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on Game Theory |
| By: | Antonio Cabrales; Piero Gottardi |
| Abstract: | We study a new model to study the effect of contract externalities that arise through shock transmission. We model a financial network where good firms enjoy direct and indirect benefits from linking with one another. Bad risks benefit from having a connection with a good firm, but they are a cost to both direct and indirect connections. In efficient networks the good risks should form large connected components with very few bad risks attached. The equilibrium networks, on the other hand, have many more bad risks attached, they are core-periphery structures, and components are also smaller than the efficient ones. We also study extensions with heterogenous “bad risks, ” with diversity in the costs to good risk firms of linking with bad risks, and with incomplete information. |
| Keywords: | network formation, financial shocks, financial contagion, core periphery, efficiency and equilibrium |
| JEL: | D85 G21 G32 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_11122&r= |
| By: | Ludovic A. Julien; Gagnie Pascal Yebarth |
| Abstract: | This paper explores the possibility that a taxation mechanism always implements a Pareto-optimal allocation in bilateral exchange when the market participants behave strategically and noncooperatively. To this end, we reconsider the taxation mechanism, namely the endowment taxation with transfers, implemented in the strategic bilateral exchange models by Gabszewicz and Grazzini (JPET, 1999). In this framework of strategic bilateral exchange, we consider a general class of smooth utility functions, and we determine the conditions under which the taxation mechanism is Pareto-optimal, i.e., whether there exists an equilibrium tax such that endowment taxation with transfers always implements a Pareto-optimal allocation. Furthermore, we explain why this taxation mechanism could implement a Pareto-optimal allocation. |
| Keywords: | Cournot-Nash equilibrium, Pareto-optimality, taxation |
| JEL: | C72 D41 H21 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:drm:wpaper:2024-19&r= |
| By: | Masaaki Fujii (Quantitative Finance Course, Graduate School of Economics, The University of Tokyo); Masashi Sekine (Ph.D. Student at Quantitative Finance Course, Graduate School of Economics, The University of Tokyo) |
| Abstract: | This paper presents an asset pricing model in an incomplete market involving a large number of heterogeneous agents based on the mean field game theory. In the model, we incorporate habit formation in consumption preferences, which has been widely used to explain various phenomena in financial economics. In order to characterize the market-clearing equilibrium, we derive a quadratic-growth mean field backward stochastic differential equation (BSDE) and study its well-posedness and asymptotic behavior in the large population limit. Additionally, we introduce an exponential quadratic Gaussian reformulation of the asset pricing model, in which the solution is obtained in a semi-analytic form. |
| Date: | 2024–04 |
| URL: | https://d.repec.org/n?u=RePEc:cfi:fseres:cf587&r= |
| By: | Koutsougeras, Leonidas (University of Manchester, School of Social Science); Santos, Manuel S. (University of Miami, Miami Herbert Business School); Xu, Fei (Department of Economics, Umeå University) |
| Abstract: | We propose a game-theoretic model of corruption to account for some crosscountry empirical regularities on the depth or prevalence of corruption, the variability of the bribe, officers’ salaries, and investment in anticorruption measures. Under standard conditions the model has a unique equilibrium in which the depth of corruption and the bribe are endogenously determined. The analysis centers on the further effects on these equilibrium values from changes in the “ability-to-pay” of the parties involved, the government’s efficiency to fight corruption, and the officer’s costs of breaking the law. A mere change in the officer’s salary, however, can be counterbalanced by a compensatory bribe; hence, the salary does not affect the depth of corruption. |
| Keywords: | The depth of corruption; the bribe; anticorruption measures; officer’s salary; Nash equilibrium |
| JEL: | D04 D58 D71 D73 |
| Date: | 2024–05–27 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:umnees:1026&r= |
| By: | Pierpaolo Battigalli; Giovanni Di Bartolomeo; Stefano Papa |
| Abstract: | This research investigates the motivations in sharing decisions in a dictator game, trying to distinguish the role of guilt aversion from other social preferences, such as altruism and inequity aversion. Using an experimental design that incorporates exogenous variations in beliefs and endowments, we manipulate probabilities to generate scenarios with varying expected sharing costs. This approach allows for an in-depth examination of how sharing behaviors correlate with second-order beliefs across different cost conditions. Focusing on the guilt and inequity aversion channels, the study also explores how gender in‡fluences behavior. |
| Keywords: | expectations; guilt aversion; inequity aversion; opportunity costs; gender differences. |
| JEL: | A13 C91 D01 D64 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:sap:wpaper:wp248&r= |
| By: | Sudhir A. Shah (Department of Economics, Delhi School of Economics) |
| Abstract: | We formalise ‘bidding behaviour’ as a bidder’s choice of the ‘mean winning probability’ at the interim stage of first-price and second-price sealed bid auctions. This formulation simplifies and sharpens the anal-ysis of bidding behaviour by virtue of confining it to the unit interval. As an application, we show that the optimal mean winning probability increases if and only if the bidder’s valuation of the prize increases. Our formulation of bidding behaviour is rationalised by duality results showing that optimal mean winning probabilities correspond to opti-mal bid distributions. JEL Code: D44 |
| Keywords: | first-price auction, second-price auction, mean winning probability, bidding behaviour, duality |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:cde:cdewps:349&r= |
