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on Game Theory |
| By: | Françoise Forges (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique, LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine); Ulrich Horst (Institut für Mathematik [Berlin] - TUB - Technische Universität Berlin, Université Humboldt de Berlin - Humboldt Universität zu Berlin) |
| Abstract: | We consider generalized sender–receiver games in which the sender also has an action to choose, but this action is payoff-relevant only to himself. We study "cooperate and talk" equilibria (CTE) in which, before sending his message, the sender can commit to delegate his decision to the receiver. CTE are beneficial to the receiver (with respect to no communication) and unlike the equilibria of the plain cheap talk game, preserve him from afterwards regret. While existence of CTE cannot be guaranteed in general, a sufficient condition is that the receiver has a "uniform punishment decision" against the sender. |
| Keywords: | Commitment,Cheap talk,Incentive compatibility,Information transmission,Perfect Bayesian equilibrium |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02313962&r=all |
| By: | Dejan Trifunovic (Faculty of Economics, University of Belgrade) |
| Abstract: | Premium auctions are conducted in two stages. In the first stage bidders compete in English auction until two bidders remain. The two finalists enter the second stage where they compete in a first-price sealed bid auction (Amsterdam auction) or in another English auction (Antwerp auction). The winner and the runner up obtain the premium that is proportional to the difference between the runner up?s bid and the highest losing bid in the first stage. We compare the equilibrium bidding strategy of the two finalists with the three heuristic strategies when bidders have private values in Amsterdam auction. With the first heuristic strategy, each finalist believes that he will lose in the second stage and that his bid determines the amount of the premium. With the second heuristic strategy, each finalist is optimistic and has second-order belief that the other finalist is pessimistic. With the third heuristic strategy, both finalists are optimistic and have second-order belief that the other finalist is optimistic.The simulation analysis with symmetric bidders shows that the average increase of bid of the runner up relative to the equilibrium bid is the largest with the second heuristic strategy, followed by the third and the first, respectively. The premium with either heuristic strategy is larger than with the equilibrium strategy. The profit of the winner is larger than the equilibrium profit, while seller?s revenue is lower than in equilibrium. The same conclusions hold for strongly asymmetric bidders. The use of heuristic strategies could be considered as a form of tacit collusion between two finalists, and with symmetric bidders who use the first heuristic strategy, the tacit collusion is stable even in a one-shot game. |
| Keywords: | Hybrid auctions, Amsterdam auction, Antwerp auction, perfect Bayesian equilibrium, heuristic strategies |
| JEL: | D44 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:9411761&r=all |
| By: | Alejandro Caparrós (Institute for Public Goods and Policies, Spanish National Research Council); Michael Finus (University of Graz, Austria) |
| Abstract: | We analyze the formation of public good agreements under the weakest-link technology. Whereas policy coordination is not necessary for symmetric players, it matters for asymmetric players; however, this fails in the absence of transfers. By contrast, with a transfer scheme, asymmetry may be an asset for cooperation. We characterize various types and degrees of asymmetry and relate them to the stability of self-enforcing agreements. Asymmetric distributions of autarky public good provision levels (also representing asymmetric interests in cooperation) that are positively skewed tend to be conducive to the stability of agreements. We show that under such conditions, even a coalition including all players can be stable. However, asymmetries that foster stability (instability) tend to be associated with low (high) gains from cooperation. We analyze the formation of public good agreements under the weakest-link technology. Whereas policy coordination is not necessary for symmetric players, it matters for asymmetric players; however, this fails in the absence of transfers. By contrast, with a transfer scheme, asymmetry may be an asset for cooperation. We characterize various types and degrees of asymmetry and relate them to the stability of self-enforcing agreements. Asymmetric distributions of autarky public good provision levels (also representing asymmetric interests in cooperation) that are positively skewed tend to be conducive to the stability of agreements. We show that under such conditions, even a coalition including all players can be stable. However, asymmetries that foster stability (instability) tend to be associated with low (high) gains from cooperation. |
