducing a team production function allowing for any pattern of cross effects between projects and cross effects between agents. By using a new representation of a bipartite network through a multilayers network, we are able to characterize the interior equilibrium efforts as a function of agents centralities in the multilayers network.
    Keywords: Network games, centrality measures, spillovers, bipartite network
    JEL: C72 D85 L14
    Date: 2018
  5. By: Philippe Casgrain; Sebastian Jaimungal
    Abstract: Even when confronted with the same data, agents often disagree on a model of the real-world. Here, we address the question of how interacting heterogenous agents, who disagree on what model the real-world follows, optimize their trading actions. The market has latent factors that drive prices, and agents account for the permanent impact they have on prices. This leads to a large stochastic game, where each agents' performance criteria is computed under a different probability measure. We analyse the mean-field game (MFG) limit of the stochastic game and show that the Nash equilibria is given by the solution to a non-standard vector-valued forward-backward stochastic differential equation. Under some mild assumptions, we construct the solution in terms of expectations of the filtered states. We prove the MFG strategy forms an \epsilon-Nash equilibrium for the finite player game. Lastly, we present a least-squares Monte Carlo based algorithm for computing the optimal control and illustrate the results through simulation in market where agents disagree on the model.
    Date: 2018–10
  6. By: Alger, Ingela; Weibull, Jörgen W.
    Abstract: The literature on the evolution of preferences of individuals in strategic interactions is vast and diverse. We organize the discussion around the following question: Supposing that material outcomes drive evolutionary success, under what circumstances does evolution promote Homo oeconomicus, defined as material self-interest, and when does it instead lead to other preferences? The literature suggests that Homo oeconomicus is favored by evolution only when individuals' preferences are their private information and the population is large and well-mixed so that individuals with rare mutant preferences almost never get to interact with each other. If rare mutants instead interact more often (say, due to local dispersion), evolution instead favors a certain generalization of Homo oeconomicus including a Kantian concern. If individuals interact under complete information about preferences, evolution destabilizes Homo oeconomicus in virtually all games.
    JEL: C73 D01 D03
    Date: 2018–09
  7. By: Hsieh, Chih-Sheng (Chinese University of Hong Kong); Konig, Michael D. (Centre for Economic Policy Research; Swiss Economic Institute; VU Amsterdam); Liu, Xiaodong (University of Colorado Boulder); Zimmermann, Christian (Federal Reserve Bank of St. Louis)
    Abstract: We study the impact of research collaborations in coauthorship networks on research output and how optimal funding can maximize it. Through the links in the collaboration network, researchers create spillovers not only to their direct coauthors but also to researchers indirectly linked to them. We characterize the equilibrium when agents collaborate in multiple and possibly overlapping projects. We bring our model to the data by analyzing the coauthorship network of economists registered in the RePEc Author Service. We rank the authors and research institutions according to their contribution to the aggregate research output and thus provide a novel ranking measure that explicitly takes into account the spillover effect generated in the coauthorship network. Moreover, we analyze funding instruments for individual researchers as well as research institutions and compare them with the economics funding program of the National Science Foundation. Our results indicate that, because current funding schemes do not take into account the availability of coauthorship network data, they are ill-designed to take advantage of the spillover effects generated in scientific knowledge production networks.
    Keywords: coauthor networks; scientific collaboration; spillovers; key player; research funding; economics of science
    JEL: C72 D43 D85 L14 Z13
    Date: 2018–10–09
  8. By: Bloedel, Alex (Stanford University); Krishna, R. Vijay (Florida State University); Leukhina, Oksana (Federal Reserve Bank of St. Louis)
    Abstract: We study optimal insurance contracts for an agent with Markovian private information. Our main results characterize the implications of constrained efficiency for long-run welfare and inequality. Under minimal technical conditions, there is Absolute Immiseration: in the long run, the agent’s consumption and utility converge to their lower bounds. When types are persistent and utility is unbounded below, there is Relative Immiseration: low-type agents are immiserated at a faster rate than high-type agents, and “pathwise welfare inequality” grows without bound. These results extend and substantially generalize the hallmark findings from the classic literature with iid types, suggesting that the underlying forces are robust to a broad class of private information processes. The proofs rely on novel recursive techniques and martingale arguments. When the agent has CARA utility, we also analytically and numerically characterize the short-run properties of the optimal contract. Persistence gives rise to qualitatively novel short-run dynamics and allocative distortions (or “wedges”) and, quantitatively, induces less efficient risk-sharing. We compare properties of the wedges to their counterparts in the dynamic taxation literature.
    Keywords: Absolute immiseration; relative immiseration; dynamic contracting; recursive contracts; principal-agent problem; persistent private information.
