nep-gth New Economics Papers
on Game Theory
Issue of 2023‒09‒25
seventeen papers chosen by
Sylvain Béal, Université de Franche-Comté

  1. Potentials in social environments By Demuynck, Thomas; Herings, P. Jean-Jacques; Seel, Christian
  2. On the Value of Information Structures in Stochastic Games By Daehyun Kim; Ichiro Obara
  3. Full surplus extraction from colluding bidders By Larionov, Daniil
  4. Noncooperative Oligopoly in Markets with a Continuum of Traders and a Strongly Connected Set of Commodities: A Limit Theorem By Ludovic A. Julien; Francesca Busetto; Giulio Codognato; Sayantan Ghosal; Damiano Turchet
  5. Monopolistic Duopoly By Emanuele Bacchiega; Elias Carroni; Alessandro Fedele
  6. How spillovers from pollution cleanup in the Ganges affect welfare in Kanpur and Varanasi By Batabyal, Amitrajeet
  7. Higher-Order Misspecification and Equilibrium Stability By Takeshi Murooka; Yuichi Yamamoto
  8. Degree Centrality, von Neumann-Morgenstern Expected Utility and Externalities in Networks By René van den Brink; Agnieszka Rusinowska
  9. Giving and Costless Retaliation in the Power-to-Take Game By Michalis Drouvelis; Nobuyuki Hanaki; Natsumi Shimada; Yuta Shimodaira
  10. Measuring the attitude towards a European public budget: A cross-country experiment By Marco Catola; Pietro Guarnieri; Veronica Pizziol; Chiara Rapallini
  11. Third-Degree Price Discrimination in Two-Sided Markets By de Cornière, Alexandre; Mantovani, Andrea; Shekhar, Shiva
  12. Duopoly insurers' incentives for data quality under a mandatory cyber data sharing regime By Carlos Barreto; Olof Reinert; Tobias Wiesinger; Ulrik Franke
  13. Optimal Robust Reinsurance with Multiple Insurers By Emma Kroell; Sebastian Jaimungal; Silvana M. Pesenti
  14. Unionised dockworkers and port ownership structure in an international oligopoly By Meccheri, Nicola
  15. What is a relevant control?: An algorithmic proposal By Fernando Delbianco; Fernando Tohmé
  16. Oligopolistic Competition, Price Rigidity, and Monetary Policy By Kozo Ueda; Kota Watanabe
  17. Applying Machine Learning Algorithms to Predict the Size of the Informal Economy By Joao Felix; Michel Alexandre, Gilberto Tadeu Lima

  1. By: Demuynck, Thomas; Herings, P. Jean-Jacques; Seel, Christian (RS: GSBE other - not theme-related research, Microeconomics & Public Economics)
    Abstract: We develop and extend notions of potentials for normal-form games (Monderer and Shapley, 1996) to present a unified approach for the general class of social environments. The different potentials and corresponding social environments can be ordered in terms of their permissiveness. We classify different methods to construct potentials and we characterize potentials for specific examples such as matching problems, vote trading, multilateral trade, TU games, and various pillage games.
    JEL: C70 C71
    Date: 2023–09–07
  2. By: Daehyun Kim; Ichiro Obara
    Abstract: This paper studies how improved monitoring affects the limit equilibrium payoff set for stochastic games with imperfect public monitoring. We introduce a simple generalization of Blackwell garbling called weighted garbling in order to compare different information structures for this class of games. Our main result is the monotonicity of the limit perfect public equilibrium (PPE) payoff set with respect to this information order: we show that the limit PPE payoff sets with one information structure is larger than the limit PPE payoff sets with another information structure state by state if the latter information structure is a weighted garbling of the former. We show that this monotonicity result also holds for the class of strongly symmetric equilibrium. Finally, we introduce and discuss another weaker sufficient condition for the expansion of limit PPE payoff set. It is more complex and difficult to verify, but useful in some special cases.
    Date: 2023–08
  3. By: Larionov, Daniil
    Abstract: I consider a repeated auction setting with colluding buyers and a seller who adjusts reserve prices over time without long-term commitment. To model the seller's concern for collusion, I introduce a new equilibrium concept: collusive public perfect equilibrium. For every strategy of the seller I define the corresponding "buyer-game" in which the seller is replaced by Nature who chooses the reserve prices for the buyers in accordance with the seller's strategy. A public perfect equilibrium is collusive if the buyers cannot achieve a higher symmetric public perfect equilibrium payoff in the corresponding buyer-game. In a setting with symmetric buyers with private binary iid valuations and publicly revealed bids, I find collusive public perfect equilibria that allow the seller to extract the entire surplus from the buyers in the limit as the buyers' discount factor goes to 1. I therefore show that a non-committed seller can effectively fight collusion even when she faces patient buyers, can only set reserve prices, and has to satisfy stringent public disclosure requirements.