| Keywords: | Public goods; weakest-link technology; agreement formation |
| JEL: | C7 D7 H4 H7 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:grz:wpaper:2019-13&r=all |
| By: | Dai Zusai (Department of Economics, Temple University) |
| Abstract: | This paper presents a universal and economically intuitive approach to linking static and dynamic stability. In economics, static stability is traditionally defined by negative relationship between endogenous and exogenous variables in a model: for a population game, this is characterized by negative semidefiniteness of the Jacobian matrix of the payoff function. We consider economically reasonable dynamics, in which we can justify agents' choices of new strategies as optimal choices possibly by introducing additional costs and constraints. This class of dynamics covers major payoff-based (non-imitative) evolutionary dynamics. The key is expected net gains (payoff improvements) from strategy revisions after paying switching costs. Static stability implies that the aggregate net gain diminishes over time under economic reasonable dynamics and thus can be used as a Lyapunov function. While our analysis here is confined to myopic evolutionary dynamics in population games, our approach is applicable to more complex situations. |
| Keywords: | evolutionary dynamics, dynamic stability, static stability, evolutionary stable state, Lyapunov function, contractive games |
| JEL: | C73 C62 C61 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:tem:wpaper:1903&r=all |
| By: | Van Moer, Geert |
| Abstract: | This paper investigates competition in electricity markets when each pair of strategic firms exchanges forward obligations pairwise-efficiently. The gains from pairwise trade are specific to the counterparty, which can be horizontally- or vertically-related depending on whether it has access to flexibility in the spot market. The analysis shows that pairwise efficient forward trade rules out a bilateral oligopoly spot market where net buyers and net sellers strategically interact. Firms without flexibility close their position entirely in the forward market. Forward markets serve to absorb renewable energy shocks, even if forward contracts are unobservable and firms are risk-neutral. |
| Keywords: | Nash-in-Nash bargaining; bilateral oligopoly; renewables |
| JEL: | D43 L13 L94 |
| Date: | 2019–10–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96660&r=all |
| By: | Ai Takeuchi (College of Economics, Ritsumeikan University); Erika Seki (Graduate School of Economics, Osaka University) |
| Abstract: | This article theoretically and experimentally examines the twin problems of free-riding and coordination failure faced by blood banks, by investigating the effects of information provision on the efficiency of blood donation. We augment a standard linear public goods game, incorporating the following features of blood donation: multiplicity of public goods (to reflect intertemporal coordination issues), current and upcoming upper bound demands (to incorporate the perishable nature of blood and the embargo period of consecutive donations), and semi-binary choices (to account for individual options to withhold donations or make donations and when). We analyze whether a provision of deterministic information on the potential blood demand (full information) would improve the efficiency of blood donation when compared to the provision of probabilistic information (partial information). The theory predicts that if each individual maximizes the payoff-sum of all players, then the full information provision would achieve donation efficiency in equilibrium. The results of laboratory experiment show that the full information provision does not improve the efficiency of donation, on an average. We find that full information improves intertemporal coordination, but it worsens the free-riding problem. Although information helps individuals to direct donations in response to the demand, it drives individuals to withhold donations to avoid potential wastage against the risk of donation over the upper bound. When the predicted total demand is relatively small, that is, when strategic uncertainty about others donation matters for achieving efficiency, the provision of information about intertemporal demand in upper bounds tends to lower efficiency because the gdonation withholding h effect becomes dominant. |
| Keywords: | Blood donation, Free-riding, Coordination, Public goods, Laboratory experiment, Information |
| JEL: | C72 C91 C92 H41 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1915&r=all |
| By: | Johannes H\"orner; Nicolas Klein; Sven Rady |
| Abstract: | This paper considers a class of experimentation games with L\'{e}vy bandits encompassing those of Bolton and Harris (1999) and Keller, Rady and Cripps (2005). Its main result is that efficient (perfect Bayesian) equilibria exist whenever players' payoffs have a diffusion component. Hence, the trade-offs emphasized in the literature do not rely on the intrinsic nature of bandit models but on the commonly adopted solution concept (MPE). This is not an artifact of continuous time: we prove that such equilibria arise as limits of equilibria in the discrete-time game. Furthermore, it suffices to relax the solution concept to strongly symmetric equilibrium. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1910.08953&r=all |
