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on Game Theory |
| By: | Volker Britz (ETH Zurich, Switzerland) |
| Abstract: | We consider bilateral non–cooperative bargaining on the division of a surplus. Compared to the canonical bargaining game in the tradition of Rubinstein, we introduce additional sources of friction into the bargaining process: Implementation of an agreement and consumption of the surplus can only begin at discrete points in time, such as the first day of a month, quarter, or year. Bargaining rounds are of non–trivial length, so that counter–offers may be made without triggering costly delay. Communication between players is noisy: When players make offers, they are uncertain about the time it takes for the offer to arrive. We analyze delays and payoffs in the unique stationary equilibrium of the game. Frictions tend to make the bargaining process less efficient, but lead to a fairer surplus allocation. We establish conditions under which the equilibrium outcome converges to that in a canonical bargaining model as frictions become small. |
| Keywords: | Bargaining, Discount Factor, Timing, Subgame–Perfect Equilibrium, Equilibrium Delay. |
| JEL: | C72 C78 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:eth:wpswif:19-309&r=all |
| By: | Laszlo A. Koczy (Centre for Economic and Regional Studies Hungarian Academy of Sciences, and Faculty of Economic and Social Sciences, Budapest University of Technology and Economics) |
| Abstract: | In coalitional games with uncertain payoffs, a deviating coalition can only form expectations regarding its post-deviation payoff. Classical approaches address the problem from the side of conservatism, expecting the worst, or by explicit assumptions of the emerging state of the world. We borrow the idea of risk from the finance literature and compare the payoff of staying with the original outcome with the risk of deviating. Employing this idea to the core leads to a new concept that we call the risk-based core. We introduce this concept and discuss its properties. We find an inclusion relation between cores of games with increasingly conservative players. The model is also suitable to study cooperative games in partition function form where the value of a coalition depends on the entire partition. For the cores of such games our main result yields many of the familiar inclusion relations as corollaries, while the inclusion of the optimistic core in the optimistic recursive core turns out to be non-robust. |
| Keywords: | Cooperative game theory; Core; Expectation formation rules; Risk, Risk measures; Partition function form games |
| JEL: | C71 D82 G32 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:1906&r=all |
| By: | Youcef Askoura |
| Abstract: | We study the core of normal form games with a continuum of players and without side payments. We consider the weak-core concept, which is an approximation of the core, introduced by Weber, Shapley and Shubik. For payoffs depending on the players' strategy profile, we prove that the weak-core is nonempty. The existence result establishes a weak-core element as a limit of elements in weak-cores of appropriate finite games. We establish by examples that our regularity hypotheses are relevant in the continuum case and the weak-core can be strictly larger than the Aumann's $\alpha$-core. For games where payoffs depend on the distribution of players' strategy profile, we prove that analogous regularity conditions ensuring the existence of pure strategy Nash equilibria are irrelevant for the non-vacuity of the weak-core. |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1903.09819&r=all |
| By: | David Csercsik (Faculty of Information Technology and Bionics, Pázmány Péter Catholic University); Franz Hubert (School of Business and Economics Humboldt-Universität zu Berlin, Germany); Balazs R. Sziklai (Centre for Economic and Regional Studies Hungarian Academy of Sciences, and Faculty of Economics, Corvinus University Budapest); Laszlo A. Koczy (Centre for Economic and Regional Studies Hungarian Academy of Sciences, and Faculty of Economic and Social Sciences, Budapest University of Technology and Economics) |
| Abstract: | Existing cooperative game theoretic studies of bargaining power in gas pipeline systems are based on the so called characteristic function form (CFF). This approach is potentially misleading if some pipelines fall under regulated third party access (TPA). TPA, which is by now the norm in the EU, obliges the owner of a pipeline to transport gas for others, provided they pay a regulated transport fee. From a game theoretic perspective, this institutional setting creates so called "externalities", the description of which requires partition function form (PFF) games. In this paper we propose a method to compute payoffs, reflecting the power structure, for a pipeline system with regulated TPA. The method is based on an iterative flow mechanism to determine gas flows and transport fees for individual players and uses the recursive core and the minimal claim function to convert the PPF game back into a CFF game, which can be solved by standard methods. We illustrate the approach with a simple stylized numerical example of the gas network in Central Eastern Europe with a focus on Ukraine’s power index as a major transit country. |