    Date: 2023
  4. By: Ludovic A. Julien; Francesca Busetto; Giulio Codognato; Sayantan Ghosal; Damiano Turchet
    Abstract: We consider a mixed version of the Shapley window model, where large traders are represented as atoms and small traders are represented by an atomless part. Our main theorem shows that any sequence of Cournot-Nash allocations of the strategic market games associated with the partial replications of the exchange economy has a limit point for each trader and that the assignment determined by these limit points is a Walrasian allocation of the original economy. Instead of relying on restrictive assumptions on the characteristics of atoms, as in Busetto et al. (2017), our limit theorem relies on the characteristics of agents in the atomless part and their endogenously price-taking behavior.
    Keywords: Cournot-Nash equilibrium, Walras equilibrium, Asymptotic equivalence
    JEL: D42 D51
    Date: 2023
  5. By: Emanuele Bacchiega (Department of Computer Science and Engineering, University of Bologna, Italy); Elias Carroni (Department of Economics, University of Bologna, Italy); Alessandro Fedele (Faculty of Economics and Management, Free University of Bozen-Bolzano, Italy)
    Abstract: We delve into the Hotelling price competition game without assuming full market coverage, and derive three equilibrium configurations. Two of them are well-known: Hotelling duopoly, where firms set the prices with the aim of stealing customers from the rival, and the market is fully covered; Local Monopolies, where firms avoid strategic interaction and business stealing, and the market is partially covered. In the third, firms interact strategically to keep the market covered, while at the same time avoiding business stealing; we define it as Monopolistic Duopoly (MD) because it combines the features of the other two scenarios. Despite the existence of few contributions on MD, this equilibrium configuration has been substantially ignored. By spelling out the economics of MD and emphasizing its intriguing properties, we establish that MD has, instead, relevant implications for the Hotelling literature.
    Keywords: Hotelling Price Competition Game; Market Coverage; Monopolistic Duopoly.
    JEL: L13 C72 D21
    Date: 2023–09
  6. By: Batabyal, Amitrajeet
    Abstract: We study how spillovers from water pollution cleanup in the Ganges affect social welfare in an aggregate economy consisting of Kanpur and Varanasi, two cities through which this river flows. We view pollution cleanup in both cities as a local public good and point out that if Kanpur cleans up pollution in the Ganges then Varanasi obtains some spillover benefit and vice versa. In this setting, we first solve for the Nash equilibrium amounts of pollution cleanup in the two cities when decisions about how much pollution to clean up are made simultaneously; next, we determine the equilibrium welfare levels in each city. Second, on the assumption that decisions about how much pollution to clean up are centralized, we compute the amounts of pollution cleanup that maximize aggregate welfare. Finally, we describe an inter-city transfer scheme that leads each city to choose non-cooperatively in a Nash equilibrium the same pollution cleanup amounts as those that arise when aggregate welfare is maximized.
    Keywords: Centralization, Ganges River, Nash Equilibrium, Pollution Cleanup, Spillover
    JEL: D81 Q53 Q56
    Date: 2023–06–11
  7. By: Takeshi Murooka (Osaka School of International Public Policy, Osaka University); Yuichi Yamamoto (Institute of Economic Research, Hitotsubashi University)
    Abstract: This paper considers a Bayesian learning problem where strategic players jointly learn an unknown economic state, and show that one's higher-order misspecification (i.e., one's misspecification about the opponent's misspecification) can have a significant impact on the equilibrium outcome. We consider a simple environmental problem where players' production, as well as an unknown state, affects the quality of the environment. Crucially, we assume that one of the players is unrealistically optimistic about the quality of the environment. When this optimism is common knowledge, the equilibrium outcome is continuous in the amount of optimism, and hence small optimism leads to approximately correct learning of the state. In contrast, when the optimism is not common knowledge and each player is unaware of the opponent having a different view about the world, the equilibrium outcome is discontinuous, and even vanishingly small optimism leads to completely incorrect learning. We then analyze a general Bayesian learning model and discuss when such discontinuity arises.
