nep-gth New Economics Papers
on Game Theory
Issue of 2019‒01‒28
24 papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Individual upper semicontinuity and subgame perfect ϵ-equilibria in games with almost perfect information By Flesch, Janos; Herings, P. Jean-Jacques; Maes, Jasmine; Predtetchinski, Arkadi
  2. Farsightedness in Games: Stabilizing Cooperation in International Conflict By Brams, Steven J.; Ismail, Mehmet S.
  3. Individual versus Group Choices of Repeated Game Strategies: A Strategy Method Approach By Timothy N. Cason; Vai-Lam Mui
  4. Auctions vs. Negotiations: Optimal Selling Mechanism with Endogenous Bidder Values By Mengxi Zhang
  5. Group Size and Network Formation By Melguizo, Isabel
  6. Communication and Hidden Action: Evidence from a Person-to-Person Lending Experiment By Martin Brown; Jan Schmitz; Christian Zehnder;
  7. Other-regarding preferences and giving decision in risky environments: experimental evidence By Mickaël Beaud; Mathieu Lefebvre; Julie Rosaz
  8. Expectations of Reciprocity and Feedback when Competitors Share Information: Experimental Evidence By Bernhard Ganglmair; Alex Holcomb; Noah Myung
  9. The Effect of Horizontal Mergers, When Firms compete in Prices and Investments By Massimo Motta; Emanuele Tarantino
  10. Wages and the value of nonemployment By Simon Jäger; Benjamin Schoefer; Samuel Young; Josef Zweimüller
  11. Measuring the External Stability of the One-to-One Matching Generated by the Deferred Acceptance Algorithm By Saglam, Ismail
  12. Endogenous Timing and Income Inequality in the Voluntary Provision of Public Goods: Theory and Experiment By Jun-ichi Itaya; Atsue Mizushima; Kengo Kurosaka
  13. Culture and Colonial Legacy: Evidence from Public Goods Games By Latika Chaudhary; Jared Rubin; Sriya Iyer; Anand Shrivastava
  14. The Multiplier Effect in Two-Sided Markets with Bilateral Investments By Benny Moldovanu; Deniz Dizdar; Nora Szech
  15. General stopping behaviors of naïve and non-committed sophisticated agents, with application to probability distortion By Yu-Jui Huang; Adrien Nguyen-Huu; Xun Yu Zhou
  16. Minimum price equilibrium in the assignment market By Yu Zhou; Shigehiro Serizawa
  17. Cheap talk, monitoring and collusion By David Spector
  18. Dynamic effects of enforcement on cooperation By Roberto Galbiati; Emeric Henry; Nicolas Jacquemet
  19. Exchange Competition, Entry, and Welfare By Giovanni Cespa; Xavier Vives
  20. Gains from Policy Cooperation in Capital Controls and Financial Market Incompleteness By Shigeto Kitano; Kenya Takaku
  21. A Common-Value Auction with State-Dependent Participation By Stephan Lauermann; Asher Wolinsky
  22. Partners or Strangers? Cooperation, Monetary Trade, and the Choice of Scale of Interaction By Maria Bigoni; Gabriele Camera; Marco Casari
  23. Auction Design by an Informed Seller: The Optimality of Reserve Price Signaling By Xin Zhao
  24. The Success of the Deferred Acceptance Algorithm under Heterogenous Preferences with Endogenous Aspirations By Saglam, Ismail

  1. By: Flesch, Janos (QE / Mathematical economics and game the); Herings, P. Jean-Jacques (General Economics 1 (Micro)); Maes, Jasmine (General Economics 1 (Micro)); Predtetchinski, Arkadi (General Economics 1 (Micro))
    Abstract: We study games with almost perfect information and an infinite time horizon. In such games, at each stage, the players simultaneously choose actions from finite action sets, knowing the actions chosen at all previous stages. The payoff of each player is a function of all actions chosen during the game. We define and examine the new condition of individual upper semicontinuity on the payoff functions, which is weaker than upper semicontinuity. We prove that a game with individual upper semicontinuous payoff functions admits a subgame perfect ϵ-equilibrium for every ϵ > 0, in eventually pure strategy profiles.
