nep-gth New Economics Papers
on Game Theory
Issue of 2019‒07‒15
fifteen papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. A Compact, Logical Approach to Large-Market Analysis By Yannai A. Gonczarowski; Scott Duke Kominers; Ran I. Shorrer
  2. A Multi-Stage Market Game that Implements any Walrasian Allocation in any Pure-Exchange Environment By Mouhua Liao
  3. On the optimality of the yardstick regulation in the presence of dynamic interaction By Bisceglia, Michele; Cellini, Roberto; Grilli, Luca
  5. Teams promise but do not deliver By Nielsen, Kirby; Bhattacharya, Puja; Kagel, John H.; Sengupta, Arjun
  6. Most Important Fundamental Rule of Poker Strategy By Sam Ganzfried; Max Chiswick
  7. "Behavioral Theory of Repeated Prisoner’s Dilemma: Generous Tit-For-Tat Strategy" By Hitoshi Matsushima
  8. A solution to the two-person implementation problem By Jean-François Laslier; Matias Nunez; M Remzi Sanver
  9. Labor Market Search, Informality, and On-The-Job Human Capital Accumulation By Matteo Bobba; Luca Flabbi; Santiago Levy; Mauricio Tejada
  10. Costly auction entry, royalty payments, and the optimality of asymmetric designs By Bernhardt, Dan; Liu, Tingjun; Sogo, Takeharu
  11. Financial Transfers and Climate Cooperation By Kerr, Suzi; Lippert, Steffen; Lou, Edmund
  12. Self-Fulfilling Crises and Central Bank Communication By Raphael Galvão; Felipe Shalders
  13. Contests within and between groups By Bhattacharya, Puja; Rampal, Jeevant
  14. "Epic Fail: How Below-Bid Pricing Backfires in Multiunit Auctions" By Sanna Laksá; Daniel Marszalec; Alexander Teytelboym
  15. Ramsey Tax Competition with Real Exchange Rate Determination By Paul Gomme

  1. By: Yannai A. Gonczarowski; Scott Duke Kominers; Ran I. Shorrer
    Abstract: In game theory, we often use infinite models to represent "limit" settings, such as markets with a large number of agents or games with a long time horizon. Yet many game-theoretic models incorporate finiteness assumptions that, while introduced for simplicity, play a real role in the analysis. Here, we show how to extend key results from (finite) models of matching, games on graphs, and trading networks to infinite models by way of Logical Compactness, a core result from Propositional Logic. Using Compactness, we prove the existence of man-optimal stable matchings in infinite economies, as well as strategy-proofness of the man-optimal stable matching mechanism. We then use Compactness to eliminate the need for a finite start time in a dynamic matching model. Finally, we use Compactness to prove the existence of both Nash equilibria in infinite games on graphs and Walrasian equilibria in infinite trading networks.
    Date: 2019–06
  2. By: Mouhua Liao
    Abstract: This paper studies retrading in a multi-stage Shapley--Shubik structure market game with symmetric limit orders and a finite number of agents. Without restrictions on preferences and endowments, a constructive proof is used to show that any Walrasian allocation can be implemented by a Markov perfect equilibrium if agents are allowed to retrade for a finite number of rounds before they consume. As part of the proof, we give a closed form expression for the required number of rounds, which depends on the Walrasian allocation and the selection of a numeraire.
    Keywords: Market game; Retrading; Symmetric limit orders; Walrasian equilibrium.
    JEL: C72 D40 D51
    Date: 2019–07–03
  3. By: Bisceglia, Michele; Cellini, Roberto; Grilli, Luca
    Abstract: This paper proposes a generalization of Shleifer's (1985) model of yardstick competition, to a dynamic framework. Specifically, we consider a differential game and we show that the yardstick mechanism is effective to replicate the first-best solution if players adopt open-loop behaviour rules and they are symmetric at the initial time; in the absence of initial symmetry, the social efficiency is reached only in the asymptotic steady state. On the contrary, if players adopt Markovian behaviour rules, then the yardstick pricing rule is not able to achieve the first-best solution along the equilibrium path of any Markov Perfect Nash Equilibrium.
