nep-gth New Economics Papers
on Game Theory
Issue of 2020‒10‒26
nineteen papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Bayesian Learning in Dynamic Non-atomic Routing Games By Emilien Macault; Marco Scarsini; Tristan Tomala
  2. Team Formation in Coordination Games with Fixed Neighborhoods By Alejandro Caparrós; Esther Blanco; Philipp Buchenauer; Michael Finus
  3. Non-cohesive TU-games: Duality and P-core By Fatma Aslan; Papatya Duman; Walter Trockel
  4. Non-convergence to stability in coalition formation games By Agust\'in G. Bonifacio; Elena Inarra; Pablo Neme
  5. Public Good Agreements under the Weakest-link Technology By Alejandro Caparrós; Michael Finus
  6. Equilibria in Logit Models of Social Interaction and Quantal Response Equilibrium By Dagsvik, John K.
  7. Intelligence Service for a Better Information: Application to a Terrorist Threat By Sylvain Baumann
  8. Pledge and implement bargaining in the Paris Agreement on climate change By Alejandro Caparrós
  9. Should the Ransomware be Paid? By Rui Fang; Maochao Xu; Peng Zhao
  10. Analysis of the effectiveness of public procurement procedures based on game-theoretic models By Zhemkova, Aleksandra (Жемкова, Александра)
  11. Bidding strategies and winner’s curse in auctions of non-distressed residential real estate By Hungria Gunnelin, Rosane
  12. AHEAD : Ad-Hoc Electronic Auction Design By Joffrey Derchu; Philippe Guillot; Thibaut Mastrolia; Mathieu Rosenbaum
  13. Cooperation Between Terrorist Groups: Behaviors and Strategies By Sylvain Baumann
  14. Call It a Day: History Dependent Stopping Behavior By Ala Avoyan; Robizon Khubulashvili; Giorgi Mekerishvili
  15. Upstream competition, exclusive content provision, and vertical integration in media markets By Kiho Yoon
  16. Trade and Trees: How Trade Agreements Can Motivate Conservation Instead of Depletion By Bård Harstad
  17. Corruption vs. Efficiency in water allocation under uncertainty: Is There a trade-off? By Rupayan Pal; Dipti Ranjan Pati
  18. Competition versus Cooperation: A class of solvable mean field impulse control problems By S\"oren Christensen; Berenice Anne Neumann; Tobias Sohr
  19. Pricing and waiting time decisions in a health care market with private and public provision By Alves, Vasco

  1. By: Emilien Macault; Marco Scarsini; Tristan Tomala
    Abstract: We consider a discrete-time nonatomic routing game with variable demand and uncertain costs. Given a fixed routing network with single origin and destination, the costs functions on edges depend on some uncertain persistent state parameter. Every period, a variable traffic demand routes through the network. The experienced costs are publicly observed and the belief about the state parameter is Bayesianly updated. This paper studies the dynamics of equilibrium and beliefs. We say that there is strong learning when beliefs converge to the truth and there is weak learning when equilibrium flows converge to those under complete information. Our main result is a characterization of the networks for which learning occurs for all increasing cost functions, given highly variable demand. We prove that these networks have a series-parallel structure and provide a counterexample to prove that the condition is necessary.
    Date: 2020–09
  2. By: Alejandro Caparrós; Esther Blanco; Philipp Buchenauer; Michael Finus
    Abstract: This study contributes to the recent experimental literature addressing the role of team formation in overcoming coordination failure in weakest-link games. We investigate the endogenous formation of teams in fixed neighborhoods in which it is not possible to exclude players from influencing the weakest-link. Our experimental results show that team formation helps in overcoming the coordination problem, raises equilibrium provision levels, but falls short of providing the Pareto-optimal contribution. As the problem of multiplicity of Nash equilibria in weakest-link games is exacerbated when team formation is introduced, we provide Quantal Response Equilibrium (QRE) and Agent QRE analyses. The analysis demonstrates that team formation would solve the problem with (almost) perfectly rational agents, but also that our experimental results are consistent with (A)QRE models under bounded rationality.