    Keywords: almost perfect information, subgame perfect ϵ-equilibrium, individual upper semicontinuity
    JEL: C62 C65 C72 C73
    Date: 2019–01–14
  2. By: Brams, Steven J.; Ismail, Mehmet S.
    Abstract: We show that a cooperative outcome—one that is at least next-best for the players—is not a Nash equilibrium (NE) in 19 of the 57 2 x 2 strict ordinal conflict games (33%), including Prisoners’ Dilemma and Chicken. Auspiciously, in 16 of these games (84%), cooperative outcomes are nonmyopic equilibria (NMEs) when the players make farsighted calculations, based on backward induction; in the other three games, credible threats induce cooperation. More generally, in all finite normal-form games, if players’ preferences are strict, farsighted calculations stabilize at least one Pareto-optimal NME. We illustrate the choice of NMEs that are not NEs by two cases in international relations: (i) no first use of nuclear weapons, chosen by the protagonists in the 1962 Cuban missile crisis and since adopted by some nuclear powers; and (ii) the 2015 agreement between Iran, and a coalition of the United States and other countries, that has been abrogated by the United States but has forestalled Iran’s possible development of nuclear weapons.
    Keywords: Farsightedness; nonmyopic equilibrium; game theory; cooperation; international conflict
    JEL: C72 F51
    Date: 2019–01
  3. By: Timothy N. Cason; Vai-Lam Mui
    Abstract: We study experimentally the indefinitely repeated noisy prisoner’s dilemma, in which random events can change an intended action to its opposite. We investigate whether groups choose Always Defect less and use lenient or forgiving strategies more than individuals,and how decision-makers experiment with different strategies by letting them choose from an extensive list of repeated game strategies. We find that groups use forgiving and tit-for-tat strategies more than individuals. Always Defect, however, is the most popular strategy for both groups and individuals. Groups and individuals cooperate at similar rates overall, and they seldom experiment with different strategies in later supergames. Classification-JEL C73, C92
    Keywords: Laboratory experiments, Cooperation, Repeated Games, Strategy
    Date: 2018–12
  4. By: Mengxi Zhang
    Abstract: This paper studies the design of the revenue maximizing selling mechanism in a scenario where bidders can make costly investments upfront to enhance their valuations. Unlike the case where bidders’ values are exogenously fixed, here it may be profitable for the seller to discriminate among ex ante symmetric bidders. I first identify a sufficient and almost necessary condition under which symmetric auctions are optimal. When this condition fails, the optimal selling mechanism may be discriminatory. I further find that the optimal mechanism in general follows a structure which I call a threshold mechanism. Two extreme examples of the threshold mechanism are symmetric auctions and sequential negotiations. In general, any threshold mechanism can be implemented by a dynamic selling scheme which alternately utilizes auctions and negotiations.
    Keywords: Mechanism Design; R&D Investment; Endogenous Bidder Values; Favoritism
    JEL: D44 D82
    Date: 2018–11
  5. By: Melguizo, Isabel
    Abstract: This paper analyze network formation, following the canonical model of Jackson and Wolinsky (JET, 1996) when individuals, that come in two types care about how their type is represented in their neighborhood. We focus on pairwise stable networks. We analyze equilibrium networks, as well as, efficient ones. Segregation measures on equilibrium networks are also analyzed.