    JEL: C73 D30 D31 D80 D82 E61
    Date: 2018–09–07
  9. By: Mo Xiao (Eller College of Management, University of Arizona.); Zhe Yuan (Alibaba Group)
    Abstract: The U.S. spectrum licenses cover geographically distinct areas and are often complementary to each other. A bidder seeking to acquire multiple licenses is then exposed to risks of winning only isolated patches. To allocate licenses more efficiently, the Federal Communications Commission allowed bidders to bid for (predefined) packages of licenses in Auction 73. We estimate the magnitude of license complementarity by modeling the bidding process as an entry game with interdependent markets and evolving bidder belief. Bidders' decisions on bidding (and not bidding) provide bounds on licenses' stand-alone values and complementarity between licenses. We estimate the total complementarity to be around two thirds of the total bidding ($19 billion) in Auction 73. Complementarity in a 1 MHz nationwide license is worth $918 million to an average large bidder but only $120 million to an average small bidder. Our counterfactual analysis shows that the effects of package bidding on bidders' exposure risks depend on package format and package size. More importantly, mixed package bidding increases FCC revenue substantially at the cost of reducing bidder surplus and increasing license allocation concentration.
    Keywords: Spectrum Auctions, Complementarity, Package Bidding, Moment Inequalities
    JEL: L5 L8
    Date: 2018–09
  10. By: Pierpaolo Battigalli; Nicodemo De Vito
    Abstract: We adopt the epistemic framework of Battigalli and Siniscalchi (J. Econ. Theory 88:188-230, 1999) to model the distinction between a players contingent behavior, which is part of the external state, and his plan, which is described by his beliefs about his own behavior. This allows us to distinguish between intentional and unintentional behavior, and to explicitly model how playersrevise their beliefs about the intentions of others upon observing their actions. We illustrate our approach with detailed examples and with a new derivation of backward induction from epistemic conditions. Speci cally, we prove that common full belief in optimal planning and in belief in continuation consistency imply the backward induction strategies and beliefs. We also present within our framework other relevant epistemic assumptions about backward and forward-induction reasoning, and relate them to similar ones studied in the previous literature. KEYWORDS: Epistemic game theory, plans, perceived intentions, back- ward induction, forward induction.
    Date: 2018
  11. By: Ritxar Arlegi (Departamento de Economía-UPNA); Institute for Advanced Research in Business and Economics (INARBE); Dinko Dimitrov
    Abstract: We study the impact of two basic principles of fairness on the structure of competition systems and perform our analysis by focus-ing on sports competitions. The first principle states that equally strong players should have the same chances of being final winner, while the second principle requires that the competition system should not favor weaker players. We apply these requirements to a class of competitions which includes, but is not limited to, the sport tournament systems that are most commonly used in practice, such as round-robin tournaments and di fferent kinds of knockout competitions, and we characterize the structures satisfying these requirements. In our results, a new competition structure that we call an antler is found to play a referential role. Finally, we show that the class of fair competition systems becomes rather small when both fairness principles are jointly applied.
    Keywords: equal treatment, monotonicity, seeding, sport competition
    JEL: D00 D02 D60 D63 D70
    Date: 2018
  12. By: Epiphane Assouan; Tina Rambonilaza; Bénédicte Rulleau
    Abstract: This paper studies the contribution required from the users of collective drinking water networks to finance asset management of infrastructures. We characterize the first-best optimum and we compare it to the social optimum in the presence of preferences heterogeneity, in order to take into account the uses of alternative techniques for certain household needs. These alternatives uses generate negative externalities for the good functioning of the water networks. The first-best optimum thus requires a transfer from the exclusive users of the collective network to the users of the alternatives. Furthermore, Nash equilibrium reveals that the existence of this transfer requires other motivations than the only usage values. Finally, the case of water infrastructure asset management emphasizes how an essential part of inequality that can be associated with it can be attributed to preferences heterogeneity.
    Keywords: water services ; willigness to pay ; pur public good ; game theory
    JEL: C72 H41 H54 Q25
    Date: 2018
  13. By: KLEIN, Nicolas; WAGNER, Peter
    Abstract: We study a two-player game of strategic experimentation in which agents choose the timing of investments which yield uncertain returns over time. Agents learn about future returns through privately observed signals, others’ investment decisions and from public experimentation outcomes when returns are realized. We characterize symmetric equilibria, and we relate the extent of strategic delay of investments in equilibrium to the primitives of the information structure. Agents invest without delay when the most optimistic intermediate belief exceeds a threshold. Otherwise, delay in investments induces a negative learning feed-back which may either escalate or dampen beliefs and investment choices. We highlight how private information in strategic experimentation can increase ex ante welfare because of strategic uncertainty and due to an «encouragement effect of private information»
    Date: 2018
  14. By: Klaus Abbink (Department of Economics, Monash University); Lu Dong (Nanjing Audit University); Lingbo Hugang (Nanjing Audit University)
    Abstract: Communication has been regarded as one of the most effective devices in promoting team cooperation. But asymmetric communication sometimes breeds collusion and is detrimental to team efficiency. Here, we present experimental evidence showing that excluding one member from team communication hurts team cooperation: the communicating partners collude in profit allocation against the excluded team member, and the latter reacts by refraining from exerting effort. We further show that allowing the partners to reach out to the excluded member helps to restore cooperation and fairness in profit allocation. But it does not stop the partners from talking behind the other member. They sometimes game the system by tricking the excluded member to contribute but then grabbing all profits for themselves.
