nep-gth New Economics Papers
on Game Theory
Issue of 2018‒11‒12
23 papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Common pool resources: Is there support for conservationists? By Erik Ansink; Hans-Peter Weikard
  2. On symmetric bimatrix games By Forgó, Ferenc
  3. Does Informational Equivalence Preserve Strategic Behavior? An Experimental Study on Trockel's Game By Papatya Duman
  4. The Case for Formation of ISP-Content Providers Consortiums by Nash Bargaining for Internet Content Delivery By Debasis Mitra; Abhinav Sridhar
  5. Information and Market Power By Bergemann, Dirk; Heumann, Tibor; Morris, Stephen
  6. An Information-Constrained Model for Ultimatum Bargaining By Jose Alejandro Coronado
  7. How to Play Out of Equilibrium: Beating the Average By Schlag, Karl
  8. Chinese postman games with repeated players By Arantza (M.A.) Estevez-Fernandez; Herbert Hamers
  9. Stackelberg type dynamic zero-sum game with leader and follower By Tanaka, Yasuhito
  10. Superstar Economists: Coauthorship networks and research output By Hsieh, Chih-Sheng; König, Michael; Liu, Xiaodong; Zimmermann, Christian
  11. Dynkin games with incomplete and asymmetric information By Tiziano De Angelis; Erik Ekstr\"om; Kristoffer Glover
  12. Contagion and Information Frictions in Emerging Markets: The Role of Joint Signals By Avdiu, Besart; Gruhle, Tobias
  13. Fiscal and Monetary Regimes: A Strategic Approach By Guillaume Plantin; Jean Barthélemy
  14. Firm Heterogeneity and the Pattern of R&D Collaborations By Billand, Pascal; Bravard, Christophe; Durieu, Jacques; Sarangi, Sudipta
  15. Representation effects in the centipede game By Paolo Crosetto; Marco Mantovani
  16. Complex pricing and consumer-side transparency By Fischer, Christian; Rasch, Alexander
  17. Ex ante inequality of opportunity in health,Decomposition and distributional analysis of biomarkers By Davillas, A.;; Jones, A.M.;
  18. Hypothetical thinking and the winner's curse: An experimental investigation By Moser, Johannes
  19. Though this be madness: A game-theoretic perspective on the Brexit negotiations By Pitsoulis, Athanassios; Schwuchow, Soeren
  20. Pivotal Persuasion By Jimmy Chan; Seher Gupta; Fei Li; Yun Wang
  21. Trade and Domestic Policies in Models with Monopolistic Competition By Campolmi, Alessia; Fadinger, Harald; Forlati, Chiara
  22. Information Aggregation and Turnout in Proportional Representation: A Laboratory Experiment By Herrera, Helios; Llorente-Saguer, Aniol; McMurray, Joseph C.
  23. Wages and the Value of Nonemployment By Jäger, Simon; Schoefer, Benjamin; Young, Samuel; Zweimüller, Josef

  1. By: Erik Ansink (Vrije Universiteit Amsterdam); Hans-Peter Weikard (Wageningen University)
    Abstract: We examine the role of support for coalition stability in common pool resource games such as fisheries games. Some players may not want to join a coalition that jointly manages a resource. Still, because they benefit from spillovers, they may want to support the coalition with a transfer payment in order to set incentives for others to join. We find that the impact of support on equilibria of this game is limited to games with three or five players.
    Keywords: Cartel games; Coalition formation; Common Pool Resources; Support
    JEL: C72 D02 Q20
    Date: 2018–11–05
  2. By: Forgó, Ferenc
    Abstract: Computation of Nash equilibria of bimatrix games is studied from the viewpoint of identifying polynomially solvable cases with special attention paid to symmetric random games. An experiment is conducted on a sample of 500 randomly generated symmetric games with matrix size 12 and 15. Distribution of support size and Nash equilibria are used to formulate a conjecture: for finding a symmetric NEP it is enough to check supports up to size 4 whereas for non-symmetric and all NEP's this number is 3 and 2, respectively. If true, this enables us to use a Las Vegas algorithm that finds a Nash equilibrium in polynomial time with high probability.