    Keywords: Yardstick competition; Dynamic price regulation; Differential games.
    JEL: C73 L51
    Date: 2019–07–08
  4. By: GIORGIO FABBRI (Univ. Grenoble Alpes, CNRS); SILVIA FAGGIAN (Department of Economics, Ca' Foscari University of Venice, Italy); GIUSEPPE FRENI (Department of Business and Economics, Parthenope University of Naples, Italy)
    Abstract: We develop a spatial resource model in continuous time in which two agents/players strategically exploit a mobile resource in a two-region setup. To counteract the overexploitation of the resource (the tragedy of commons) that occurs when players are free to choose where to fish/hunt/extract/harvest, the regulator can establish a series of spatially structured policies. We compare the equilibria in the case of a common resource with those that emerge when the regulator either creates a natural reserve, or assigns Territorial User Rights to the players. We show that, when the discount rate is close to its \critical value", i.e. when technological and preference parameters dictate a low harvesting intensity/effort, the policies are ineffective in promoting the conservation of the resource and, in addition, they lead to a lower payoff for at least one of the players. Conversely, in a context of harsher harvesting intensity, the intervention can help to safeguard the resource, preventing extinction while also improving the welfare of both players.
    Keywords: Spatial harvesting problems, Markov perfect equilibrium, Environmental protection policies, Differential Games
    JEL: Q28 C72 Q23 C61 R12
    Date: 2019–06–06
  5. By: Nielsen, Kirby; Bhattacharya, Puja; Kagel, John H.; Sengupta, Arjun
    Abstract: Individuals and two-person teams play a hidden - action trust game with pre - play communication. We replicate previous results for individuals that non-binding promises increase cooperation rates. But this does not extend to teams. Wh ile teams make non-binding promises to cooperate at the same rate as individuals, they consistently renege on those promises. Additional treatments begin to explore the basis for the team outcome, ruling out explanations that team payoff structures drive b ehavior. Analysis of within-team discussions provides insight into the decision-making processes of first and second movers.
    Keywords: trust game,hidden-action,non-binding communication,teams versus individuals
    JEL: C72 C91 C92 D83
    Date: 2019
  6. By: Sam Ganzfried; Max Chiswick
    Abstract: Poker is a large complex game of imperfect information, which has been singled out as a major AI challenge problem. Recently there has been a series of breakthroughs culminating in agents that have successfully defeated the strongest human players in two-player no-limit Texas hold 'em. The strongest agents are based on algorithms for approximating Nash equilibrium strategies, which are stored in massive binary files and unintelligible to humans. A recent line of research has explored approaches for extrapolating knowledge from strong game-theoretic strategies that can be understood by humans. This would be useful when humans are the ultimate decision maker and allow humans to make better decisions from massive algorithmically-generated strategies. Using techniques from machine learning we have uncovered a new simple, fundamental rule of poker strategy that leads to a significant improvement in performance over the best prior rule and can also easily be applied by human players.
    Date: 2019–06
  7. By: Hitoshi Matsushima (Faculty of Economics, The University of Tokyo)
    Abstract: This study investigates infinitely repeated games of a prisoner’s dilemma with additive separability in which the monitoring technology is imperfect and private. Behavioral incentives indicate that, in this setting, a player is not only motivated by pure self-interest but also by reciprocity. Players often become naïve and select an action unconsciously. By focusing on generous tit-for-tat strategies, we characterize a Nash equilibrium with behavioral incentives, termed behavioral equilibrium, in an accuracy-contingent manner. By eliminating the gap between theory and evidence, this study argues that reciprocity plays a substantial role in motivating a player to consciously make decisions.
