nep-gth New Economics Papers
on Game Theory
Issue of 2023‒10‒02
sixteen papers chosen by
Sylvain Béal, Université de Franche-Comté

  1. “Fake news alert!”: A game of misinformation and news consumption behavior By Lodh, Rishab; Dey, Oindrila
  2. Behavioral Finance through the Lens of Evolution: "Survival of the Fittest" for Portfolio Rules By Igor V. Evstigneev; Thorsten Hens; Mohammad Javad Vanaei; Mohammad Mikhail Zhitlukhin
  3. Approximate Core Allocations for Edge Cover Games By Tianhang Lu; Han Xian; Qizhi Fang
  4. Collusion sustainability with a capacity constrained firm By Leonardo Madio; Aldo Pignataro
  5. The Effect of Punishment and Reward on Cooperation in a Prisoners' Dilemma Game By Alexander Kangas
  6. A Strategic Approach to Bankruptcy Problems Based on the TAL Family of Rules By Bouwhuis, Dirck; Borm, Peter; Hendrickx, Ruud
  7. Third-Degree Price Discrimination in Two-Sided Markets By Alexandre de Cornière; Andrea Mantovani; Shiva Shekhar; Alexandre de Cornière
  8. How to Boost Countries’ Climate Ambitions: Turning Gains from Emissions Trading into Gains for Climate By Christoph Böhringer; Carsten Helm; Laura Schürer
  9. Sharing the cost of hazardous transportation networks and the Priority Shapley value By Sylvain Béal; Adriana Navarro-Ramos; Eric Rémila; Philippe Solal
  10. International Climate Agreements under The Threat of Solar Geoengineering By McEvoy, David; McGinty, Matthew; Cherry, Todd; Kroll, Stephan
  11. An Experiment on a Dynamic Beauty Contest Game By Nobuyuki Hanaki; Yuta Takahashi
  12. Nash's bargaining problem and the scale-invariant Hirsch citation index By Josep Freixas; Roger Hoerl; William S. Zwicker
  13. Market transparency in a mixed oligopoly By Xu, Lili; Matsumura, Toshihiro
  14. Fair compensation in large-scale land acquisitions: fair or fail? By De Maria, Marcello; Robinson, Elizabeth J.Z.; Zanello, Giacomo
  15. A Cournot equilibrium between Dark Net Market and Street market By Bahamazava, Katsiaryna; Marchese, Carla; Privileggi, Fabio
  16. Startup Acquisitions: Acquihires and Talent Hoarding By Jean-Michel Benkert; Igor Letina; Shuo Liu

  1. By: Lodh, Rishab; Dey, Oindrila
    Abstract: This paper examines the impact of behavioral factors in propagation of fake news. Using Spence (1978) framework, we find that the perfect Bayesian Nash equilibrium is pooling equilibrium, i.e., fake news producers to mimic actions of true news producer, which is influenced by factors like ideology, awareness, informational utility and fear of missing out information of news- consumers. Interestingly, the chain of fake news can be broken iff degree of awareness is significantly high. A threshold level of awareness level is determined using simulation, beyond which pooling breaks despite of high influence of other factors, which throws light on possible policy interventions.
    Keywords: Fake news, Asymmetric Information, Bayesian games, Signaling, Fact checking
    JEL: D82 L20
    Date: 2023–08–05
  2. By: Igor V. Evstigneev (University of Manchester); Thorsten Hens (University of Zurich, Norwegian School of Economics and Business Administration, University of Lucerne, and Swiss Finance Institute); Mohammad Javad Vanaei (University of Manchester); Mohammad Mikhail Zhitlukhin (Steklov Mathematical Institute)
    Abstract: This paper analyzes a dynamic stochastic equilibrium model of an asset market based on behavioral and evolutionary principles. The core of the model is a non-traditional game-theoretic framework combining elements of stochastic dynamic games and evolutionary game theory. Its key characteristic feature is that it relies only on objectively observable market data and does not use hidden individual agents' characteristics (such as their utilities and beliefs). A central goal of the study is to identify an investment strategy that allows an investor to survive in the market selection process, i.e., to keep with probability one a strictly positive, bounded away from zero share of market wealth over an infinite time horizon, irrespective of the strategies used by the other players. The main results show that under very general assumptions, such a strategy exists, is asymptotically unique and easily computable. Most of the related models currently considered in this field assume that asset payoffs are exogenous and depend only on the underlying stochastic process of states of the world. The present work develops a modeling framework where the payoffs are endogenous: they depend on the share of total market wealth invested in the asset.