    Keywords: bimatrix game, random games, experimental games, complexity
    JEL: C72
    Date: 2018–11–07
  3. By: Papatya Duman (Paderborn University)
    Abstract: The purpose of the present study is to experimentally test a version of the classical Chain Store Game (CSG) paradox, proposed by Trockel (1986), and determine whether one of the two theories of Induction and Deterrence, which were originally tested competitively by Selten (1978), may better account for the results. With complete and perfect information, the CSG of Selten (1978) was designed to analyze the role of reputation in repeated market interactions. Its results were discussed in two different ways: one is based on backward induction, and the other is intuitively derived from a deterrence argument. As the two explanations are incompatible, alternative models have been proposed to understand them better. The alternative game proposed by Trockel is an imperfect information version of the CSG in which the order of the two players is changed in each round and the ’Out-Aggressive’ equilibrium is used to build reputation. The existence of more than one equilibrium is the basis for the building of reputation. To the best of my knowledge, this study is the first attempt to experimentally test this alternative game with the same purpose.
    Keywords: Chain Store Game, reputation building, entry deterrence, Trockel's game
    JEL: C7 C9
    Date: 2018–07
  4. By: Debasis Mitra; Abhinav Sridhar
    Abstract: The formation of consortiums of a broadband access Internet Service Provider (ISP) and multiple Content Providers (CP) is considered for large-scale content caching. The consortium members share costs from operations and investments in the supporting infrastructure. Correspondingly, the model's cost function includes marginal and fixed costs; the latter has been important in determining industry structure. Also, if Net Neutrality regulations permit, additional network capacity on the ISP's last mile may be contracted by the CPs. The number of subscribers is determined by a combination of users' price elasticity of demand and Quality of Experience. The profit generated by a coalition after pricing and design optimization determines the game's characteristic function. Coalition formation is by a bargaining procedure due to Okada (1996) based on random proposers in a non-cooperative, multi-player game-theoretic framework. A necessary and sufficient condition is obtained for the Grand Coalition to form, which bounds subsidies from large to small contributors. Caching is generally supported even under Net Neutrality regulations. The Grand Coalition's profit matches upper bounds. Numerical results illustrate the analytic results.
    Date: 2018–10
  5. By: Bergemann, Dirk; Heumann, Tibor; Morris, Stephen
    Abstract: We consider demand function competition with a finite number of agents and private information. We analyze how the structure of the private information shapes the market power of each agent and the price volatility. We show that any degree of market power can arise in the unique equilibrium under an information structure that is arbitrarily close to complete information. In particular, regardless of the number of agents and the correlation of payoff shocks, market power may be arbitrarily close to zero (so we obtain the competitive outcome) or arbitrarily large (so there is no trade in equilibrium). By contrast, price volatility is always less than the variance of the aggregate shock across agents across all information structures, hence we can provide sharp and robust bounds on some but not all equilibrium statistics. We then compare demand function competition with a different uniform price trading mechanism, namely Cournot competition. Interestingly, in Cournot competition, the market power is uniquely determined while the price volatility cannot be bounded by the variance of the aggregate shock.