    Keywords: Pairwise stability, segregation, welfare
    JEL: D62 D71
    Date: 2019–01–12
  6. By: Martin Brown; Jan Schmitz; Christian Zehnder;
    Abstract: We conduct a laboratory experiment to study whether pre-play communication mitigates opportunistic behavior in a person-to-person lending context. We implement a trust game in which the investment income of the borrower (second-mover) is uncertain and not revealed to the lender (first mover). In this "hidden action" condition lenders cannot distinguish strategic defaults from forced defaults. We compare a treatment in which the borrower can send pre-play text messages to the lender to a treatment without such communication. We find that communication does not have a significant positive effect on credit volumes or repayment rates in this hidden action condition. We compare these findings to the effect of communication in a baseline condition in which borrower income is deterministic and strategic defaults cannot be hidden from lenders. In this baseline condition, communication leads to higher credit volumes and repayment rates implying higher payoffs for both lenders and borrowers. Comparing borrower communication and behavior in the hidden action condition to the baseline condition we find that borrowers are much more likely to renege on promises to repay in the hidden action treatment.
    Keywords: Strategic Default, Communication, Trust Game, Relationship Lending
    JEL: G01 G02 C91
    Date: 2018–08
  7. By: Mickaël Beaud (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier); Mathieu Lefebvre (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique); Julie Rosaz (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper investigates if and how other-regarding preferences governing giving decisions in dictator games are affected in risky environments in which the payoff of the recipient is random. We demonstrate that, whenever the risk is actuarially neutral, the donation of dictators with a purely ex post view of fairness should, in general, be affected by the riskyness of the recipient's payoff, while dictators with a purely ex ante view should not be. Our experimental data show no statistically significant impact of the recipient's risk exposure on dictators' giving decisions and, therefore, give weak empirical support to the purely ex post view of fairness. This result appears to be robust to both the experimental design (within or between subjects) and to the origin of the recipient's risk exposure (chosen by the recipient or imposed to the recipient).
    Keywords: inequality aversion,impure altruism,background risk,ex ante and ex post views of fairness,laboratory experiments dictator games,otherregarding preferences
    Date: 2018
  8. By: Bernhard Ganglmair; Alex Holcomb; Noah Myung
    Abstract: Informal know-how trading and exchange of information among competitors has been well-documented for a variety of industries, including in science and R&D, and an individual’s expectations of reciprocity is understood to be a key determinant of such flow of information. We establish a feedback loop (as a representation of information trading) in the laboratory and show that an individual’s expectations of the recipient’s intentions to reciprocate matter more than a recipient’s ability to do so. This implies that reducing strategic uncertainty about competitors’ behavior has a bigger effect on the flow of information than reducing environmental uncertainty (about their ability to generate new information). We also show that the formation of beliefs about a recipient’s intentions to reciprocate are heavily influenced by past experience, where prior experience lingers and can have negative effects on the sustainability of productive and fruitful information exchange.
    Keywords: knowledge diffusion; information sharing; reciprocity; collective innovation; R&D; conversation; experimental economics; centipede game
    JEL: O33 D8 C72 C91
    Date: 2018–09
  9. By: Massimo Motta; Emanuele Tarantino
    Abstract: We study the effects of mergers when firms offer differentiated products and compete in prices and investments. Since it is in principle ambiguous, we use aggregative game theory to sign the net effect of the merger: We find that only if it entailed sufficient efficiency gains, could the merger raise total investments and consumer surplus. We also prove there exist classes of models for which the results obtained with cost-reducing investments are equivalent to those with quality-enhancing investments. Finally, we show that, from the consumer welfare point of view, a R&D cooperative agreement is superior to any consumer-welfare reducing merger.
    Keywords: horizontal mergers, innovation, investments, research joint ventures, competition
    JEL: K22 D43 L13 L41
    Date: 2018–11
  10. By: Simon Jäger; Benjamin Schoefer; Samuel Young; Josef Zweimüller
    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: Wages, bargaining, unemployment benefits, nonemployment
    JEL: J31 J60 J65
    Date: 2018–12
  11. By: Saglam, Ismail
    Abstract: In this paper, we consider a one-to-one matching model where the population expands with the arrival of a man and a woman. Individuals in this population are matched, before and after the expansion, according to a version of the deferred acceptance algorithm (Gale and Shapley, 1962) where men propose and women reject or (tentatively or permanently) accept. Using computer simulations of this model, we study how the percentage of matches disrupted (undisrupted) with the expansion of the population is affected when the initial size of the population and the size of correlation in the preferences of individuals change.