    Keywords: Weakest-link; Coalition Formation; Experimental Economics; Quantal Response Equilibrium; Agent Quantal Response Equilibrium
    JEL: C72 C91 C92 H41
    Date: 2020–07
  3. By: Fatma Aslan (Faculty of Economic and Social Sciences, Budapest University of Technology and Economics, and Quantitative Social and Management Sciences Research Centre, Hungary); Papatya Duman (Paderborn University); Walter Trockel (Bielefeld University)
    Abstract: In this article, we draw attention to some inconsistencies and conceptual chinks in the current literature on coalitional TU-games. We criticize the widespread habit to neglecting the classic problem of coalition-building and defining feasibility, eciency, and duality for general TU-games with respect to the grand coalition. We redefine these properties using the concept of cohesiveness by versions that are meaningful for all TU-games. Based on conceptual and historical arguments we distinguish between subsets and formed coalitions, between general and characteristic (coalition) functions and between classic TU-games and TU-game extensions. In analogy to the Bondavera-Shapley Theorem, we use the Duality Theorem of Linear Opti- mization to motivate the use of cohesive games and to introduce first partitionally ecient anticipations and define the P-core as a solution concept. The P-core is non-empty, feasible and ecient on the class of all TU-games, satisfies reduced game consistency, coincides with the (c-)core on (c-)balanced games and is disjoint from the aspiration core on non-c-balanced games. In A, we collect some results illustrating similarities and di erences between our duality and the currently widely used duality for TU-games.
    Keywords: TU-games, duality, c-Core, P-core, coalition function
    JEL: C71
    Date: 2020–10
  4. By: Agust\'in G. Bonifacio; Elena Inarra; Pablo Neme
    Abstract: We study the problem of convergence to stability in coalition formation games in which the strategies of each agent are coalitions in which she can participate and outcomes are coalition structures. Given a natural blocking dynamic, an absorbing set is a minimum set of coalition structures that once reached is never abandoned. The coexistence of single and non-single absorbing sets is what causes lack of convergence to stability. To characterize games in which both types of set are present, we first relate circularity among coalitions in preferences (rings) with circularity among coalition structures (cycles) and show that there is a ring in preferences if and only if there is a cycle in coalition structures. Then we identify a special configuration of overlapping rings in preferences characterizing games that lack convergence to stability. Finally, we apply our findings to the study of games induced by sharing rules.
    Date: 2020–09
  5. By: Alejandro Caparrós; Michael Finus
    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.
    Keywords: public goods; weakest-link technology; agreement formation
    JEL: C7 D7 H4 H7
    Date: 2019–07
  6. By: Dagsvik, John K. (Department of Health Management and Health Economics)
    Abstract: This paper investigates the set of equilibria in models of social interaction and Quantal Response Equilibrium (QRE). First, we discuss how models of social interaction can be viewed as a special case of QRE. Subsequently, we establish criteria that characterize the set of equilibria in models of social interaction and QRE. Finally, we establish conditions for convergence of sequential stochastic game models to QRE when players learn about the aggregate behavior of the players.
    Keywords: Random utility models; Behavioral game theory; Social interaction; Quantal Response Equilibrium
    JEL: C02 C25 C62 C72 C73
    Date: 2020–10–06
  7. By: Sylvain Baumann (EDEHN - Equipe d'Economie Le Havre Normandie - ULH - Université Le Havre Normandie - NU - Normandie Université)
    Abstract: Choosing the best strategy is not always easy when an agent is confronted to a private information on the type of another player. However, spying could be the solution. Indeed, in order to fill this lack of information, an agent could invest in an intelligence service. This private information is present in Bayesian games. The use to the spying is a good alternative in the application to the terrorist problem in the case of an attacker/ defender game. It enables the government to know the nature of the terrorist group or the strategy of them. We focus on two types of terrorists: the fanatics and the moderates. Their objectives and their strategies are not the same, so the government has to adapt to the terrorist threat. The type of the government is common knowledge: strong, average or weak. We compare the different Nash equilibria when spying let us to turn a Bayesian game into a static or dynamic game of complete information.
    Keywords: Noncooperative Game,Conflict,Bayesian Game,Security,Terrorism
    Date: 2019
  8. By: Alejandro Caparrós
    Abstract: This paper analyzes a multilateral bargain game motivated by the Paris Agreement on climate change. Countries submit pledges, which can be revoked although this implies reputational costs. Pledges, which do not need to be accepted by other countries, detail intended abatement efforts and can be conditional or unconditional, according to whether they depend on transfers. As the process is repeated, incomplete long-term provisions are also considered. The analysis shows the conditions under which, despite its weakness, the Paris Agreement can bring the world to the first best, or at least closer. It also details how to improve the current agreement.
    Keywords: Bargaining Theory; Stochastic and Dynamic Games; Global Warming
    JEL: C73 C78 H41 Q54
    Date: 2020–05
  9. By: Rui Fang; Maochao Xu; Peng Zhao
    Abstract: Ransomware has emerged as one of the most concerned cyber risks in recent years, which has caused millions of dollars monetary loss over the world. It typically demands a certain amount of ransom payment within a limited timeframe to decrypt the encrypted victim's files. This paper explores whether the ransomware should be paid in a novel game-theoretic model from the perspective of Bayesian game. In particular, the new model analyzes the ransom payment strategies within the framework of incomplete information for both hacker and victim. Our results show that there exist pure and randomized Bayesian Nash equilibria under some mild conditions for the hacker and victim. The sufficient conditions that when the ransom should be paid are presented when an organization is compromised by the ransomware attack. We further study how the costs and probabilities of cracking or recovering affect the expected payoffs of the hacker and the victim in the equilibria. In particular, it is found that the backup option for computer files is not always beneficial, which actually depends on the related cost. Moreover, it is discovered that fake ransomware may be more than expected because of the potential high payoffs. Numerical examples are also presented for illustration.