    Keywords: Evolutionary Finance, Behavioral Finance, Stochastic dynamic games, DSGE, Survival portfolio rules
    JEL: C73 D53 D58 G11 G02
    Date: 2023–08
  3. By: Tianhang Lu; Han Xian; Qizhi Fang
    Abstract: We study the approximate core for edge cover games, which are cooperative games stemming from edge cover problems. In these games, each player controls a vertex on a network $G = (V, E; w)$, and the cost of a coalition $S\subseteq V$ is equivalent to the minimum weight of edge covers in the subgraph induced by $S$. We prove that the 3/4-core of edge cover games is always non-empty and can be computed in polynomial time by using linear program duality approach. This ratio is the best possible, as it represents the integrality gap of the natural LP for edge cover problems. Moreover, our analysis reveals that the ratio of approximate core corresponds with the length of the shortest odd cycle of underlying graphs.
    Date: 2023–08
  4. By: Leonardo Madio (University of Padova); Aldo Pignataro (Italian Regulatory Authority for Energy, Networks and Environment)
    Abstract: We study an infinitely repeated oligopoly game in which firms compete on quantity and one of them is capacity constrained. We show that collusion sustainability is non-monotonic in the size of the capacity constrained firm, which has little incentive to deviate from a cartel. We also present conditions for the emergence of a partial cartel, with the capacity constrained firm being excluded by the large firms or self-excluded. In the latter case, we show under which circumstances the small firm induces a partial conspiracy that is Pareto-dominant. Implications for cartel identification and enforcement are finally discussed.
    Keywords: Antitrust, capacity constraints, collusion, partial cartel.
    Date: 2022–12
  5. By: Alexander Kangas
    Abstract: This work studies the effect of incentives (in the form of punishment and reward) on the equilibrium fraction of cooperators and defectors in an iterated n-person prisoners' dilemma game. With a finite population of players employing a strategy of nice tit-for-tat or universal defect, an equilibrium fraction of each player-type can be identified from linearized payoff functions. Incentives take the form of targeted and general punishment, and targeted and general reward. The primary contribution of this work is in clearly articulating the design and marginal effect of these incentives on cooperation. Generalizable results indicate that while targeted incentives have the potential to substantially reduce but never entirely eliminate defection, they exhibit diminishing marginal effectiveness. General incentives on the other hand have the potential to eliminate all defection from the population of players. Applications to policy are briefly considered.
    Date: 2023–09
  6. By: Bouwhuis, Dirck (Tilburg University, Center For Economic Research); Borm, Peter (Tilburg University, Center For Economic Research); Hendrickx, Ruud (Tilburg University, Center For Economic Research)
    Keywords: Bankruptcy problems; Strategic games; TAL family; Nash equilibrium
    Date: 2023
  7. By: Alexandre de Cornière; Andrea Mantovani; Shiva Shekhar; Alexandre de Cornière
    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.
    Keywords: two-sided markets, price discrimination, network effects
    JEL: D42 D62 L11 L12
    Date: 2023
  8. By: Christoph Böhringer; Carsten Helm; Laura Schürer
    Abstract: The Nationally Determined Contributions (NDCs) under the Paris Agreement fall short of the abatement needed to reach the 2°C target. Emissions trading could be a “costless” means to reduce the ambition gap if countries used their gains from trade for additional abatement. However, this requires cooperative behavior. We show that with emissions trading, countries’ non-cooperative choices of emissions reduction contributions can lead to even more abatement, provided that these contributions may not be lower than initial NDCs. Intuitively, countries with high climate damages raise their contributions if they can meet them partly through abatement in countries with low abatement costs.