| Keywords: | externalities, networks, natural gas, cooperative game theory, recursive core |
| JEL: | C61 C71 Q40 Q48 D86 L14 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:1904&r=all |
| By: | Calleja, Pedro (Departament de Matemàtica Econòmica); Llerena, Francesc (Departament de Gestió d’Empreses); Sudhölter, Peter (Department of Business and Economics) |
| Abstract: | We show that the constrained egalitarian surplus-sharing rule, which divides the surplus so that the poorer players’ resulting payoffs become equal but not larger than any remaining player’s status quo payoff, is characterized by Pareto optimality, path independence, both well-known, and less first (LF), requiring that a player does not gain if her status quo payoff exceeds that of another player by the surplus. This result is used to show that, on the domain of convex games, Dutta-Ray’s egalitarian solution is characterized by aggregate monotonicity (AM), bounded pairwise fairness, resembling LF, and the bilateral reduced game property (2-RGP) à la Davis and Maschler. We show that 2-RGP can be replaced by individual rationality and bilateral consistency à la Hart and Mas-Colell. We prove that the egalitarian solution is the unique core selection that satisfies AM and bounded richness, requiring that the poorest players cannot be made richer within the core. Replacing “poorest” by “poorer” allows to eliminate AM. |
| Keywords: | Surplus-sharing; egalitarianism; convex TU game |
| JEL: | C71 |
| Date: | 2019–03–19 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sdueko:2019_006&r=all |
| By: | Sebastiano Della Lena; Fabrizio Panebianco (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore) |
| Abstract: | This paper introduces incomplete information in the standard model of cultural transmission (Bisin and Verdier, 2001). We allow parents to ignore own group size and the efficiency of their cultural transmission technology, while receiving a feedback from their children. Using the selfcon_rming equilibrium concept, parents may end up to sustain, and be confirmed about, wrong conjectures. We show that in equilibrium optimal socialization efforts display cultural complementarity with respect to own population share, while the standard substitution result holds with respect their own conjectured population shares. Considering the population dynamics, if conjectures about population shares are shaped by cultural leaders who want to maximize the presence of own traits in the next period, then conjectures are characterized by negative biases. Our main finding is that, depending on the magnitude of the bias, the dynamics can display stable or unstable polymorphic equilibria, or just a stable homomorphic equilibrium, potentially reverting standard predictions |
| Keywords: | Cultural Transmission; Incomplete Information; Selfcon rming Equilibrium; Group Under-Representation; Parental Perceived Ecacy; Cultural leaders. |
| JEL: | C72 D10 D80 J10 Z10 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:ctc:serie1:def079&r=all |
| By: | Liyang Han; Thomas Morstyn; Malcolm McCulloch |
| Abstract: | Various peer-to-peer energy markets have emerged in recent years in an attempt to manage distributed energy resources in a more efficient way. One of the main challenges these models face is how to create and allocate incentives to participants. Cooperative game theory offers a methodology to financially reward prosumers based on their contributions made to the local energy coalition using the Shapley value, but its high computational complexity limits the size of the game. This paper explores a stratified sampling method proposed in existing literature for Shapley value estimation, and modifies the method for a peer-to-peer cooperative game to improve its scalability. Finally, selected case studies verify the effectiveness of the proposed coalitional stratified random sampling method and demonstrate results from large games. |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1903.11047&r=all |
| By: | LaFrance, Jeffery T.; Shimshack, Jay P.; Watts, Myles J. |
| Abstract: | Use of public natural resources for private gain is a longstanding, hotly contested politicaleconomic issue across the world. Publicly owned natural resources generate social benefits beyond private commodity uses and exploitation – recreational, environmental, ecological, biological, preservation and conservation, existence values, and aesthetics. The dynamics of natural resource use and exploitation leads to asymmetric information on the actions taken to exploit resource, the stock levels of resources, and net benefit flows to society. Imperfect and costly monitoring and enforcement in a continuous time setting lead to new questions, results, and insights. We model this as a countable sequence of dynamic sub-games. Each sub-game is played in continuous time for a random length of time between monitoring events with an infinite support. Each subgame has three players: a public natural resource administrator, the principle; a private commodity user, the agent; and nature, which serves to draw a random agent from a measure space of potential commodity uses at the beginning of each sub-game and to draw the random time between sequential monitoring events. These are not repeated games, even in a stationary long-run equilibrium distribution context. An interior solution is obtained for the optimal monitoring rate and penalty function in the event of noncompliance. Several new results are obtained that, on the surface, appear to be somewhat surprising, perhaps even contrary to standard results on regulation and externalities in commodity use. The results relate to, extend, and connect several strands of the existing literature – including efficiency wages, crime and punishment, environmental regulation, and dynamic games. |