    JEL: C72 C73 D43 D83 G12
    Date: 2018–11
  6. By: Jose Alejandro Coronado (Department of Economics, New School for Social Research)
    Abstract: We argue for the use of the principle of maximum entropy to carry out inference in experimental eco- nomics. In particular we take the ultimatum game as a case study. We derive the Logit equilibrium by maximizing Shannon's informational entropy subject to behavioral constraints. This provides an e ective way to translate behavioral hypotheses into theoretical distributions that are candidates to characterize em- pirical frequencies when performing experiments. Based on this approach we present two maximum entropy models applied to the ultimatum game. The rst one assumes that the payo functions of agents playing the game depend only on the portion of the money prize they obtain at the end of the game. The second one introduces an additional fairness constraint to represent the behavioral hypothesis that players also follow altruistic motivations. Each model suggests a particular distribution of o ers that we can compare to empirical distributions from data gathered from experimental results. We build a database containing observed interactions of simple ultimatum game experiments conducted by Henrich et al. (2004), Ensminger & Henrich (2014), and Andreoni & Blanchard (2006).The data consists of 1,016 observations of demands made by proposers in the standard ultimatum game interaction. Out of these demands, a total of 636 report whether the demand was accepted or rejected, allowing us to derive the joint probability distribution of demands and acceptance/rejection. The experiments conducted by by Henrich et al., and Ensminger & Henrich consists on ultimatum experiments performed around the world on small scale societies. On the other hand, the experiments conducted by Andreoni & Blanchard were implemented to individuals from the University of Wisconsin-Milwaukee. The information distinguishability index shows that the fairness constrained model recovers 90% of the information in the marginal distribution of demands, in contrast with the 60% recovered by the non-fairness constrained model. We also estimate the fairness constrained model on the joint distribution of demands and quantal responses, recovering 87% of the information contained in the data, in contrast with the 52% recovered by the non-fairness constrained model.
    Keywords: Statistical equilibrium; bounded rationality; quantal response; ultimatum bargaining game
    JEL: C10 C72 C73 C78 D80
    Date: 2018–11
  7. By: Schlag, Karl
    Abstract: We propose a new concept for how to make choices in games without assuming an equilibrium. To beat the average means to obtain a higher payoff against the others than the others obtain amongst themselves, for any way in which the game might be played. Only Nash equilibrium strategies can beat the average. Beating the average is possible in many symmetric games, including Cournot competition with convex demand. In many other games, including Betrand competition, there are strategies that “almost” beat the average. The methodology is easy to implement and extremely versatile, for instance it can incorporate incomplete information.
    Date: 2018
  8. By: Arantza (M.A.) Estevez-Fernandez (VU Amsterdam); Herbert Hamers (Tilburg University)
    Abstract: This paper analyses Chinese postman games with repeated players, which generalize Chinese postman games by dropping the one-to-one relation between edges and players. In our model, we allow players to own more than one edge, but each edge belongs to at most one player. The one-to-one relation between edges and players is essential for the equivalence between Chinese postman-totally balanced and Chinese postman-submodular graphs shown in Granot et al. (1999). We illustrate the invalidity of this result in our model. Besides, the location of the post office has a relevant role in the submodularity and totally balancedness of Chinese postman games with repeated players. Therefore, we focus on sufficient conditions on the assignment of players to edges to ensure submodularity of Chinese postman games with repeated players, independently of the associated travel costs. Moreover, we provide some insights on the difficulty of finding necessary conditions on assignment functions to this end.
    Keywords: Chinese postman games with repeated players; balanced game; totally balanced game; submodular game; assignment function
    JEL: C71
    Date: 2018–11–05
  9. By: Tanaka, Yasuhito
    Abstract: We consider a Stackelberg type dynamic two-players zero-sum game. One of two players is the leader and the other player is the follower. The game is a two-stages game. In the first stage the leader determines the value of its strategic variable. In the second stage the follower determines the value of its strategic variable given the value of the leader's strategic variable. On the other hand, in the static game two players simultaneously determine the values of their strategic variable. We will show that Sion's minimax theorem (Sion(1958)) implies that at the sub-game perfect equilibrium of the Stackelberg type dynamic zero-sum game with a leader and a follower the roles of leader and follower are irrelevant to the payoffs of players, and that the Stackelberg equilbria of the dynamic game are equivalent to the equilibrium of the static game.