    Date: 2019–02
  8. By: Jean-François Laslier (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, PSE - Paris School of Economics); Matias Nunez (CECO - Laboratoire d'économétrie de l'École polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique, CREST - Centre de Recherche en Economie et Statistique [Bruz] - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz]); M Remzi Sanver (LAMSADE - Laboratoire d'analyse et modélisation de systèmes pour l'aide à la décision - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We propose a solution to the classical problem of Hurwicz and Schmeidler [1978] and Maskin [1999] according to which no Pareto efficient rule is Nash implementable. To this end, we consider implementation through mechanisms that are deterministic-in-equilibrium while lotteries are allowed off-equilibrium. We show that there are Pareto efficient rules which are implementable and that any such rule is implementable through some simple veto mechanism. Importantly , neither completeness nor transitivity of the preferences over lotteries are required to achieve implementation.
    Date: 2019–07
  9. By: Matteo Bobba (Toulouse School of Economics, University of Toulouse Capitole); Luca Flabbi (Department of Economics, University of North Carolina); Santiago Levy (Vice-Presidency for Sectors and Knowledge, Inter-American Development Bank); Mauricio Tejada (Department of Economics (ILADES), Universidad Alberto Hurtado)
    Abstract: We develop a search and matching model where firms and workers produce output that depends both on match-specific productivity and on worker-specific human capital. The human capital is accumulated while working but depreciates while searching for a job. Jobs can be formal or informal and firms post the formality status. The equilibrium is characterized by an endogenous steady state distribution of human capital and by an endogenous formality rate. The model is estimated on longitudinal labor market data for Mexico. Human capital accumulation on-the-job is responsible for more than half of the overall value of production and upgrades more quickly while working formally than informally. Policy experiments reveal that the dynamics of human capital accumulation magnifies the negative impact on productivity of the labor market institutions that give raise to informality
    Keywords: Labor market frictions, Search and matching, Nash bargaining, Informality, On-the-Job human capital accumulation
    Date: 2019–01
  10. By: Bernhardt, Dan (University of Illinois & University of Warwick); Liu, Tingjun (The University of Hong Kong); Sogo, Takeharu (Osaka University of Economics)
    Abstract: We analyze optimal auction mechanisms when bidders base costly entry decisions on their valuations, and bidders pay with a fixed royalty rate plus cash. With sufficient valuation uncertainty relative to entry costs, the optimal mechanism features asymmetry so that bidders enter with strictly positive but different (ex-ante) probabilities. When bidders are ex-ante identical, higher royalty rates—which tie payments more closely to bidder valuations—increase the optimal degree of asymmetry in auction design, further raising revenues. When bidders differ ex-ante in entry costs, the seller favors the low cost entrant ; whereas when bidders have different valuation distributions, the seller favors the weaker bidder if entry costs are low, but not if they are high. Higher royalty rates cause the seller to favor the weaker bidder by less, and the strong bidder by more.
    Keywords: Auctions with participation costs : Royalty payments ; Optimal auctions ; Asymmetric auctions ; Heterogeneous bidders
    JEL: D44 G3
    Date: 2019
  11. By: Kerr, Suzi; Lippert, Steffen; Lou, Edmund
    Abstract: We investigate the impact of side-payments to countries that have a low net benefit from participating in efficient climate cooperation in a repeated games framework with investment in different technologies. We consider different timings of these payments and different degrees of commitment. If countries cannot commit ex ante to transfer funds to low-benefit participants to an agreement, then there is a trade-off. Investment based agreements, where transfers occur before emissions are realized, but after investments have been committed, maximize the scope of cooperation. Results-based agreements minimize transfers whenever these agreements implement cooperation. If countries can commit to transfer funds, then agreements in which countries with high benefits of climate cooperation pre-commit to results-based payments to countries with low benefits both maximize the scope of cooperation and minimize transfers.