    Keywords: One-to-one matching; deferred acceptance; stability; external stability
    JEL: C63 C78
    Date: 2019–01–15
  12. By: Jun-ichi Itaya; Atsue Mizushima; Kengo Kurosaka
    Abstract: This paper investigates how the heterogenous incomes and preferences of potential donors affect the timing of contribution decisions when it is endogenously determined by contributors themselves. More specifically, we use a simple setting with two donors, Cobb-Douglas preferences, and complete information to investigate how income inequality affects the endogenous choices of contribution timing and the level of the voluntary supplied public goods. This paper obtains the following results. First, when income is extremely unequal, potential contributors are indifferent between the timing choices of simultaneous and sequential moves, even if they have different preferences towards a public good. Second, as income inequality decreases, the simultaneous move-game is increasingly likely to emerge, because all potential contributors prefer to act as a leader. Third, in the presence of multiple public goods, contributors with higher valuations for one public good tend to be first contributors to that one. Fourth, these theoretical predictions regarding the timing decisions of individuals are not supported by the laboratory experiment, although those regarding individuals’ contribution decisions are consistent with the experimental results.
    Keywords: Nash equilibrium, Stackelberg equilibrium, public good, endogenous timing, voluntary provision, income distribution
    JEL: D31 H41 H42
    Date: 2018
  13. By: Latika Chaudhary (Naval Postgraduate School); Jared Rubin (Chapman University); Sriya Iyer (University of Cambridge); Anand Shrivastava (Azim Premji University)
    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 (barely) 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 (Princely) Shahpura. We find no significant difference in contributions to home town groups, but a significant difference in contributions to mixed town groups. Participants in (British) Kekri are more co-operative (i.e., contribute more) in mixed town groups compared to those in (Princely) Sarwar. We find the differences are driven by individuals with family ties to the towns, and we find no differences in the control comparison. Our results highlight the enduring effects of colonial rule on social norms of co-operation
    Keywords: cultural transmission, colonialism, public goods game, natural experiment, lab-in-the-field experiment, India
    JEL: C91 C93 C71 H41 H73 N35 N45 O17 Z1
    Date: 2018
  14. By: Benny Moldovanu; Deniz Dizdar; Nora Szech
    Abstract: Agents in a finite two-sided market are matched assortatively, based on costly investments. Besides signaling private, complementary types, investments generate direct benefits for partners. We explore quantitative properties of the equilibrium investment behavior. The bilateral external benefits induce an investment multiplier effect. This multiplier effect depends in a complex way on agents’ uncertainty about their own rank and about the types and investments of potential partners. We characterize how the multiplier effect hinges on market size, and how it interacts with other important factors such as the costs of investment and the signaling incentives induced by competition.
    Keywords: two-sided matching, signaling, investment, multiplier effect
    JEL: C78 D44 D82
    Date: 2018–07
  15. By: Yu-Jui Huang (University of Colorado - Department of Applied Mathematics - University of Colorado Boulder [Boulder]); Adrien Nguyen-Huu (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier); Xun Yu Zhou (Columbia University [New York])
    Abstract: We consider the problem of stopping a diffusion process with a payoff functional that renders the problem time-inconsistent. We study stopping decisions of naıve agents who reoptimize continuously in time, as well as equilibrium strategies of sophisticated agents who anticipate but lack control over their future selves' behaviors. When the state process is one dimensional and the payoff functional satisfies some regularity conditions, we prove that any equilibrium can be obtained as a fixed point of an operator. This operator represents strategic reasoning that takes the future selves' behaviors into account. We then apply the general results to the case when the agents distort probability and the diffusion process is a geometric Brownian motion. The problem is inherently time-inconsistent as the level of distortion of a same event changes over time. We show how the strategic reasoning may turn a na¨ıve agent into a sophisticated one. Moreover, we derive stopping strategies of the two types of agent for various parameter specifications of the problem, illustrating rich behaviors beyond the extreme ones such as "neverstopping" or "never-starting".