| Keywords: | Resource /Energy Economics and Policy |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aare19:285066&r=all |
| By: | Edward Cartwright; Abhijit Ramalingam |
| Abstract: | We disentangle the effects of choice (give vs. take) and externality (positive vs. negative) framing of decisions in isomorphic and payoff-equivalent experimental public good games. We find that, at the aggregate level, neither frame affects group contributions. At the individual level, the Take choice frame leads to greater free-riding, and also to somewhat higher contributions, i.e., to more extreme contribution behaviour. Key Words: isomorphic; public goods; experiment; cooperation; choice frame; externality frame |
| JEL: | C72 C91 C92 D02 H41 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:apl:wpaper:19-07&r=all |
| By: | Liyang Han; Thomas Morstyn; Constance Crozier; Malcolm McCulloch |
| Abstract: | Among the various market structures under peer-to-peer energy sharing, one model based on cooperative game theory provides clear incentives for prosumers to collaboratively schedule their energy resources. The computational complexity of this model, however, increases exponentially with the number of participants. To address this issue, this paper proposes the application of K-means clustering to the energy profiles following the grand coalition optimization. The cooperative model is run with the "clustered players" to compute their payoff allocations, which are then further distributed among the prosumers within each cluster. Case studies show that the proposed method can significantly improve the scalability of the cooperative scheme while maintaining a high level of financial incentives for the prosumers. |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1903.10965&r=all |
| By: | Nobuyuki Hanaki (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); Yukio Koriyama (X-DEP-ECO - Département d'Économie de l'École Polytechnique - X - École polytechnique); Angela Sutan (BSB - Burgundy School of Business (BSB) - Ecole Supérieure de Commerce de Dijon Bourgogne (ESC)); Marc Willinger (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) |
| Abstract: | Recent experimental studies have shown that observed outcomes deviate significantly morefrom the Nash equilibrium when actions are strategic complements than when they are strategic substitutes. This "strategic environment effect" offers promising insights into the aggregate consequences of interactions among heterogeneous boundedly rational agents, but its macroeconomic implications have been questioned because the underlying experiments involve a small number of agents. We studied beauty contest games with a unique interior Nash equilibrium to determine the critical group size for triggering the strategic environment effect, and we use both theory and experiments to shed light on its effectiveness. Based on cognitive hierarchy and level-K models, we show theoretically that the effect is operative for interactions among three or more agents. Our experimental results show a statistically significant strategic environment effect for groups of five or more agents, establishing its robustness against the increase in the population size. Our results bolster other experimental ndings on the strategic environment effects that are relevant for macroeconomic issues such as price fluctuations and nominal rigidity. |
| Keywords: | strategic complementarity,strategic substitutability,beauty contest games,iterative reasoning |
| Date: | 2018–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpceem:hal-01954922&r=all |
| By: | Diamantoudi, Effrosyni; Sartzetakis, Eftichios; Strantza, Stefania |
| Abstract: | The present paper examines the stability of self-enforcing International Environmental Agreements (IEAs) among heterogeneous countries in a twostage emission game. In the first stage each country decides whether or not to join the agreement, while in the second stage the quantity of emissions is chosen simultaneously by all countries. We use quadratic benefit and environmental damage functions and assume k types of countries that differ in their sensitivity to the global pollutant. We find that the introduction of heterogeneity does not yield larger stable coalitions. In particular, we show that, in the case of two types, when stable coalitions exist their size is very small, and, if the asymmetry is strong enough, they include only one type of countries. Moreover, heterogeneity can reduce the scope of cooperation relative to the homogeneous case. We demonstrated that introducing asymmetry into a stable, under symmetry, agreement can disturb stability. |