    Date: 2020–10
  10. By: Zhemkova, Aleksandra (Жемкова, Александра) (The Russian Presidential Academy of National Economy and Public Administration)
    Abstract: The paper proposes an approach for modeling and evaluating the process of public procurement from the basis of key findings of auction theory. The study has the following structure: the first chapter provides a literature review devoted to modeling and empirical evaluation of the effectiveness of auctions and the public procurement market. The second chapter provides a brief characteristic of the current state and legal foundations of procurement practices in Russia. The third chapter proposes an empirical assessment of a model of determinants of choosing a public procurement procedure by an auctioneer, and a model for evaluating the effectiveness (by the price of a contract) of existing public procurement procedures. The fourth chapter analyzes the main measures of economic policy in the field of procurement regulation, as well as the applicability of these measures in Russia. At the end of the paper, the main findings of the study and recommendations formed on their basis are presented.
    Keywords: public procurement, game theory, game theory models, auctions, competition, dishonest behavior.
    Date: 2020–05
  11. By: Hungria Gunnelin, Rosane (Department of Real Estate and Construction Management, Royal Institute of Technology)
    Abstract: This paper analyzes how listing price and bidding strategies impact sales prices in non-distressed residential real estate auctions. Furthermore, the paper is the first that tries to explicitly quantify how these strategies affect the probability of a winner’s curse in such auctions. The findings support the results in the general auction literature that the winning bid and the probability of a winner’s curse is increasing in the number of bidders. The results further supports the notion of “auction fever” since high paced auctions (where unexperienced bidders may resort to emotional bidding) increases selling price and the probability of a winner’s curse. The results with respect to jump bidding and list price setting are mixed. Jump bidding has the intended effect of scaring off bidders, but not sufficiently to reduce the winning bid and the probability of a winner’s curse. Lowering the list price to market value ratio (the degree of underpricing) increases the number of bidders, but not sufficiently to counteract the anchoring effect of the list price leading to a reduction of the winning bid and the probability of a winner’s curse. In summary, the findings in this paper show that the unfolding of auctions of non-distressed residential real estate has a significant impact on selling price and the probability of a winner’s curse.
    Keywords: Housing; Auctions; List price; Bidding strategies; Winners curse
    JEL: D44 R31
    Date: 2020–10–14
  12. By: Joffrey Derchu; Philippe Guillot; Thibaut Mastrolia; Mathieu Rosenbaum
    Abstract: We introduce a new matching design for financial transactions in an electronic market. In this mechanism, called ad-hoc electronic auction design (AHEAD), market participants can trade between themselves at a fixed price and trigger an auction when they are no longer satisfied with this fixed price. In this context, we prove that a Nash equilibrium is obtained between market participants. Furthermore, we are able to assess quantitatively the relevance of ad-hoc auctions and to compare them with periodic auctions and continuous limit order books. We show that from the investors' viewpoint, the microstructure of the asset is usually significantly improved when using AHEAD.
    Date: 2020–10
  13. By: Sylvain Baumann (EDEHN - Equipe d'Economie Le Havre Normandie - ULH - Université Le Havre Normandie - NU - Normandie Université)
    Abstract: This article presents some model of cooperation between terrorist groups through a game-theoretic view in order to study their strategies. It is relevant to consider several cases corresponding to the presence or not of an international organization, such as the North Atlantic Treaty Organization (NATO), to analyze their behavior.
    Keywords: Cooperation,Conflict,Security
    Date: 2020
  14. By: Ala Avoyan; Robizon Khubulashvili; Giorgi Mekerishvili
    Abstract: In this paper, we provide evidence of history-dependent stopping behavior. Using data from an online chess platform, we estimate a dynamic discrete choice model in which an agent may have time non-separable preferences over the stochastic outcomes of their actions. We show that the agent’s decisions cannot be reconciled in a model with time separable preferences and that there is substantial heterogeneity in preferences across players. In particular, there are two types of people: those who get discouraged by a loss and stop, and others, who get encouraged by failure and keep playing until a win. We show how to leverage the information about an agent’s type in market design to achieve various welfare goals. A counterfactual analysis demonstrates that a matching algorithm that incorporates stopping behavior can significantly increase the length of play.