    Keywords: equilibrium stopping law,naïve and sophisticated agents,probability distortion,time inconsistency,Optimal stopping,na¨ıvena¨ıve and sophisti-cated agents
    Date: 2018
  16. By: Yu Zhou; Shigehiro Serizawa
    Abstract: We investigate an assignment market where multiple objects are assigned, together with associated payments, to a group of agents with unit demand preferences. Preferences over bundles, the pairs of (object, payment), accommodate income effects. Among all (Walrasian) equilibria in such a market, there is one supported by the coordinate-wise minimum prices, the minimum price equilibrium (MPE). We propose a price adjustment process, "the Serial Vickrey process," that finds an MPE in a finite number of steps. The Serial Vickrey process introduces objects one by one, and on the basis of the structural properties of MPE, the "Serial Vickrey sub-process" sequentially finds an MPE for k+1 objects by using an MPE for k objects. In the Serial Vickrey process, instead of revealing the whole preference, each agent only reports finitely many "indifference prices." We also discuss the application of the Serial Vickrey process to calibrate agents' utility functions in the quantitative analysis of housing market research in the assignment model.
    Date: 2019–01
  17. By: David Spector (PSE - Paris-Jourdan Sciences Economiques - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Many collusive agreements involve the exchange of self-reported sales data between competitors, which use them to monitor compliance with a target market share allocation. Such communication may facilitate collusion even if it is unverifiable cheap talk and the underlying information becomes publicly available with a delay. The exchange of sales information may allow firms to implement incentive-compatible market share reallocation mechanisms after unexpected swings, limiting the recourse to price wars. Such communication may allow firms to earn profits that could not be earned in any collusive, symmetric pure-strategy equilibrium without communication.
    Date: 2019–01
  18. By: Roberto Galbiati (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique); Emeric Henry (ECON - Département d'économie - Sciences Po); Nicolas Jacquemet (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In situations where social payoffs are not aligned with private incentives, enforcement with fines can be a way to sustain cooperation. In this paper we show, by the means of a lab experiment , that past fines can have an effect on current behavior even when no longer in force. We document two mechanisms: a) past fines affect directly individuals' future propensity to cooperate; b) when fines for non cooperation are in place in the past, individuals experience higher levels of cooperation from partners and, consistent with indirect reciprocity motives, are in turn nicer towards others once these fines have been removed. This second mechanism is empirically prevalent and, in contrast with the first, induces a snowball effect of past enforcement. Our results can inform the design of costly enforcement policies.
    Keywords: experiments,Laws,social values,cooperation,learning,spillovers,persistence of institutions,repeated games
    Date: 2018
  19. By: Giovanni Cespa; Xavier Vives
    Abstract: We assess the consequences for market quality and welfare of different entry regimes and exchange pricing policies in a context of limited market participation. To this end we integrate a two-period market microstructure model with an exchange competition model with entry in which exchanges supply technological services, and have market power. We find that technological services can be strategic substitutes or complements in platform competition. Free entry of platforms delivers a superior outcome in terms of liquidity and (generally) welfare compared to the case of an unregulated monopoly. Controlling entry or, even better typically, platform fees may further increase welfare. The market may deliver excessive or insufficient entry. However, if the regulator is constrained to not making transfers to platforms then there is never insufficient entry.
    Keywords: market fragmentation, welfare, endogenous market structure, platform competition, Cournot with free entry, industrial organization of exchanges
    JEL: G10 G12 G14
    Date: 2018
  20. By: Shigeto Kitano (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Kenya Takaku (Faculty of International Studies, Hiroshima City University, Japan)
    Abstract: We examine how the degree of financial market incompleteness affects welfare gains from policy cooperation in capital controls. When financial markets are incomplete, international risk sharing is disturbed. However, the optimal global policy significantly reverses the welfare deterioration due to inefficient risk-sharing. We find that when financial markets are more incomplete, the welfare gap between the optimal global policy and the Nash equilibrium increases, and the welfare gains from policy cooperation in capital controls then become larger.