| Keywords: | Environmental Economics and Policy |
| Date: | 2018–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:ags:feemci:274850&r=all |
| By: | Youcef Askoura |
| Abstract: | We consider the interim core of normal form cooperative games and exchange economies with incomplete information based on the partition model. We develop a solution concept that we can situate roughly between Wilson's coarse core and Yannelis's private core. We investigate the interim negotiation of contracts and address the two situations of contract delivery: interim and ex post. Our solution differs from Wilson's concept because the measurability of strategies in our solution is postponed until the consumption date (assumed with respect to the information that will be known by the players at the consumption date). For interim consumption, our concept differs from Yannelis's private core because players can negotiate conditional on proper common knowledge events in our solution, which strengthens the interim aspect of the game, as we will illustrate with examples. |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1903.09867&r=all |
| By: | Westerink-Duijzer, L.E.; Schlicher, L.P.J.; Musegaas, M. |
| Abstract: | Vaccination is a very effective measure to fight an outbreak of an infectious disease, but it often suffers from delayed deliveries and limited stockpiles. To use these limited amounts of vaccines effectively, health agencies can decide to cooperate and share their vaccines. In this paper, we analyze this type of cooperation. Typically cooperation leads to an increased total return, but cooperation is only plausible when this total return can be distributed among the agents in a fair way. Using cooperative game theory, we derive theoretical sufficient conditions under which cooperation is plausible and we show that the resources can be traded for a market price in those cases. We perform numerical analyses to generalize these findings and we derive analytical expressions for market prices that can be used in general for distributing the total return in a fair way. Our results demonstrate that cooperation is a delicate matter. Cooperation is most likely to be plausible when the total amount of resources is limited or very large. In those cases, trading resources for a market price often results in a fair allocation of the total return. We confirm these findings with a case study on the redistribution of influenza vaccines. |
| Keywords: | cooperative game theory, market allocations, core, S-shaped return functions, vaccination |
| Date: | 2019–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:ems:eureir:115474&r=all |
| By: | Mamadou Gueye (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); Nicolas Querou (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); Raphaël Soubeyran (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) |
| Abstract: | In this paper, we use a laboratory experiment to analyze the relationship between equity and coordination success in a game with Pareto ranked equilibria. Equity is decreased by increasing the coordination payoffs of some subjects while the coordination payoffs of others remain unchanged. Theoretically, in this setting, difference aversion may lead to a positive relationship between equity and coordination success, while social welfare motivations may lead to a negative relationship. Using a within-subject experimental design, we find that less equity unambiguously leads to a higher level of coordination success. Moreover, this result holds even for subjects whose payoffs remain unchanged. Our results suggest that social welfare motivations drives the negative relationship between equity and coordination success found in this experiment. Moreover, our data suggest that the order of treatment matters. Groups facing first the treatment with high inequality in coordination payoffs, then the treatment with low inequality in coordination payoffs, reach the Pareto dominant equilibrium more often in both treatments compared to groups playing first the treatment with low inequality in coordination payoffs, then the treatment with high inequality in coordination payoffs. |
| Keywords: | effciency,social welfare motivation,equity,coordination game,difference aversion |
| Date: | 2018–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpceem:hal-01947414&r=all |
| By: | Diamantoudi, Effrosyni; Sartzetakis, Eftichios; Strantza, Stefania |