    Keywords: time non-separable preferences, history dependence, stopping behaviour,
    JEL: D90 C50 C13 D40
    Date: 2020
  15. By: Kiho Yoon (Department of Economics, Korea University 145 Anam-ro, Seongbuk-gu, Seoul, Korea 02841)
    Abstract: With a multilateral vertical contracting model, we examine the contractual form and the vertical structure in media markets. We analyze the trade of content by the Nash bargaining solution and the downstream competition by the Hotelling location model. We show that the possibility of exclusive contracts rises when the value of the premium content increases, the degree of horizontal differentiation in the downstream market decreases, the importance of advertising revenue decreases, and the relative bargaining power of upstream firm decreases. We also show that vertical separation (full vertical integration, respectively) is plausible when the relative bargaining power of upstream firm is strong (weak, respectively).
    Keywords: content provision, exclusive contract, vertical integration, media market, video programming.
    JEL: D43 L42 L82
    Date: 2020
  16. By: Bård Harstad
    Abstract: Free trade can often lead to resource depletion, such as deforestation in the tropics. This paper first presents a dynamic model whereby the South (S) depletes to export the extracted units (timber) or the produce (beef) from land available after depletion. Because of the damages, the North benefits from trade liberalization only if the remaining stock is, in any case, diminished. For that reason, S speeds up exploitation. The negative results are reversed if the parties can negotiate a dynamic trade agreement, whereby the allocation of gains from trade, and thus the location on the Pareto frontier, is sensitive to the size of the remaining stock. In equilibrium, S conserves to maintain its favorable terms of trade, S conserves more than in autarky, and more when the gains from trade are large. The parties cannot commit to future policies, but they obtain the same outcome as if they could.
    Keywords: exhaustible resources, deforestation, international trade, trade agreements, environmental conservation, renegotiation
    JEL: F18 F13 F55 Q56 Q37
    Date: 2020
  17. By: Rupayan Pal (Indira Gandhi Institute of Development Research); Dipti Ranjan Pati (Indira Gandhi Institute of Development Research)
    Abstract: In the absence of a cooperative solution to the problem of rights over shared water, water allocation through third party intervention is most commonly used. This paper considers water allocation within a federal setup with the requisite legal institutions to enforce third party adjudication and tries to capturethe politically charged motivations that often guide such allocations. It compares two mechanisms generally used by central planners to allocate water between upstream and downstream regions, namelyfixed and proportional allocation rules. By considering a corrupt central planner, this paper models the underlying political manoeuvring that drives assignment of water rights. It is found that the politically pliable central planners choice of allocation rule depends on the expected state of nature. Interestingly,the corrupt central planners equilibrium choice of allocation rule turns out to be efficient, unless the problem of severe water scarcity is expected to occur.
    Keywords: domestic water conflict, allocation rule, corruption, efficiency, third party adjudication
    JEL: D74 Q34 D73 P14
    Date: 2020–09
  18. By: S\"oren Christensen; Berenice Anne Neumann; Tobias Sohr
    Abstract: We discuss a class of explicitly solvable mean field control problems/games with a clear economic interpretation. More precisely, we consider long term average impulse control problems with underlying general one-dimensional diffusion processes motivated by optimal harvesting problems in natural resource management. We extend the classical stochastic Faustmann models by allowing the prices to depend on the wood supply on the market using a mean field structure. In a competitive market model, we prove that, under natural conditions, there exists an equilibrium strategy of threshold-type and furthermore characterize the threshold explicitly. If the agents cooperate with each other, we are faced with the mean field control problem. Using a Lagrange-type argument, we prove that the optimizer of this non-standard impulse control problem is of threshold-type as well and characterize the optimal threshold. Furthermore, we compare the solutions and illustrate the findings in an example.
    Date: 2020–10
  19. By: Alves, Vasco
    Abstract: This paper describes a duopoly market for healthcare where one of the two providers is publicly owned and charges a price of zero, while the other sets a price so as to maximize its profit. Both providers are subject to congestion in the form of an M/M/1 queue, and they serve patient-consumers who have randomly distributed unit costs of time. Consumer demand (as market share) for both providers is obtained and described. The private provider’s pricing decision is explored, equilibrium existence is proven, and conditions for uniqueness presented. Comparative statics for demand are presented. Social welfare functions are described and the welfare maximizing condition obtained. More detailed results are then obtained for cases when costs follow uniform and Kumaraswamy distributions. Numerical simulations are then performed for these distributions, employing several parameter values, demonstrating the private provider’s pricing decision and its relationship with social welfare.
    Keywords: Waiting times; queueing; private health care; competition
    JEL: D43 I11 L13
    Date: 2019–04–08

This nep-gth issue is ©2020 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.