    Keywords: Paris Agreement, emissions trading, NDCs, game theory
    JEL: H23 Q54 Q56 Q58 C72
    Date: 2023
  9. By: Sylvain Béal (Université de Franche-Comté, CRESE, F-25000 Besançon, France); Adriana Navarro-Ramos (Université de Saint-Etienne, GATE Lyon Saint-Etienne UMR 5824, F-42023 Saint-Etienne, France); Eric Rémila (Université de Saint-Etienne, GATE Lyon Saint-Etienne UMR 5824, F-42023 Saint-Etienne, France); Philippe Solal (Université de Saint-Etienne, GATE Lyon Saint-Etienne UMR 5824, F-42023 Saint-Etienne, France)
    Abstract: We consider the cost sharing issue resulting from the maintenance of a hazardous waste transportation network represented by a sink tree. The participating agents are located on the nodes of the network and must transport their waste to the sink through costly network portions. We introduce the Liability rule, which is inspired by the principles applied by the courts to settle cost-allocation disputes in the context of hazardous waste. We provide an axiomatic characterization of this rule. Furthermore, we show that the Liability rule coincides with the Priority Shapley value, a new allocation rule on an appropriate class of multi-choice games arising from hazardous waste transportation problems. Finally, we also axiomatize the Priority Shapley value on the full domain of multi-choice games.
    Keywords: Hazardous waste, transportation network, Liability rule, Priority Shapley value, multi- choice games
    JEL: C71 Q53 R42
    Date: 2023–09
  10. By: McEvoy, David; McGinty, Matthew; Cherry, Todd; Kroll, Stephan
    Abstract: The possibility of overshooting global emissions targets has triggered a public debate about the role solar geoengineering (SGE) - using technologies to reflect solar radiation away from Earth - may play in managing climate change. One major concern is that SGE technologies are relatively cheap, and could potentially be deployed by a single nation (the “free driver”) that could effectively control the global climate. Another concern is that SGE opportunities may alter countries’ incentives to cooperate on abatement. Here we develop a game-theoretic model to analyze how opportunities to deploy SGE impact global abatement and the effectiveness of international environmental agreements (IEAs) on climate change. We show that non-cooperative abatement levels may increase or decrease under the threat of SGE, depending on how damaging the free-driver’s level of deployment is on others. We also show the stability of IEAs that govern abatement is challenged by two competing strategic incentives. One is a familiar free-rider incentive, which is the benefit a country earns by leaving an agreement and lowering its abatement. The other incentive is the benefit a country earns by joining an agreement and increasing abatement in order to motivate the free-driver to reduce its level of deployment. We introduce the term anti-driver to describe this second incentive. Ultimately, we find that if the anti-driver incentives are high enough, the threat of SGE can expand both the depth (i.e., abatement level) and breadth (i.e., participation level) of stable IEAs compared to a world without SGE.
    Date: 2023–09–05
  11. By: Nobuyuki Hanaki; Yuta Takahashi
    Abstract: We present and conduct a novel experiment on a dynamic beauty contest game motivated by the canonical New-Keynesian model. Participants continuously provide forecasts for prices spanning multiple future periods. These forecasts determine the price for the current period and participants’ payoffs. Our findings are threefold. First, the observed prices in the experiment deviate more from the rational expectations equilibrium prices under strategic complementarity than under strategic substitution. Second, participants’ expectations respond to announcements of future shocks on average. Finally, participants employ heuristics in their forecasting; however, the choice of heuristic varies with the degree of strategic complementarity.
    Date: 2023–09
  12. By: Josep Freixas; Roger Hoerl; William S. Zwicker
    Abstract: A number of citation indices have been proposed for measuring and ranking the research publication records of scholars. Some of the best known indices, such as those proposed by Hirsch and Woeginger, are designed to reward most highly those records that strike some balance between productivity (number of papers published), and impact (frequency with which those papers are cited). A large number of rarely cited publications will not score well, nor will a very small number of heavily cited papers. We discuss three new citation indices, one of which was independently proposed in \cite{FHLB}. Each rests on the notion of scale invariance, fundamental to John Nash's solution of the two-person bargaining problem. Our main focus is on one of these -- a scale invariant version of the Hirsch index. We argue that it has advantages over the original; it produces fairer rankings within subdisciplines, is more decisive (discriminates more finely, yielding fewer ties) and more dynamic (growing over time via more frequent, smaller increments), and exhibits enhanced centrality and tail balancedness. Simulations suggest that scale invariance improves robustness under Poisson noise, with increased decisiveness having no cost in terms of the number of ``accidental" reversals, wherein random irregularities cause researcher A to receive a lower index value than B, although A's productivity and impact are both slightly higher than B's. Moreover, we provide an axiomatic characterization of the scale invariant Hirsch index, via axioms that bear a close relationship, in discrete analogue, to those used by Nash in \cite{Nas50}. This argues for the mathematical naturality of the new index. An earlier version was presented at the 5th World Congress of the Game Theory Society, Maastricht, Netherlands in 2016.