    Keywords: zero-sum game, Stackelberg, dynamic zero-sum game
    JEL: C72
    Date: 2018–10–20
  10. By: Hsieh, Chih-Sheng; König, Michael; Liu, Xiaodong; Zimmermann, Christian
    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; economics of science; key player; Research funding; scientific collaboration; Spillovers
    JEL: C72 D43 D85 L14 Z13
    Date: 2018–10
  11. By: Tiziano De Angelis; Erik Ekstr\"om; Kristoffer Glover
    Abstract: We study Nash equilibria for a two-player zero-sum optimal stopping game with incomplete and asymmetric information. In our set-up, the drift of the underlying diffusion process is unknown to one player (incomplete information feature), but known to the other one (asymmetric information feature). We formulate the problem and reduce it to a fully Markovian setup where the uninformed player optimises over stopping times and the informed one uses randomised stopping times in order to hide their informational advantage. Then we provide a general verification result which allows us to find Nash equilibria by solving suitable quasi-variational inequalities with some non-standard constraints. Finally, we study an example with linear payoffs, in which an explicit solution of the corresponding quasi-variational inequalities can be obtained.
    Date: 2018–10
  12. By: Avdiu, Besart; Gruhle, Tobias
    Abstract: We show that information frictions can explain financial contagion without correlated fundamentals and explain why emerging markets are more susceptible to contagion. Costly information may cause investors to group country signals, because such imprecise signals are cheaper. These joint signals then cause asset prices to comove, which can be observed as contagion. Due to lower demand for country-specific information and lower risk weighted returns, it is likelier that investors group signals of emerging markets, thereby making them more prone to contagion. We find empirical evidence for our predictions using a novel data set on the number of joint news articles and exploit exogenous variation in news due to terrorism.
    Keywords: Financial Crises,Emerging Markets,Contagion,Information Choice,News
    JEL: D8 F30 G11
    Date: 2018
  13. By: Guillaume Plantin (Département d'économie); Jean Barthélemy (Département d'économie)
    Abstract: This paper develops a full-fledged strategic analysis of Wallace’s “game of chicken”. A public sector facing legacy nominal liabilities is comprised of fiscal and monetary authorities that respectively set the primary surplus and the price level in a non-cooperative fashion. We find that the post 2008 feature of indefinitely postponed fiscal consolidation and rapid expansion of the Federal Reserve’s balance sheet is consistent with a strategic setting in which neither authority can commit to a policy beyond its current mandate, and the fiscal authority has more bargaining power than the monetary one at each date.
    Date: 2018–05
  14. By: Billand, Pascal; Bravard, Christophe; Durieu, Jacques; Sarangi, Sudipta
    Abstract: We consider an oligopoly setting in which firms form pairwise collaborative links in R&D with other firms. Each collaboration generates a value that depends on the identity of the firms that collaborate. First, we provide properties satisfied by pairwise equilibrium networks and efficient networks. Second, we use these properties in two types of situation (1) there are two groups of firms, and the value of a collaboration is higher when firms belong to the same group; (2) some firms have more innovative capabilities than others. These two situations provide clear insights about how firms heterogeneity affects both equilibrium and efficient networks. We also show that the most valuable collaborative links do not always appear in equilibrium, and a public policy that increases the value of the most valuable links may lead to a loss of social welfare.
    Keywords: Networks, R&D collaborations, link value heterogeneity
    JEL: C72 D85 L13
    Date: 2018–08
  15. By: Paolo Crosetto (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); Marco Mantovani (Università degli Studi di Milano-Bicocca [Milano])
    Abstract: We explore the effects on strategic behavior of alternative representations of a centipede game that differ in terms of complexity. In a laboratory experiment, we manipulate the way in which payoffs are presented to subjects in two different ways. In both cases, information is made less accessible relative to the standard representation of the game. Results show that these manipulations shift the distribution of take nodes further away from the equilibrium prediction. The evidence is consistent with the view that failures of game-form recognition and the resulting limits to strategic reasoning are crucial for explaining non-equilibrium behavior in the centipede game.
