|
on Game Theory |
| By: | Le Breton, Michel; Konishi, H.; Weber, Shlomo |
| Abstract: | In this paper, we define additive dyadic social interactions games (ADG), in which each player cares not only about the selected action, but also about interactions with other players, especially those who choose the same action. This class of games includes alliance formation games, network games, and discrete choice problems with network externalities. While it is known that games in the ADG class admit a pure strategy Nash equilibrium that is a maximizer of the game ís potential, the potential approach does not always apply if all coalitional deviations are allowed. In this paper, we systematically identify both restrictions on possible coalitional deviations to preserve the potential function and types of equilibria that ensures their existence for various subclasses of ADG or its subclasses, extending the approach taken by Le Breton et al. (2021). An additional avenue of our results is the examination of games with outside option which expand the set of alternatives. Although this modification complicates the analysis significantly, positive results are obtained with different class of restrictions. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:132076 |
| By: | Lukas-Benedikt Fiechtner; Jose Blanchet |
| Abstract: | We study strategic trading around index reconstitution in a continuous-time, multiasset game with transient cross-asset price impact and heterogeneous beliefs about future index membership. Opportunistic traders position before a public announcement, adjust to the revealed composition, and trade around an indexer following a prescribed execution schedule. Under a no-price-manipulation condition, we construct a subgame-perfect Nash equilibrium on every finite horizon. The affine feedback policies are computed from a non-standard matrix Riccati equation and linear ordinary differential equations whose number and dimensions do not grow with the number of traders. Aggregate inventories and price impact depend on beliefs only through the population-average belief, while differences in beliefs affect individual inventory positions. Under mean-field scaling, we construct a mean-field equilibrium and obtain quantitative convergence and approximate-Nash bounds. Numerical illustrations show how competition and impact decay determine the balance between adverse price displacement from anticipatory trading and savings in the indexer's execution costs when opportunists trade against its orders during implementation. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.15901 |
| By: | Hattori, Keisuke; Yoshikawa, Takeshi |
| Abstract: | Entry is commonly thought to harm incumbents in Cournot markets. This paper shows that this need not hold under coopetition. We analyze a two-stage Cournot oligopoly where symmetric firms first invest non-cooperatively in shared demand-expanding activities with non-excludable benefits and then compete in quantities. With convex production costs, entry can increase individual-firm profits despite intensified competition. We further show that this non-monotonicity can create a low-entry trap: no firm enters even though an active equilibrium would be profitable for firms and beneficial to consumers. Because the active equilibrium is self-sustaining, a finite one-time "big push" that assembles a critical mass of entrants suffices to escape the trap-whereas in a standard monotone market with unprofitable monopoly entry, every entrant would require support. The push can be implemented through transitional entry subsidies or coordinated public "seed" investment in the shared activity, and we characterize which instrument is cheaper and when each pays for itself in total surplus. |
| Keywords: | Coopetition, Profit-increasing entry, Critical mass, Low-entry trap, Cournot oligopoly |
| JEL: | D43 L13 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:343408 |
| By: | Marcus Giamattei (Frankfurt School of Finance and Management); Pierfrancesco Alaimo di Loro (LUMSA University, Rome, Italy; HURfuture Research Center); Matteo Rizzolli (GEPLI Department, LUMSA University, Rome, Italy; HURfuture Research Center); Stefan Voigt (Hamburg University) |
| Abstract: | We test the replicability of ten stylized facts about voluntary contributions to public goods using a large crowd-sourced dataset of classroom experiments on the classEx platform. Our sample comprises 81, 391 contribution decisions by 10, 891 players across 377 sessions in 16 countries (2019-2025). Five facts replicate: initial contributions above Nash (37.6% of endowment), non-zero final-round contributions (38.7%), conditional cooperation as the modal behavioral type, imperfect matching, and cross-country heterogeneity. One is partially confirmed (a modest end-game effect) and one is weakly supported (a positive MPCR effect, sensitive to country fixed effects). Three do not replicate. Contributions follow a hump-shaped trajectory - rising through round 5, plateauing, then gently declining - rather than the canonical decline. Only 34.4% of players free-ride in the final round (vs. the laboratory benchmark of over 70%), while a substantial minority (22.1%) sustain full cooperation. Societal indicators do not predict country-level cooperation, partly because cross-country variation explains only 0.8% of individual contribution variance - an order of magnitude less than organization-level heterogeneity (6.8%). Taken together, the canonical behavioral building blocks of the public goods game reproduce in the classroom, whereas several of its dynamic and cross-country regularities - most notably the absence of the canonical decline - do not. (Includes Online Appendix with experimental interface and additional figures.) |
| Keywords: | Public goods game; Cooperation; Replication; Classroom experiments; ClassEx; Conditional cooperation |
| JEL: | C91 C92 D70 H41 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:lsa:wphurf:wphurf05 |
| By: | Ali Moghaddasi Kelishomi (Loughborough University); Daniel Sgroi (University of Warwick); Andis Sofianos (Durham University) |
| Abstract: | How does rationality shape cooperation in strategic settings? We study this question in a laboratory experiment that links individual rationality, measured by consistency with the generalized axiom of revealed preference, to behaviour in an indefinitely repeated Prisoner’s Dilemma. Participants are grouped by pre-measured rationality before interacting repeatedly. We find that higher rationality substantially increases cooperation and payoffs. This effect operates through a novel mechanism: more rational individuals make fewer implementation errors when executing their intended strategies, thereby sustaining cooperative outcomes. By contrast, higher cognitive ability also promotes cooperation and higher payoffs, but through a distinct channel—reducing strategic errors in responding optimally to others’ actions. Our results provide the first experimental evidence linking rationality to cooperation via decision-making errors, and clarify the distinct roles of rationality and intelligence in shaping strategic behaviour. Together, the findings offer a unified account of how cognitive constraints affect cooperation in repeated games |