    Keywords: communication, fairness, collusion, allocation, team cooperation, laboratory experiment
    Date: 2018–11
  15. By: Brown, Christina E.; Bhat, Mahadev
    Keywords: Risk and Uncertainty, Natural Resource Economics, Resource and Environmental Policy Analysis
    Date: 2018–06–20
  16. By: Shweta Gaonkar (Johns Hopkins Carey Business School, 100 International Dr, Baltimore, MD 21202 - USA); Angelo Mele (Johns Hopkins Carey Business School, 100 International Dr, Baltimore, MD 21202 - USA)
    Abstract: We develop and estimate a structural model of strategic network formation to study the determinants of firms collaborations for patenting new technology in the medical device industry. Our aim is to bridge the strategy literature on interorganizational networks and the economic literature on structural estimation of network models. In our model, firms have payoffs that depend on linking costs and benefits, as well as externalities from common partners and popular partners. Firms are characterized by observed and unobserved characteristics, that affect both their opportunity and their willingness to form links. The equilibrium networks are sparse and match the aggregate clustering levels observed in the data. We use the network of patent collaborations among medical device firms, to estimate the structural parameters using a Bayesian approach. Our results show that firms tend to partner domestically and collaborate with companies in similar markets, perhaps due to technological complementarities or regulation effects. Unobserved heterogeneity matters: we find that firms' payoffs vary by type. Finally we show that the estimated model including unobserved heterogeneity provides a better fit of crucial features of the data.
    Keywords: firm networks, strategic alliances, exponential random graphs, weak dependence, homophily, clustering, sparse networks
    JEL: C13 C31 L14 D85
    Date: 2018–09
  17. By: Matija Kovacic (Department of Economics, University Of Venice Cà Foscari); Claudio Zoli (Department of Economics, University Of Verona)
    Abstract: This paper highlights the fact that different distributional aspects of ethnicity matter for conflict. We axiomatically derive a parametric class of indices of conflict potential obtained as the sum of each group relative power weighted by the probability of across group interactions. The power component of an extreme element of this class of indices is given by the Penrose-Banzhaf measure of relative power. This index combines in a non-linear way fractionalization, polarization and dominance. The empirical analysis verifies that it outperforms the existing indices of ethnic diversity in explaining ethnic conflict onset.
    Keywords: Ethnic distribution, Conflict, Power indices, Polarization, Fractionalization, Dominance
    JEL: D63 D74 O57
    Date: 2018
  18. By: Chaudhary, L.; Rubin, J.; Iyer, S.; Shrivastava, A.
    Abstract: We conduct a public goods game in three small towns in the Indian state of Rajasthan. Due to historical military conquest, until 1947 these towns were on opposite sides of a colonial border separating British India from the Princely States. Our research design offers a treatment comparison between the towns of (British) Kekri and (Princely) Sarwar, and a control comparison between Princely Sarwar and Shahpura. We find that participants from (British) Kekri are more co-operative in mixed-town groups. The differences are driven by individuals with family ties to the towns, highlighting the enduring effects of colonial rule on co-operation norms.
    Keywords: cultural transmission, colonialism, public goods game, natural experiment, lab-in-the- eld experiment, India
    JEL: C91 C93 C71 H41 H73 N35 N45 O17 Z1
    Date: 2018–10–01
  19. By: Babur De los Santos (John E. Walker Department of Economics, Clemson University); Daniel P. O'Brien (Compass Lexecon); Matthijs R. Wildenbeest (Kelley School of Business, Indiana University)
    Abstract: This paper examines the relationship between two types of vertical contracts and retail prices under bilateral bargaining. In contrast to traditional wholesale contracts, in agency contracts upstream suppliers set retail prices directly while downstream retailers act as agents who receive a sales royalty. Our model shows that whether agency contracts lead to higher or lower retail prices (vs. wholesale contracts) depends on the distribution of bargaining power between upstream and downstream firms. We propose a methodology to structurally estimate a demand and supply model that allows for both vertical contracting models and uses the Nash-in-Nash bargaining solution to capture competition between upstream and downstream firms. We apply our model to the e-book industry, which has experienced several transitions between agency and wholesale contracts. Our analysis studies the latest transition from wholesale to agency contracts after the expiration of a two-year ban on agency pricing following the settlement of a lawsuit brought by the U.S. Department of Justice against major publishers in the industry. This ban allowed us to observe new agency contracts after a rarely seen restart of bilateral bargaining between publishers and retailers. Using a unique dataset of e-book prices both before and after the change in selling method, we show that prices increased substantially at Amazon following the shift to agency but remained relatively flat at Barnes & Noble. Structural estimates show that our bargaining model gives a better fit to the data than a model with take-it-or-leave-it input contracts. Counterfactual simulations indicate that reinstitution of most favored nation clauses, which were banned in 2012 for a period of five years, would lead to price increases of close to nine percent for non-fiction books.
    Keywords: e-books, agency agreements, vertical restraints, bargaining, most favored nation
    JEL: C14 D83 L13
    Date: 2018–10

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