|
on Game Theory |
| By: | Berliant, Marcus |
| Abstract: | We examine the fine microstructure of commuting in a game-theoretic setting with a continuum of commuters. Commuters' home and work locations can be heterogeneous. A commuter transport network is exogenous. Traffic speed is determined by link capacity and by local congestion at a time and place along a link, where local congestion at a time and place is endogenous. The model can be reinterpreted to apply to congestion on the internet. We find sufficient conditions for existence of equilibrium, that multiple equilibria are ubiquitous, and that the welfare properties of morning and evening commute equilibria differ on a generalization of a directed tree. |
| Keywords: | Commuting; Internet traffic; Congestion externality; Efficient Nash equilibrium; Price of anarchy |
| JEL: | L86 R41 |
| Date: | 2024–06–27 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121330&r= |
| By: | Federica Carannante (Princeton University); Marco Pagnozzi (Università di Napoli Federico II and CSEF); Elia Sartori (CSEF) |
| Abstract: | We analyze how the seller adjusts the reserve price in infinitely repeated auctions using the information conveyed by past bids. Bidders are myopic and have constant valuations; losers are replaced by new bidders, and winners leave with an exogenous probability. Our model is a stylized description of the market for online display advertisements, where publishers sell impressions through real-time first- or second-price auctions. The optimal reserve price is either equal to the value of the last winner, or lower than it when the winner’s value is sufficiently high. In this second case, the reserve price decreases in the winner’s value in a first-price auction, while it is independent of it in a second-price auction. Because past winners who are outbid substitute for the reserve price in a second-price auction, the seller often sets a lower reserve price and obtains a higher revenue than in a first-price auction. Long-run trade may be non-monotonic in the probability that winners leave. |
| Date: | 2024–06–20 |
| URL: | https://d.repec.org/n?u=RePEc:sef:csefwp:720&r= |
| By: | Bosco, Davide; Gilli, Mario |
| Abstract: | We study effort provision and incentivisation in a Tullock group-contest with m ≥ 2 groups that differ in size. A novel algorithmic procedure is presented that, under a symmetry assumption, explicitly characterises the equilibrium. Endogenous, optimal incentivisation schemes are then determined. Four results ensue. First, strategic interactions endogenously come in mean-field form: individual effort provision responds to the aggregate effort and average egalitarianism across groups. Therefore, the game is aggregative. Second, individuals endlessly cycle between zero and positive effort provision at some incentivisation schemes: no pure-strategy equilibria exist in these cases. Third, group size determines whether the egalitarianism of endogenous schemes increases or decreases in the average egalitarianism across groups. Fourth, all groups provide effort at the endogenous schemes if incentivisation is properly restricted. |
| Keywords: | Public Economics |
| Date: | 2024–06–18 |
| URL: | https://d.repec.org/n?u=RePEc:ags:feemwp:343508&r= |
| By: | R\"udiger Frey; Theresa Traxler |
| Abstract: | We study the impact of regulatory capital constraints on fire sales and financial stability in a large banking system using a mean field game model. In our model banks adjust their holdings of a risky asset via trading strategies with finite trading rate in order to maximize expected profits. Moreover, a bank is liquidated if it violates a stylized regulatory capital constraint. We assume that the drift of the asset value is affected by the average change in the position of the banks in the system. This creates strategic interaction between the trading behavior of banks and thus leads to a game. The equilibria of this game are characterized by a system of coupled PDEs. We solve this system explicitly for a test case without regulatory constraints and numerically for the regulated case. We find that capital constraints can lead to a systemic crisis where a substantial proportion of the banking system defaults simultaneously. Moreover, we discuss proposals from the literature on macroprudential regulation. In particular, we show that in our setup a systemic crisis does not arise if the banking system is sufficiently well capitalized or if improved mechanisms for the resolution of banks violating the risk capital constraints are in place. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.17528&r= |
| By: | Igor Sadoune; Marcelin Joanis; Andrea Lodi |
| Abstract: | This paper introduces the Minimum Price Markov Game (MPMG), a dynamic variant of the Prisoner's Dilemma. The MPMG serves as a theoretical model and reasonable approximation of real-world first-price sealed-bid public auctions that follow the minimum price rule. The goal is to provide researchers and practitioners with a framework to study market fairness and regulation in both digitized and non-digitized public procurement processes, amidst growing concerns about algorithmic collusion in online markets. We demonstrate, using multi-agent reinforcement learning-driven artificial agents, that algorithmic tacit coordination is difficult to achieve in the MPMG when cooperation is not explicitly engineered. Paradoxically, our results highlight the robustness of the minimum price rule in an auction environment, but also show that it is not impervious to full-scale algorithmic collusion. These findings contribute to the ongoing debates about algorithmic pricing and its implications. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.03521&r= |