| Abstract: | The paper examines the stability of self-enforcing International Environmental Agreements (IEAs) among heterogeneous countries, allowing for transfers. We employ a two-stage, non-cooperative model of coalition formation. In the first stage each country decides whether or not to join the agreement, while in the second stage countries choose their emissions simultaneously. Coalition members agree also to share the gains from cooperation in the first stage. We use quadratic benefit and environmental damage functions and assume two types of countries differing in their sensitivity to the global pollutant. In examining the impact of transfers on the coalition size, we apply the notion of Potential Internal Stability (PIS). Results show that transfers can increase cooperation among heterogeneous countries. However, the increase in the coalition size, relative to the case without transfers, comes only from countries belonging to the type with the lower environmental damages, which are drawn into the coalition by the transfers offered. Furthermore, the level of cooperation increases with the degree of heterogeneity. However, the reduction in aggregate emissions achieved by the enlarged coalition is very small leading to dismal improvement in welfare, which confirms the "paradox of cooperation". |
| Keywords: | Environmental Economics and Policy |
| Date: | 2018–06–07 |
| URL: | http://d.repec.org/n?u=RePEc:ags:feemci:273370&r=all |
| By: | Cantoni, Davide; Yang, David Y; Yuchtman, Noam; Zhang, Y Jane |
| Abstract: | Social scientists have long viewed the decision to protest as strategic, with an individual’s participation a function of their beliefs about others’ turnout. We conduct a framed field experiment that recalibrates individuals’ beliefs about others’ protest participation, in the context of Hong Kong’s ongoing antiauthoritarian movement. We elicit subjects’ planned participation in an upcoming protest and their prior beliefs about others’ participation, in an incentivized manner. One day before the protest, we randomly provide a subset of subjects with truthful information about others’ protest plans and elicit posterior beliefs about protest turnout, again in an incentivized manner. After the protest, we elicit subjects’ actual participation. This allows us to identify the causal effects of positively and negatively updated beliefs about others’ protest participation on subjects’ own turnout. In contrast with the assumptions of many recent models of protest participation, we consistently find evidence of strategic substitutability. We provide guidance regarding plausible sources of strategic substitutability that can be incorporated into theoretical models of protests. |
| JEL: | D80 D74 P00 |
| Date: | 2019–01–21 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:100316&r=all |
| By: | Kyung Hwan Baik; Subhasish M. Chowdhury; Abhijit Ramalingam |
| Abstract: | We experimentally investigate the effects of conflict budget on conflict intensity. We run a between-subjects Tullock contest in which we vary the contest budget from Low to Medium to High, while keeping the risk-neutral Nash equilibrium bid the same. We find a non-monotonic relationship: bids increase when the budget increases from Low to Medium, but decrease when the budget further increases from Medium to High. This can happen for players with concave utility, if a high budget has a wealth effect that reduces the marginal utility of winning resulting in lower bids. To test this, we run a Wealth treatment in which the budget remains the Medium, but contestants receive a fixed payment (as wealth) independent of the contest outcome. The bids in the Wealth treatment are lower than the Medium treatment, but are not different from the High treatment, supporting the hypothesis of a wealth effect. We then support this empirical observation by a theoretical model with risk-aversion. Key Words: Conflict; Experiment; Budget constraint; Wealth effect |
| JEL: | C72 C91 D72 D74 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:apl:wpaper:19-06&r=all |
| By: | Adriana Breccia (Risk Control Limited, London) |
| Abstract: | Numerous studies have examined how market structure affects appropriability of R&D returns and, in turn, R&D investment and innovation speed. Less effort has been spent on the opposite relationship which is instead our focus. In a continuous time model, two firms compete in R&D, with the leading patent affecting the probability of success of a second patent (competing in the same product market); the size and the direction of this effect depends on the level of appropriability, which, unlike previous research, connects competition in R&D and competition in the product market. We find that low appropriability delays R&D investments and thus discovery, with the (future) benefit of a more competitive product market. Secondly, we show that the relation between concentration in R&D and concentration in product markets can be positive or negative depending on the probability of success of an innovation and its level of appropriability. Also, we find that an increase in the probability of success of innovation does not necessarily speed up investment in R&D. |
| Keywords: | real options, intellectual property, R&D, geometric Brownian motion, Stackelberg games |
| JEL: | C7 D8 O3 K4 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkefp:1902&r=all |
| By: | Pahlke, Marieke (Center for Mathematical Economics, Bielefeld University) |
| Abstract: | Beauchêne, Li, and Li (2019) show that ambiguous persuasion leads to new interim equilibria with higher ex ante value for the Sender compared to the standard Bayesian persuasion. However, in their equilibrium the strategy of the Receiver is in general not ex ante optimal. This note, de fines rectangular beliefs over the full state space in the same setting as Beauchêne et al. (2019) and shows that given rectangular be- liefs the Receiver behaves dynamically consistent. Hence, the interim equilibrium of Beauchêne et al. (2019) is an ante equilibrium, as well. |