    Keywords: representation effect,experiment,centipede game,backward induction
    Date: 2018
  16. By: Fischer, Christian; Rasch, Alexander
    Abstract: We analyze a situation in which two horizontally differentiated firms compete in two-part tariffs (i.e., a linear and fixed price), and some consumers are not informed about the linear per-unit price. We show that there is a non-monotone relationship between the degree of consumer-side transparency and firm profits. Moreover, different from a situation without uninformed consumers, firms may make higher profits under two-part tariffs than under fixed fees only. There is also a non-monotone relationship between transparency and consumer surplus. Our model can explain why firms are against the abolishment of roaming fees and why the European Commission (EC) promotes it.
    Keywords: fixed fee,linear price,roaming,transparency,two-part tariff
    JEL: D43 L13 L42
    Date: 2018
  17. By: Davillas, A.;; Jones, A.M.;
    Abstract: We use a set of biomarkers to measure inequality of opportunity (IOp) in health in the UK. Applying a direct ex ante IOp approach, we find that inequalities in health attributed to circumstances account for a non-trivial part of the total health variation. For example, observed circumstances account for 20% of the total inequalities in our composite measure of multi-system health risk, allostatic load. Shapley decompositions show that apart from age and gender, education and childhood socioeconomic status are sources of IOp. We propose an extension to the decomposition of ex ante IOp to complement the mean-based approach, analysing the contribution of circumstances across the quantiles of the biomarker distributions. This shows that,for most of the biomarkers, the percentage contribution of socioeconomic circumstances, relative to differences attributable to age and gender, increases towards the right tail of the biomarker distribution, where health risks are more pronounced.
    Keywords: equality of opportunity; biomarkers; Shapley decomposition; Oaxaca decomposition; unconditional quantile regression;
    JEL: C1 D63 I12 I14
    Date: 2018–10
  18. By: Moser, Johannes
    Abstract: There is evidence that bidders fall prey to the winner's curse because they fail to extract information from hypothetical events - like winning an auction. This paper investigates experimentally whether bidders in a common value auction perform better when the requirements for this cognitive issue – also denoted by contingent reasoning - are relaxed, leaving all other parameters unchanged. The overall pattern of the data suggests that the problem of irrational over- and underbidding can be weakened by giving the subjects ex ante feedback about their bid, but unlike related studies I also find negative effects of additional information.
    Keywords: Hypothetical thinking,cursed equilibrium,winner's curse
    JEL: D03 D44 D82 D83 C91
    Date: 2018
  19. By: Pitsoulis, Athanassios; Schwuchow, Soeren
    Abstract: On June 19, 2017 the European Union and the British government officially commenced negotiations on the terms of the British exit from the union. The dominant view among most economic policy analysts and commentators seems to be that the cards are clearly stacked against Britain and that the high-handed behaviour of the British representatives is, at best, either a bluff or, at worst, a sign of a loss of reality. In this paper we develop a formal model to show how this uncertainty regarding the preferences and strategy of the British side may affect the dynamic of the negotiations and may lead to unanticipated outcomes.
    Keywords: Brexit,game theory,madman strategy,trembling-hand perfection
    JEL: D78 E65 H12
    Date: 2018
  20. By: Jimmy Chan (Department of Economics, Chinese University of Hong Kong); Seher Gupta (Department of Economics, New York University); Fei Li (Department of Eco- nomics, University of North Carolina Chapel Hill); Yun Wang (Wang Yanan Institute for Stud- ies in Economics, Xiamen University)
    Abstract: A sender seeks to persuade a group of heterogeneous voters to adopt an action. We analyze the sender’s information-design problem when the collective decision is made through a majority vote and voting for the action is personally costly. We show that the sender can exploit the heterogeneity in voting costs by privately communicating with the voters. Under the optimal information structure, voters with lower costs are more likely to vote for the sender’s preferred action when it is the wrong choice than those with higher costs. The sender’s preferred action is, therefore, adopted with a higher probability when private communication is allowed than when it is not. Nevertheless, the sender’s preferred action cannot be adopted with probability one if no voter, as a dictator, is willing to vote for it without being persuaded.