    Keywords: Financial markets; Incomplete markets; Policy cooperation; Capital controls; Optimal policy; Welfare; Ramsey policy; Open-loop Nash game
    JEL: D52 E61 F32 F42 G15
    Date: 2019–01
  21. By: Stephan Lauermann; Asher Wolinsky
    Abstract: This paper analyzes a common-value, first-price auction with state-dependent participation. The number of bidders, which is unobservable to them, depends on the true value. For exogenously given participation patterns that involve many bidders in each state, the bidding equilibrium may be of a "pooling" type---with high probability, the winning bid is the same across states and is below the ex-ante expected value---or of a "partially separating" type---with no significant atoms in the winning bid distribution and an expected winning bid increasing in the true value. Which of these forms will arise is determined by the likelihood ratio at the top of the signal distribution and the participation across states. When the state-dependent participation is endogenized as the strategic solicitation by an informed seller who bears a small cost for each solicited bidder, an equilibrium of the separating type always exists and is unique of this type; for certain signal distributions there also exist equilibria of the pooling type.
    Keywords: Search, Auctions, Adverse Selection
    JEL: C78 D83
    Date: 2018–12
  22. By: Maria Bigoni (University of Bologna and IZA); Gabriele Camera (Economic Science Institute, Chapman University and University of Bologna); Marco Casari (University of Bologna and IZA)
    Abstract: We show that monetary exchange facilitates the transition from small to large-scale economic interactions. In an experiment, subjects chose to play an Òintertemporal cooperation gameÓ either in partnerships or in groups of strangers where payoffs could be higher. Theoretically, a norm of mutual support is sufficient to maximize efficiency through large-scale cooperation. Empirically, absent a monetary system, participants were reluctant to interact on a large scale; and when they did, efficiency plummeted compared to partnerships because cooperation collapsed. This failure was reversed only when a stable monetary system endogenously emerged: the institution of money mitigated strategic uncertainty problems.
    Keywords: Coordination, endogenous institutions, repeated games
    JEL: C70 C90 D03 E02 E40
    Date: 2018
  23. By: Xin Zhao (Economics Discipline Group, University of Technology Sydney)
    Abstract: This paper studies mechanism design by a seller privately informed of the quality of an indivisible object. The privacy of the seller’s information matters for mechanism design: selecting a mechanism that maximizes the seller’s profit when her information is public is not incentive compatible for the seller when her information is private, as a lower-quality seller has an incentive to mimic a higher-quality seller. I show that reserve prices are the least costly device to separate higher-quality sellers from lower-quality ones. In equilibria that maximize the expected profit of every type of the seller among all separating equilibria, the lowest-quality seller adopts her public-information optimal mechanism, and each higher-quality seller adopts a mechanism that differs from her public-information optimal mechanism only in that the reserve prices are higher.
    Keywords: Mechanism design; informed principal; reserve price; signaling
    JEL: D44 D82
    Date: 2018–10–06
  24. By: Saglam, Ismail
    Abstract: In this paper, we consider a one-to-one matching model with two phases; an adolescence phase where individuals meet a number of dates and learn about their aspirations, followed by a matching phase where individuals are matched according to a version of Gale and Shapley's (1962) deferred acceptance (DA) algorithm. Using simulations of this model, we study how the likelihoods of matching and divorce, and also the balancedness and the speed of matching associated with the outcome of the DA algorithm are affected by the size of correlation in the preferences of individuals and by the frequency individuals update their aspirations in the adolescence phase.
    Keywords: Mate search; one-to-one matching; stability; agent-based simulation
    JEL: C63 C78
    Date: 2019–01–15

This nep-gth issue is ©2019 by Sylvain Béal. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.