| Keywords: | Bayesian Persuasion, Ambiguity Aversion, Dynamic Consistency |
| Date: | 2019–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:bie:wpaper:611&r=all |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpceem:hal-01954928&r=all |
| By: | Hirth, Lion; Schlecht, Ingmar |
| Abstract: | In zonal electricity markets, such as Europe’s, system operators relieve congested power lines within bidding zones using out-of-market measures. One such measure is “redispatching” power plants, i.e. increasing the output of one power station while decreasing the output of another. Traditionally, generators have often been legally obliged to participate in redispatch and were subsequently compensated by the system operator for costs in-curred. In recent years, with increasing pressure on power grids, numerous proposals have been made, including one by the European Commission, to organize redispatch through voluntary markets. In this paper, we introduce a simple graphical model of a zonal spot market with a locational, voluntary redispatch market to show that such a market-based solution should not be used in this setting. We solve the model explicitly by determining optimal bidding strategies and Nash equilibrium prices. We show that market parties anticipate the redispatch market and bid strategically in the spot market – the so-called increase-decrease game. As a result, grid congestion is aggravat-ed, producers extract windfall profits, financial markets are distorted, and perverse investment incentives emerge. Despite claims to the contrary, we show that such gaming is possible absent market power, i.e. if all generators ultimately bid marginal cost. At the root of the problem is inconsistent power market design: combining a regional with a locational market yields undue arbitrage opportunities that rational firms exploit. We conclude that such inconsistent market design should be avoided. |
| Keywords: | Redispatch,Inc-Dec |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:194292&r=all |
| By: | Diamantoudi, Effrosyni; Sartzetakis, Eftichios; Strantza, Stefania |
| Abstract: | This paper examines the stability of International Environmental Agreements (IEAs) in an economy with trade. We extent the basic model of the IEAs by letting countries choose emission taxes and import tariffs as their policy instruments in order to manage climate change and control trade. We define the equilibrium of a three-stage emission game. In the first stage, each country decides whether or not to join the agreement. In the second stage, countries choose simultaneously - cooperatively or non-cooperatively - tariff and tax levels. In the third stage, taking countries’ decisions as given, firms compete a la Cournot in the product markets. Numerical analysis illustrates that the interaction between trade and environment policies is essential in enhancing cooperation. Contrary to the IEA model, stable agreements are larger and more efficient in reducing aggregate emissions and improving welfare. Moreover, the analysis shows that the size of a stable agreement increases in the number of countries affected by the externalities. |
| Keywords: | Environmental Economics and Policy |
| Date: | 2018–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:ags:feemci:274851&r=all |
| By: | William Brock; Anastasios Xepapadeas |
| Abstract: | We study climate change policies using the novel pattern scaling approach of regional transient climate response, to develop a regional economy-climate model under conditions of deep uncertainty associated with: (i) temperature dynamics, (ii) regional climate change damages, and (iii) policy in the form of carbon taxes. We analyze cooperative and noncooperative outcomes. Under deep uncertainty, robust control policies are more conservative regarding emissions, the higher the aversion to ambiguity is, while damage uncertainty seems to produce more conservative behavior than climate dynamics uncertainty. As concerns about uncertainty increase, cooperative and noncooperative policies tend to move close together. Asymmetries in concerns about uncertainty tend to produce large deviations in regional emissions policy at the noncooperative solution. We calculate the cost of robustness in terms of welfare. If aversion to ambiguity is suciently high, optimal regulation might not be possible. The result is associated with the existence of regional hot spots and temperature spillovers across regions, a situation which emerges in the real world. In such cases, deep uncertainty about the impacts of climate change makes robust regulation infeasible. We show that, if resources are devoted to learning, which reduces uncertainty concerns, robust regulation is facilitated. |
| Keywords: | Regional temperature anomalies, Deep uncertainty, Cooperative solution solutions, Robust Open Loop Nash Equilibrium, Cost of Robustness, Learning |
| JEL: | Q54 Q58 D81 |
| Date: | 2019–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:aue:wpaper:1903&r=all |