    Keywords: model misspecification, learning, unawareness, convergence, stability, inferential naivety, overconfidence
    JEL: C73 D83 D90 D91
    Date: 2023–08
  8. By: René van den Brink (VU University Amsterdam and Tinbergen Institute); Agnieszka Rusinowska (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, CNRS - Centre National de la Recherche Scientifique, UP1 - Université Paris 1 Panthéon-Sorbonne, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: This paper aims to connect the social network literature on centrality measures with the economic literature on von Neumann-Morgenstern expected utility functions using cooperative game theory. The social network literature studies various concepts of network centrality, such as degree, betweenness, connectedness, and so on. This resulted in a great number of network centrality measures, each measuring centrality in a different way. In this paper, we aim to explore which centrality measures can be supported as von Neumann-Morgenstern expected utility functions, reflecting preferences over different network positions in different networks. Besides standard axioms on lotteries and preference relations, we consider neutrality to ordinary risk. We show that this leads to a class of centrality measures that is fully determined by the degrees (i.e. the numbers of neighbours) of the positions in a network. Although this allows for externalities, in the sense that the preferences of a position might depend on the way how other positions are connected, these externalities can be taken into account only by considering the degrees of the network positions. Besides bilateral networks, we extend our result to general cooperative TU-games to give a utility foundation of a class of TU-game solutions containing the Shapley value.
    Keywords: weighted network, degree, centrality measure, externalities, neutrality to ordinary risk, expected utility function
    Date: 2023–08
  9. By: Michalis Drouvelis; Nobuyuki Hanaki; Natsumi Shimada; Yuta Shimodaira
    Abstract: Extending the power-to-take game, we explore the impact of two forces that may shape retaliation. In our 2x2 design, i) in addition to taking, the proposers can give part of their endowment to the responders, and ii) in addition to destroying their own endowment in retaliation, the responders can destroy the proposer’s endowment. Although these added options lead the responders to retaliate more severely, they do not significantly influence the proposers’ behavior. It is only when the proposers can give, and the responders can concurrently destroy the endowment of the proposers that the proposers take significantly less from the responders.
    Keywords: power-to-take, giving, emotions, retaliation, experiment
    JEL: A12 C72 C91
    Date: 2023
  10. By: Marco Catola; Pietro Guarnieri; Veronica Pizziol; Chiara Rapallini
    Abstract: We use a multilevel public goods game to investigate attitudes towards national public budgets and a European public budget in six Member States of the European Union: Italy, Germany, France, The Netherlands, Poland, and Portugal. We test to what extent propensities to contribute to public goods differ across countries. Using two efficiency treatments, we also test whether each country group adjusts its contribution when the relative efficiency of the public goods changes. We find no differences across countries in the propensity to contribute to either public budget. Moreover, all country groups level up their contribution to the European public good following an increase in its relative efficiency. We also devise a questionnaire to assess the impact of a sense of identity on contribution decisions and to control for the impact of COVID-19 and the current war in Ukraine on country and EU perceptions.
    Keywords: multilevel public goods game, public budget, European Union, online experiment, efficiency; social dilemma
    JEL: C90 H41 H61
    Date: 2023–09–01
  11. By: de Cornière, Alexandre; Mantovani, Andrea; Shekhar, Shiva
    Abstract: We investigate the welfare effects of third-degree price discrimination by a two-sided platform that enables interaction between buyers and sellers. Sellers are heterogenous with respect to their per-interaction benefit, and, under price discrimination, the platform can condition its fee on sellers’ type. In a model with linear demand on each side, we show that price discrimination: (i) increases participation on both sides; (ii) enhances total welfare; (iii) may result in a strict Pareto improvement, with both seller types being better-off than under uniform pricing. These results, which are in stark contrast to the traditional analysis of price discrimination, are driven by the existence of cross-group network effects. By improving the firm’s ability to monetize seller participation, price discrimination induces the platform to attract more buyers, which then increases seller participation. The Pareto improvement result means that even those sellers who pay a higher price under discrimination can be better-off, due to the increased buyer participation.
    JEL: D42 D62 L11 L12
    Date: 2023–08
  12. By: Carlos Barreto; Olof Reinert; Tobias Wiesinger; Ulrik Franke
    Abstract: We study the impact of data sharing policies on cyber insurance markets. These policies have been proposed to address the scarcity of data about cyber threats, which is essential to manage cyber risks. We propose a Cournot duopoly competition model in which two insurers choose the number of policies they offer (i.e., their production level) and also the resources they invest to ensure the quality of data regarding the cost of claims (i.e., the data quality of their production cost). We find that enacting mandatory data sharing sometimes creates situations in which at most one of the two insurers invests in data quality, whereas both insurers would invest when information sharing is not mandatory. This raises concerns about the merits of making data sharing mandatory.