    Keywords: Bayesian Persuasion, Information Design, Private Persuasion, Strategic Voting
    JEL: D72 D83
    Date: 2018–11–03
  21. By: Campolmi, Alessia; Fadinger, Harald; Forlati, Chiara
    Abstract: We consider unilateral and strategic trade and domestic policies in single and multi-sector versions of models with CES preferences and monopolistic competition featuring homogeneous (Krugman, 1980) or heterogeneous firms (Melitz, 2003). We first solve the world-planner problem to identify the efficiency wedges between the planner and the market allocation. We then derive a common welfare decomposition in terms of macro variables that incorporates all general-equilibrium effects of trade and domestic policies and decomposes them into consumption and production-efficiency wedges and terms-of-trade effects. We show that the Nash equilibrium when both domestic and trade policies are available is characterized by first-best-level labor subsidies that achieve production efficiency, and inefficient import subsidies and export taxes that aim at improving domestic terms of trade. Since the terms-of-trade externality is the only beggar-thy-neighbor motive, it remains the only reason for signing trade agreements in this general class of models. Finally, we show that when trade agreements only limit the strategic use of trade taxes but do not require coordination of domestic policies, the latter are set inefficiently in the Nash equilibrium in order to manipulate the terms of trade.
    Keywords: Domestic Policy; efficiency; Heterogeneous Firms; Tariffs and Subsidies; terms of trade; Trade agreements; trade policy
    JEL: F12 F13 F42
    Date: 2018–10
  22. By: Herrera, Helios; Llorente-Saguer, Aniol; McMurray, Joseph C.
    Abstract: This paper documents a laboratory experiment that analyses voter participation in common interest proportional representation (PR) elections, comparing this with majority rule. Consistent with theoretical predictions, poorly informed voters in either system abstain from voting, thereby shifting weight to those who are better informed. A dilution problem makes mistakes especially costly under PR, so abstention is higher in PR in contrast with private interest environments, and welfare is lower. Deviations from Nash equilibrium predictions can be accommodated by a logit version of quantal response equilibrium (QRE), which allows for voter mistakes.
    Keywords: information aggregation; laboratory experiment; Majority Rule; Proportional representation; Turnout
    JEL: C92 D70
    Date: 2018–10
  23. By: Jäger, Simon; Schoefer, Benjamin; Young, Samuel; Zweimüller, Josef
    Abstract: Nonemployment is often posited as a worker's outside option in wage setting models such as bargaining and wage posting. The value of this state is therefore a fundamental determinant of wages and, in turn, labor supply and job creation. We measure the effect of changes in the value of nonemployment on wages in existing jobs and among job switchers. Our quasi-experimental variation in nonemployment values arises from four large reforms of unemployment insurance (UI) benefit levels in Austria. We document that wages are insensitive to UI benefit levels: point estimates imply a wage response of less than $0.01 per $1.00 UI benefit increase, and we can reject sensitivities larger than 0.03. In contrast, a calibrated Nash bargaining model predicts a sensitivity of 0.39 - more than ten times larger. The empirical insensitivity holds even among workers with a priori low bargaining power, with low labor force attachment, with high predicted unemployment duration, among job switchers and recently unemployed workers, in areas of high unemployment, in firms with flexible pay policies, and when considering firm-level bargaining. The insensitivity of wages to the nonemployment value we document presents a puzzle to widely used wage setting protocols, and implies that nonemployment may not constitute workers' relevant threat point. Our evidence supports wage-setting mechanisms that insulate wages from the value of nonemployment.
    Keywords: Bargaining; nonemployment; Unemployment Benefits; wages
    JEL: J31 J60 J65
    Date: 2018–11

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