| By: | Xiaoli Wei; Xiang Yu; Fengyi Yuan |
| Abstract: | This paper studies the continuous-time q-learning in the mean-field jump-diffusion models from the representative agent's perspective. To overcome the challenge when the population distribution may not be directly observable, we introduce the integrated q-function in decoupled form (decoupled Iq-function) and establish its martingale characterization together with the value function, which provides a unified policy evaluation rule for both mean-field game (MFG) and mean-field control (MFC) problems. Moreover, depending on the task to solve the MFG or MFC problem, we can employ the decoupled Iq-function by different means to learn the mean-field equilibrium policy or the mean-field optimal policy respectively. As a result, we devise a unified q-learning algorithm for both MFG and MFC problems by utilizing all test policies stemming from the mean-field interactions. For several examples in the jump-diffusion setting, within and beyond the LQ framework, we can obtain the exact parameterization of the decoupled Iq-functions and the value functions, and illustrate our algorithm from the representative agent's perspective with satisfactory performance. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.04521&r= |
| By: | Wanying Huang |
| Abstract: | We study whether individuals can learn the informativeness of their information technology through social learning. As in the classic sequential social learning model, rational agents arrive in order and make decisions based on the past actions of others and their private signals. There is uncertainty regarding the informativeness of the common signal-generating process. We show that learning in this setting is not guaranteed, and depends crucially on the relative tail distributions of private beliefs induced by uninformative and informative signals. We identify the phenomenon of perpetual disagreement as the cause of learning and characterize learning in the canonical Gaussian environment. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.05299&r= |
| By: | Simon K. Schnyder; John J. Molina; Ryoichi Yamamoto; Matthew S. Turner |
| Abstract: | Faced with a dangerous epidemic humans will spontaneously social distance to reduce their risk of infection at a socio-economic cost. Compartmentalised epidemic models have been extended to include this endogenous decision making: Individuals choose their behaviour to optimise a utility function, self-consistently giving rise to population behaviour. Here we study the properties of the resulting Nash equilibria, in which no member of the population can gain an advantage by unilaterally adopting different behaviour. We leverage a new analytic solution to obtain, (1) a simple relationship between rational social distancing behaviour and the current number of infections; (2) new scaling results for how the infection peak and number of total cases depend on the cost of contracting the disease; (3) characteristic infection costs that divide regimes of strong and weak behavioural response and depend only on the basic reproduction number of the disease; (4) a closed form expression for the value of the utility. We discuss how these analytic results provide a deep and intuitive understanding into the disease dynamics, useful for both individuals and policymakers. In particular the relationship between social distancing and infections represents a heuristic that could be communicated to the population to encourage, or "bootstrap", rational behaviour. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.04366&r= |
| By: | Christian Ghiglino; Nicole Tabasso |
| Abstract: | Interaction with individuals from other socioeconomic classes has been shown to be a main driver for social mobility. We employ tools of social identity theory and network analysis to show how exposure to individuals of different social identities can lead to interactions with them, and an adoption of their identity, creating social mobility. We find that even if all individuals have the same ability, they may endogenously choose different identities, leading to different classes and actions. In particular, we derive a sufficient condition for such an equilibrium to exist, which equates to a novel measure of cohesion. Furthermore, we show that the most socially mobile individuals (changing their identity) are those who either have few connections or a more heterogeneous mix of identities in their connections. Finally, we show that upward social mobility increases action levels in society, but not necessarily welfare. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.10972&r= |
| By: | Luca Picariello (University of Naples "Federico II" and CSEF); Alexander Rodivilov (School of Business, Stevens Institute of Technology.) |