| By: | Roland Bénabou; Nikhil Vellodi |
| Abstract: | We study a sequential experimentation model with endogenous feedback. Agents choose between a safe and risky action, the latter generating stochastic rewards. When making this choice, each agent is selfishly motivated (myopic). However, agents can disclose their experiences to a public record, and when doing so are pro-socially motivated (forward-looking). When prior uncertainty is large, disclosure is both polarized (only extreme signals are disclosed) and positively biased (no feedback is bad news). When prior uncertainty is small, a novel form of unraveling occurs and disclosure is complete. Subsidizing disclosure costs can perversely lead to less disclosure but more experimentation. |
| JEL: | D82 D83 D91 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32483&r= |
| By: | Catherine C. Eckel (Texas A&M University); Lata Gangadharan (Monash University); Philip J. Grossman (Monash University); Miranda Lambert (Texas A&M University); Nina Xue (Monash University) |
| Abstract: | This study investigates the impact of the institutional setting on the gender leadership gap. Motivating our study is the belief that women shy away from competitive environments and tend to prefer cooperative environments. We design an experiment using a modified Centipede game to test whether leaders can foster cooperation under two incentive schemes: competitive (“winner takes all”) versus cooperative (equal earnings distribution). The leader, whose gender is revealed, sends a message providing strategic advice to their group. We find that male and female leaders are similarly effective in enhancing efficiency and are anticipated to perform equivalently. However, in the competitive context, a gender gap emerges: Female leaders receive lower evaluations than male leaders for offering identical advice. Interestingly, this bias is not observed in the cooperative context, suggesting that the congruence of the environment with gender stereotypes has important implications for leadership evaluations. Randomly-selected female leaders are evaluated 50% higher in a cooperative, as compared to a competitive environment. Thus, achieving gender equality in leadership requires careful attention to the institutional design of organizations. Notably, men consistently demonstrate a higher propensity to lead, regardless of the surrounding context. |
| Keywords: | gender, leadership, institutional environment, evaluation, experiment |
| JEL: | C92 J16 J71 M14 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:mos:moswps:2024-10&r= |
| By: | Kunimoto, Takashi (School of Economics, Singapore Management University); Zhang, Cuiling (School of Economics, Singapore Management University) |
| Abstract: | Crémer and McLean (1988) show that the seller can extract full surplus almost always by an incentive compatible, individually rational mechanism in a single-unit auction model with a finite type space in which agents' beliefs are correlated and their valuations can be interdependent. We first show that this paradoxically positive result can be extended to a model of bilateral trades. To make it more realistic, we investigate when ex-post efficiency and ex-post budget balance in bilateral trades can also be achieved by an incentive compatible, individually rational mechanism. We identify a necessary condition for the existence of such mechanisms and show that it is also sufficient for a two-type model. We next show that the identified condition is not sufficient in general. Through a series of examples, we show that the imposition of ex post budget balance in a bilateral trade model induces a delicate interaction between interdependent values and correlated beliefs, so that the existence of incentive compatible, individually rational mechanisms becomes a very subtle problem. Finally, focusing on a model with linear valuations, we give the precise sense in which a possibility result under interdependent values is more fragile than that under private values. |
| Keywords: | bilateral trade; interdependence; correlation |
| JEL: | C72 D78 D82 |
| Date: | 2024–03–31 |
| URL: | https://d.repec.org/n?u=RePEc:ris:smuesw:0000_000&r= |
| By: | Kai Barron; Tilman Fries |
| Abstract: | We study how one person may shape the way another person interprets objective information. They do this by proposing a sense-making explanation (or narrative). Using a theory-driven experiment, we investigate the mechanics of such narrative persuasion. Our results reveal several insights. First, narratives are persuasive: We find that they systematically shift beliefs. Second, narrative fit (coherence with the facts) is a key determinant of persuasiveness. Third, this fit-heuristic is anticipated by narrative-senders, who systematically tailor their narratives to the facts. Fourth, the features of a competing narrative predictably influence both narrative construction and adoption. |
| Keywords: | Narratives, beliefs, explanations, mental models, experiment, financial advice |
| JEL: | D83 G40 G50 C90 |
| Date: | 2024–05–08 |
| URL: | http://d.repec.org/n?u=RePEc:bdp:dpaper:0039&r= |
| By: | Sánchez, Mariola; Nerja, Adrian |
| Abstract: | In this paper, we compare the scenarios of exclusive licenses and cross-licenses under the existence of partial vertical integration. To do this, a successive duopoly model is proposed, with two owners and two firms competing in a differentiated product market. Each technology owner has a share in one of the competing firms, so that competition is also extended to the upstream R&D sector. We propose a novel analysis where differences in the size of their innovation process are allowed, extending the results in Sánchez et al. (2021). We find that the cross-licensing scenario is preferred when the size of the innovation is small; this occurs regardless of the participation in the competing companies and how many innovate. If the innovation is very large, the owners may be better off with exclusive licenses. |
| Keywords: | Patent Licensing; Exclusive licenses; Market for technology; Asymmetric innovation |
| JEL: | L13 L24 O33 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120829&r= |