    Date: 2023–05
  13. By: Emma Kroell; Sebastian Jaimungal; Silvana M. Pesenti
    Abstract: We study a reinsurer who faces multiple sources of model uncertainty. The reinsurer offers contracts to $n$ insurers whose claims follow different compound Poisson processes. As the reinsurer is uncertain about the insurers' claim severity distributions and frequencies, they design reinsurance contracts that maximise their expected wealth subject to an entropy penalty. Insurers meanwhile seek to maximise their expected utility without ambiguity. We solve this continuous-time Stackelberg game for general reinsurance contracts and find that the reinsurer prices under a distortion of the barycentre of the insurers' models. We apply our results to proportional reinsurance and excess-of-loss reinsurance contracts, and illustrate the solutions numerically. Furthermore, we solve the related problem where the reinsurer maximises, still under ambiguity, their expected utility and compare the solutions.
    Date: 2023–08
  14. By: Meccheri, Nicola
    Abstract: In an international duopoly with two markets and two ports, this paper investigates the role of dockworkers unionisation in affecting welfare outcomes under public and private ports, as well as in determining the endogenous choice by governments of port ownership structure. While private ports maximise profits, public ports maximise domestic welfare and face a budget constraint, which is binding when unions are suf- ficiently wage-oriented and shipping costs are not too high. Consumer surplus, total wage bill and domestic welfare are generally higher under public ownership, especially when unions are wage-oriented. The opposite holds true for firm profits, whilst privati- sation always increases port profits. Moreover, relative to endogenous port ownership structures, state-owned ports appear as the most likely equilibrium result although all possible configurations may arise in equilibrium, including an asymmetric structure with a state-owned port and a private port.
    Keywords: unionised dockworkers, port ownership structure, international duopoly, welfare outcomes
    JEL: F16 J51 L33 R48
    Date: 2023
  15. By: Fernando Delbianco (UNS/CONICET); Fernando Tohmé (UNS/CONICET)
    Abstract: Individualized inference (or prediction) is an approach to data analysis that is increasingly relevant thanks to the availability of large datasets. In this paper, we present an algorithm that starts by detecting the relevant observations for a given query. Further refinement of that subsample is obtained by selecting the ones with the largest Shapley values. The probability distribution over this selection allows to generate synthetic controls, which in turn can be used to generate a robust inference (or prediction). Data collected from repeating this procedure for different queries provides a deeper understanding of the general process that generates the data.
    Keywords: Individualized inference, Relevance selection, and classification, Synthetic controls
    JEL: C6 C15 C63
    Date: 2023–08
  16. By: Kozo Ueda (Waseda University); Kota Watanabe (Canon Institute for Global Studies and University of Tokyo)
    Abstract: This study investigates how strategic and heterogeneous price setting influences the real effect of monetary policy. Japanese data show that firms with larger market shares exhibit more frequent and larger price changes than those with smaller market shares. We then construct an oligopolistic competition model with sticky prices and asymmetry in terms of competitiveness and price stickiness, which shows that a positive cross superelasticity of demand generates dynamic strategic complementarity, resulting in decreased price adjustments and an amplified real effect of monetary policy. Whether a highly competitive firm sets its price more sluggishly and strategically than a less competitive firm depends on the shape of the demand system, and the empirical results derived from the Japanese data support Hotelling’s model rather than the constant elasticity of substitution preferences model. Dynamic strategic complementarity and asymmetry in price stickiness can substantially enhance the real effect of monetary policy.
    Keywords: strategic complementarity; price stickiness; real rigidity; competition
    JEL: D43 E31 E52 L11
    Date: 2023–07
  17. By: Joao Felix; Michel Alexandre, Gilberto Tadeu Lima
    Abstract: The use of machine learning models and techniques to predict economic variables has been growing lately, motivated by their better performance when compared to that of linear models. Although linear models have the advantage of considerable interpretive power, efforts have intensified in recent years to make machine learning models more interpretable. In this paper, tests are conducted to determine whether models based on machine learning algorithms have better performance relative to that of linear models for predicting the size of the informal economy. The paper also explores whether the determinants of such size detected as the most important by machine learning models are the same as those detected in the literature based on traditional linear models. For this purpose, observations were collected and processed for 122 countries from 2004 to 2014. Next, eleven models (four linear and seven based on machine learning algorithms) were used to predict the size of the informal economy in these countries. The relative importance of the predictive variables in determining the results yielded by the machine learning algorithms was calculated using Shapley values. The results suggest that (i) models based on machine learning algorithms have better predictive performance than that of linear models and (ii) the main determinants detected through the Shapley values coincide with those detected in the literature using traditional linear models.
    Keywords: : Informal economy; machine learning; linear models; Shapley values
    JEL: C52 C53 O17
    Date: 2023–08–28

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