    Date: 2023–09
  13. By: Xu, Lili; Matsumura, Toshihiro
    Abstract: This study investigates the relationship between market transparency and economic welfare in a mixed duopoly in which a welfare-maximizing public firm competes with a profit-maximizing private firm. We find that the private firm’s market share, consumer surplus, and welfare increase with market transparency. Further, the relationship between the private firm’s profit and market transparency has an inverted U shape. This result suggests that profit-maximizing firms may have incentives to improve market transparency, especially when the degree of market transparency is low, which is in sharp contrast to the results under a private duopoly.
    Keywords: market transparency, mixed oligopoly, product differentiation, unconstrained Hotelling model, profit-enhancing market transparency, crowding out
    JEL: L13 L15 L32 L33
    Date: 2023–08–29
  14. By: De Maria, Marcello; Robinson, Elizabeth J.Z.; Zanello, Giacomo
    Abstract: Despite the existence of a legal framework defining the right to fair compensation, and notwithstanding the vast literature on transnational and domestic land deals, no theory has been developed so far to allow for a specific analysis of the economics of fair compensation in large-scale land acquisitions (LSLAs), limiting our understanding of the underlying reasons of success or failure of this important legal protection mechanism. Building on the review of the existing literature on fair compensation and on the critical examination of several real-world case studies, this paper fills this gap by developing a three-player sequential game, which captures the peculiarities of fair compensation in large-scale land deals. We show that, under specific but not uncommon circumstances, the local community will be offered a zero-compensation as a rational consequence of the players’ optimisation, and this will lead to a land conflict, with all players incurring additional costs. Our findings suggest that local populations will be offered – and willing to accept – a compensation that is smaller than their original livelihood, unless they can oppose the land deal at no cost. Thus, the right to consent is inextricably related to the right to reject in LSLAs. If the former is frictionless while the latter comes at a cost, then there is space for strategic behaviours that exploit power imbalances and discretionary processes, and the fair compensation right is, in practice, weakened.
    Keywords: large-scale land acquisitions; land grabbing; fair compensation; zero compensation; sustainable land governance; land rights; UK Research and Innovation’s Global Challenges Research Fund (UKRI GCRF) through the Trade; Development and the Environment Hub project (project number ES/S008160/1).
    JEL: R14 J01
    Date: 2023–10–01
  15. By: Bahamazava, Katsiaryna; Marchese, Carla; Privileggi, Fabio (University of Turin)
    Abstract: This article contributes to the economic analysis of the illegal drug trade on either the Street or the Dark Net Market (DNM). For the sake of sim- plicity, it is assumed that there is a continuum of consumers with unitary demand for one drug. Their demand price varies from one market to the other according to the risks they bear in accessing it. The lower risk of vi- olence in the DNM implies that, ceteris paribus, the good delivered there is deemed higher quality. Vendors compete à la Cournot in quantity in their “home†market, selling homogeneous goods. However, the other market ex- erts a vertical competitive threat. The two markets are intertwined, and we model the case in which both are simultaneously in equilibrium.
    Date: 2023–02
  16. By: Jean-Michel Benkert; Igor Letina; Shuo Liu
    Abstract: We present a model of startup acquisitions, which may give rise to inefficient "talent hoarding." We develop a model with two competing firms that can acquire and integrate (or "acquihire") a startup operating in an orthogonal market. Such an acquihire improves the competitiveness of the acquiring firm. We show that even absent the classical competition effects, acquihires need not be benign but can be the result of oligopolistic behavior, leading to an inefficient allocation of talent. Further, we show that such talent hoarding may reduce consumer surplus and lead to more job volatility for acquihired employees.
    Date: 2023–08

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