    Keywords: Environmental Economics and Policy
    Date: 2019–03
  12. By: Raphael Galvão (Universidad Alberto Hurtado); Felipe Shalders (FEA-USP)
    Abstract: This paper studies how much information a Central Bank should release to less informed private agents. Agents have dispersed information about the state of the economy, and their actions are strategic complements. Thus, the Central Bank’s public disclosure of information can generate an undesirable coordination among agents and self-fulfilling crises. We show that the Central Bank will choose an information structure that sends only two messages. We characterize the optimal information structure and prove that it retains the uniqueness equilibrium property of global games. We also show that, without the ability to commit to an information disclosure rule, the Central Bank could be worse o↵ by releasing public information.
    Date: 2019–03
  13. By: Bhattacharya, Puja; Rampal, Jeevant
    Abstract: This paper examines behavior (the oretically and experimentally) in a two-stage group contest where the fi rst stage comprises of intra - group contests, followed by an inter-group contest in the second stage. Rewards accrue only to the members of the winning group in the inter-group contest, with the winners of the intra-group contest within that group receiving a greater reward. The model generates a discouragement effect, where losers from the first stage exert less effort in the second stage than winners. In contrast to previous frameworks of sequential contests, we show that a prior win may be disadvantageous, generating lower profits for first stage winners as compared to losers. We also consider asymmetry between groups arising from a biased contest success function in the second stage. We show that although the asymmetry occurs in the second stage, the effect of the asymmetry plays out in the first stage, with the intra-group contest being more intense within the advantaged group. Experimental results find broad support for the qualitative predictions of the model. However, we find that relative overcontribution in the second stage by losers is higher than by winners of the first stage, implying that losers bear a higher burden of the group contribution than deemed strategic.
    Keywords: Contests,Group Behavior,Collective Action,Asymmetry
    JEL: C72 C92 D72
    Date: 2019
  14. By: Sanna Laksá (University of Liverpool); Daniel Marszalec (Faculty of Economics, The University of Tokyo); Alexander Teytelboym (Department of Economics, St Catherine’s College, and the Institute for New Economic Thinking at the Oxford Martin School, University of Oxford)
    Abstract: Ascending (or second-price) and uniform-price multiunit auctions have appealing theoretical properties if bidders are symmetric and bid competitively. However, auction designers have long been skeptical about their use in practice. First, asymmetries due to value advantage in ascending (or second-price) auctions with a large common-value component can generate asymmetric equilibria with low revenues. Second, both ascending and uniform auctions are susceptible to collusion. Sequential ascending auctions make it especially easy to form and coordinate bidding rings. Third, uniform auctions are susceptible to low-price equilibria in which bidders can commit to coordinate on high bids for initial units and low bids for final, price-setting units in equilibrium what we call crank-handle bidding. All three of these patterns have been observed separately in certain settings among sophisticated and experienced bidders. We document what we believe is the first case of all three of these phenomena happening among the same, inexperienced bidders across related auctions for shing quota in Faroe Islands. Our findings indiciate that the under performance of ascending and uniform-price auctions are not just theoretical curiosities, but a pervasive phenomenon in practical auction design. We suggest straightforward improvements to auction design that could have mitigated these problems.
    Date: 2018–10
  15. By: Paul Gomme (Concordia University, CIREQ and CIRANO)
    Abstract: How should governments choose tax rates when they face competition from other jurisdictions? This questions is answered by solving for the Nash equilibrium of the game played between Ramsey planners in a two good, two country open economy macroeconomic model. It is shown, analytically, that the planers do not tax capital income in the long run. Short term results, obtained computationally, reveal that the government of the larger country manages the path of the real exchange rate in order to manipulates its smaller rival's choice of tax rates. Tax competition does not lead to a "race to the bottom."
    Keywords: Optimal fiscal policy; open economy macroeconomics; Ramsey taxation
    JEL: E32 E52 F41
    Date: 2019–07–02

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