| By: | Montinaro, Marta; Scrimitore, Marcella |
| Abstract: | In a context of product innovation, we study two-part tariff licensing between a patentee and a potential rival which compete in a differentiated product market characterized by network externalities. The latter are shown to crucially affect the relative profitability of Cournot vs. Bertrand when a per unit royalty is applied. By contrast, we find that Cournot yields higher profits than Bertrand under ad valorem royalties, regardless of the strength of network effects. |
| Keywords: | licensing, product innovation, bertrand vs. cournot, network effects |
| JEL: | D43 L13 L20 |
| Date: | 2019–03–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96642&r=all |
| By: | Linda Dezsö; George Loewenstein |
| Abstract: | The existence of an asymmetric history between bargaining partners can trigger self-serving beliefs about the fair settlement of a subsequent dispute, ultimately leading to bargaining impasse. In a two-stage bargaining experiment, we demonstrate that dyads who share a history that produced wealth asymmetries between them are less likely to settle in a subsequent negotiation than when the same wealth asymmetry stems from partners’ independent histories. When partners share an asymmetric history, the individual who previously lost out in the first stage believes that s/he deserves compensation in the second-stage, but the individual who prevailed in the first stage believes that compensation is not called for. These divergent, self-serving, views about a fair settlement – and the resulting irreconcilable demands – lead to bargaining impasse. We find, further, that unbiased spectators side with the losers in the first stage; they believe that it is fair for them to be compensated in the second stage. Indeed, this is true albeit to a lesser extent, even if the winner and loser had not directly interacted with one-another – i.e., if the history is not shared. |
| JEL: | C78 D91 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:vie:viennp:1906&r=all |
| By: | Yanfei Bai; Zhongbao Zhou; Helu Xiao; Rui Gao; Feimin Zhong |
| Abstract: | This paper investigates a hybrid stochastic differential reinsurance and investment game between one reinsurer and two insurers, including a stochastic Stackelberg differential subgame and a non-zero-sum stochastic differential subgame. The reinsurer, as the leader of the Stackelberg game, can price reinsurance premium and invest its wealth in a financial market that contains a risk-free asset and a risky asset. The two insurers, as the followers of the Stackelberg game, can purchase proportional reinsurance from the reinsurer and invest in the same financial market. The competitive relationship between two insurers is modeled by the non-zero-sum game, and their decision making will consider the relative performance measured by the difference in their terminal wealth. We consider wealth processes with delay to characterize the bounded memory feature. This paper aims to find the equilibrium strategy for the reinsurer and insurers by maximizing the expected utility of the reinsurer's terminal wealth with delay and maximizing the expected utility of the combination of insurers' terminal wealth and the relative performance with delay. By using the idea of backward induction and the dynamic programming approach, we derive the equilibrium strategy and value functions explicitly. Then, we provide the corresponding verification theorem. Finally, some numerical examples and sensitivity analysis are presented to demonstrate the effects of model parameters on the equilibrium strategy. We find the delay factor discourages or stimulates investment depending on the length of delay. Moreover, competitive factors between two insurers make their optimal reinsurance-investment strategy interact, and reduce reinsurance demand and reinsurance premium price. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1910.09834&r=all |
| By: | Marcella Scrimitore |
| Abstract: | We reconsider the endogenous choice of delegation to a manager by two down-stream firms in both a Cournot and a Bertrand vertical market with network effects. An upstream monopolist charges a two-part tariff for a crucial input. By applying the Nash solution in a centralized bargaining, we show that hiring a manager is never an equilibrium under Cournot, regardless of network effects, while it can be the equilibrium choice for firms competing à la Bertrand, depending on the interplay between the network externalities and the degree of product substitutability. |
| Keywords: | Nash bargaining, two-part tariff, strategic delegation, network externalities. |
| JEL: | D43 L14 L21 |
| Date: | 2019–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:eei:rpaper:eeri_rp_2019_15&r=all |