| Abstract: | We study a framework in which agents can generate signals to increase their expected productivity. Such signals can be generated in heterogeneous environments: a flexible system in which the agent can freely allocate effort across different tasks, and a rigid system in which the agent must devote effort to all tasks. We provide sufficient and necessary conditions for optimal experimentation in each system. Experimentation is less likely if the agent has high bargaining power. Competition within the Flexible system makes specialization more likely. When agents from different systems compete, there is a unique equilibrium where both agents experiment if the Rigid System is restrictive enough. |
| Keywords: | Career Concerns, Experimentation, Learning. |
| JEL: | D61 D83 I21 I23 I28 J63 J65 |
| Date: | 2024–06–26 |
| URL: | https://d.repec.org/n?u=RePEc:sef:csefwp:724&r= |
| By: | Toke S Aidt; Facundo Albornoz; Esther Hauk |
| Abstract: | This article explores the complex interplay between deforestation policies and foreign influence, using a game theoretical model to analyze geopolitical factors influencing forest conservation decisions in countries with significant rainforests. The model highlights the conflicting interests of foreign powers – one aiming for economic benefits from agriculture and the other advocating for forest preservation due to environmental services. The paper demonstrates how domestic political dynamics and economic shocks influence the regulatory decisions on deforestation. This understanding is crucial for formulating strategies that balance developmental needs and global environmental concerns. |
| Keywords: | Foreign influence, geopolitics, deforestation, food security, Brazil, China, rainforest. |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:not:notgep:2024-03&r= |
| By: | Elia Sartori (CSEF) |
| Abstract: | We study the distribution of goods that are freely duplicated and damaged. The monopolist solves a screening problem that is not cost-separable and requires a concave-linear preference specification to generate nontrivial allocations, associated with two interdependent inefficiencies: underacquisition and damaging. In a game where firms acquire market power through an irreversible investment, both monopoly and active competition emerge as equilibria. Despite worsening underacquisition and inducing double-spending, competition may increase welfare because it mitigates the damaging inefficiency by distributing a version for free. We discuss an application to information markets, where experts produce a signal and sell Blackwell-garbled versions of it. |
| Date: | 2024–06–20 |
| URL: | https://d.repec.org/n?u=RePEc:sef:csefwp:719&r= |
| By: | Ann-Christin Posten (University of Limerick); Pınar Uğurlar (Özyeğin University, Istanbul); Sebastian Kube (University of Bonn); Joris Lammers (University of Cologne) |
| Abstract: | An effective way to foster cooperation is to monitor behaviour and sanction freeriding. Yet, previous studies have shown that cooperation quickly declines when sanctioning mechanisms are removed. We test if explicitly expressing trust in players’ capability to maintain cooperation after the removal of sanctions, i.e. vertical communication of trust, has the potential to alleviate this drop in compliance. Four incentivized public-goods experiments (N = 2423) find that the vertical communication of trust maintains cooperation upon the removal of centralized (Study 1), third-party (Study 2), and peer punishment (Study 3), and this effect extends beyond single interactions (Study 4). In all studies, vertical trust communication increases mutual trust among players, providing support to the idea that vertically communicating trust can be a self-fulfilling prophecy. Extrapolating our findings to natural environments, they suggest that authorities should carefully consider how they communicate the lifting of rules and sanctions. |
| Keywords: | Cooperation, Vertical Trust, Punishment, Public Good, Experiment |
| JEL: | H4 D91 C92 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:323&r= |
| By: | Nahim Bin Zahur |
| Abstract: | In many capital-intensive markets, sellers sign long-term contracts with buyers before committing to sunk cost investments. Ex-ante contracts mitigate the risk of under-investment arising from ex-post bargaining. However, contractual rigidities reduce the ability of firms to respond flexibly to demand shocks. This paper provides an empirical analysis of this trade-off, focusing on the liquefied natural gas (LNG) industry, where long-term contracts account for over 70% of trade. I develop a model of contracting, investment and spot trade that incorporates bargaining frictions and contractual rigidities. I structurally estimate this model using a rich dataset of the LNG industry, employing a novel estimation strategy that utilizes the timing of contracting and investment decisions to infer bargaining power. I find that without long-term contracts, sellers would decrease investment by 27%, but allocative efficiency would significantly improve. Negative contracting externalities lead to inefficient over-use of long-term contracts in equilibrium. Policies aimed at eliminating contractual rigidities reduce investment by 16%, but raise welfare by 9%. |
| Keywords: | Long-term Contracts, Spot Markets, Under-investment, Nash Bargaining, Contracting Externalities, Market Power, Liquefied Natural Gas |
| JEL: | D22 D23 L14 L22 L42 Q41 |
| Date: | 2024–01 |
| URL: | https://d.repec.org/n?u=RePEc:qed:wpaper:1518&r= |