| By: | Bloch, Francis (Universite Paris 1 and Paris School of Economics); Dutta, Bhaskar (University of Warwick and Ashoka University); Dziubinski, Marcin (Institute of Informatics, University of Warsaw) |
| Abstract: | We propose and study a strategic model of hiding in a network, where the network designer chooses the links and his position in the network facing the seeker who inspects and disrupts the network. We characterize optimal networks for the hider, as well as equilibrium hiding and seeking strategies on these networks. We show that optimal networks are either equivalent to cycles or variants of a core-periphery networks where every node in the periphery is connected to a single node in the core. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1226&r=all |
| By: | Murielle Djiguemde (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); Dimitri Dubois (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); Alexandre Sauquet (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); Mabel Tidball (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: | Economists have been attempting to take on the optimal management of groundwater for many decades, initially through static models, and since the 1970's through a dynamic framework. Since then, several attempts have been made to test dynamic models through laboratory experiments. Yet formulating and testing these models raises several challenges that we attempt to tackle in this study by testing a very simple dynamic groundwater extraction model in a laboratory experiment. We propose a full characterization of the theoretical solutions, taking into account economic constraints. In the experiment we mimic continuous time by allowing subjects to make their extraction decisions whenever they wish, with an actualization and updating the data (resource and payoffs) every second. The infinite horizon is simulated through the computation of payoffs, as if time were endless. To get around the weaknesses of the widely used Mean Squared Deviation (MSD) statistic and classify individual behavior as myopic, feedback or optimal, we combine the MSD with Ordinary Least Squares (OLS) regressions and time series treatments. Results show that a significant percentage of agents are able to adopt an optimal extraction path, that few agents should be considered truly myopic, and that using the MSD alone to classify agents would be misleading for about half of the study participants. |
| Keywords: | Experimental Economics,Renewable Resources,Continuous Time,Dynamic Optimization,Differential Games,Applied Econometrics. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpceem:hal-02316729&r=all |
| By: | Yoshio Kamijo; Takehito Masuda; Hiroshi Uemura |
| Abstract: | We employed a game-theoretic framework to formulate and analyze a number of tax audit rules, especially the lowest income reporter audited rule. We explicitly considered the auditor’s resource constraint to choose one target from a continuous type of taxpayer. We then tested the theoretical predictions in a laboratory experiment, using three audit rules: the random, cut-off, and lowest income reporter audited rules. While the cut-off rule is known to be optimal in theory, it has not thus far been examined in a controlled laboratory experimental setting. Contrary to the theory, the lowest income reporter audited rule increased average compliance behavior significantly more compared with the optimal cut-off rule and, especially, the random rule. This holds with and without controlling the subjects’ demographics and attitudes regarding tax payment. This finding is practically important because the tax authorities in most countries assign higher priority to enhancing tax compliance. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1064&r=all |
| By: | Satoshi Hayashi; Naoki Tsuge |
| Abstract: | We study a model of vendors competing to sell a homogeneous product to customers spread evenly along a circular city. This model is based on Hotelling's celebrated paper in 1929. Our aim in this paper is to present a necessary and sufficient condition for the equilibrium. This yields a representation for the equilibrium. To achieve this, we first formulate the model mathematically. Next, we prove that the condition holds if and only if vendors are equilibrium. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1910.11154&r=all |
| By: | Andriy Zapechelnyuk (University of St Andrews) |
| Abstract: | Quality certification not only informs consumers, but also stimulates producers to supply better quality products. We study a problem of quality certification in a moral hazard setting. We show that, under standard assumptions, simple certification systems, such as quality assurance rule and pass-fail rule, are optimal. Our solution method involves interpreting the certification problem as a delegation problem. |
| Keywords: | Certification, Bayesian persuasion, information disclosure, information design, delegation, moral hazard, career concerns |
| JEL: | D82 D86 D45 |
| Date: | 2019–10–21 |
| URL: | http://d.repec.org/n?u=RePEc:san:wpecon:1904&r=all |