| Keywords: | Repeated Prisoners Dilemma, Cooperation, Rationality, Intelligence, Learning, Strategy Errors JEL codes: C73, C91, C92, D83 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:wrk:warwec:1630 |
| By: | Gerrit Bauch; Arthur Dolgopolov; Manuel Foerster |
| Abstract: | We investigate the strategic communication of narratives under model uncertainty. The sender has private information about the true data-generating process of publicly observable data. The receiver is uncertain about how to interpret the data, but aware of the sender's incentives to strategically provide interpretations (``narratives''). We theoretically show that the size of the conflict of interest between the sender and the receiver is a crucial determinant of equilibrium communication. In particular, the stronger the sender's bias, (i) the more senders exaggerate their information and (ii) the more receivers correct the sender's action recommendations. In a laboratory experiment, we find evidence in line with both predictions, suggesting that people in complex and uncertain environments take a narrator's strategic incentives into account. Additional analyses reveal that narrative likelihood does not drive receiver behavior and that narratives are, on average, slightly persuasive only when bias is low. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.10074 |
| By: | Takeshi Nishimura; Nobuyuki Hanaki |
| Abstract: | We provide experimental evidence on entry and bidding behavior in surplusextracting auctions built on the second-price format. In addition to the simple second-price auction, we consider full- and partial-surplus-extracting auctions. The latter leaves more surplus to bidders under full entry than the former, while preserving the same set of undominated strategies: value bidding and opting out. In contrast to the second-price auction, both auctions exhibit lower entry and overbidding among entrants. Our findings highlight the interplay between entry and bidding behavior, shedding light on the trade-off between surplus extraction and strategic simplicity in auction design with voluntary participation. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1266r |
| By: | Jaap Roelen (University of Amsterdam); Martijn Ketelaars (Tilburg University); Peter Kort (Tilburg University) |
| Abstract: | This article studies subsidy competition in a two-country-two-firm model incorporating bilateral trade, consumer distribution, and a shadow cost of public funds. Governments choose subsidies to maximize domestic or international welfare, with cooperation defined by subsidy choices maximizing international welfare. Under equal consumer bases, the subsidy game is a prisoner's dilemma if and only if the shadow cost is positive. This creates an opportunity for cooperation; without cooperation, however, governments oversubsidize their firms. We find that incentives to cooperate increase with the shadow cost. However, sufficiently unequal consumer distributions can eliminate the prisoner's dilemma, removing the larger country's incentive to cooperate. |
| Keywords: | Bilateral Trade, International Duopoly, Prisoner's Dilemma, Shadow Cost of Public Funds, Subsidy |
| JEL: | D43 F12 H20 |
| Date: | 2026–09–20 |
| URL: | https://d.repec.org/n?u=RePEc:tin:wpaper:20260071 |
| By: | Steven Kivinen (University of Graz, Austria); Christoph Kuzmics (University of Graz, Austria) |
| Abstract: | We study communication between an informed Expert and an uninformed Decision-Maker who face a sequence of decision problems with conflicting interests. Even when both are patient and monitoring is public the Decision-Maker's most-preferred outcome is not credibly sustainable. Any strategy that implements it necessarily involves threats that are not immune to renegotiation. Any credible and efficient equilibrium entails a compromise, thereby giving the Expert information rents. The Decision-Maker's best credible efficient equilibrium varies with the preferences of the Expert and with the Decision Maker's initial uncertainty. |
| Keywords: | cheap talk, renegotiation, information transmission, persuasion |
| JEL: | C72 C73 D83 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:grz:wpaper:2026-19 |
| By: | Haojie Liu; Zihan Lin |
| Abstract: | Observed choice in a dynamic game mixes current profit with continuation value. A rival adds a second problem: the same comparison averages over the rival's equilibrium policy. Changing the primitive transition rewrites continuation technology; changing the rival's Markov policy, holding that law fixed, rewrites the mixture over rival-contingent payoffs. The two are not substitutes. For a rival-feature payoff of rank $K$, rank identification up to location requires $\Ephi=\lceil(MK-1)/(M-1)\rceil$ policy environments, and a second kernel when payoffs are saturated. Rank can still be restored by arbitrarily small policy differences. Independent private shocks force mixed rival actions to factor, so a payoff that depends jointly on $d$ rivals is visible only at order $\eta^{d}$ near a common interior baseline. Either rank fails or the smallest identified singular value is at most $\kappa\eta^{\dPhi}$, independently of how many kernels are stacked. Oracle-GLS variance in that direction vanishes only if $n\eta^{2\dPhi}$ diverges. An Anderson--Rubin set that carries first-stage error in the design matrix covers without a vanishing-risk condition. On U.S.\ airline entry, even among rank-identified directions, the most favorable rival-dependent contrast is several times wider than observed behavior. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.14069 |
| By: | Hey, Florian; Budzinski, Oliver |
| Abstract: | We develop a sequential game-theoretic model to analyze the compliance incentives of digital gatekeepers under the European Union's Digital Markets Act (DMA). A gatekeeper chooses between full compliance and strategic compliance - a strategy of tactical, superficially lawful implementation that preserves a larger share of monopoly rents. The European Commission decides whether to accept the gatekeeper's compliance or initiate enforcement proceedings. Using backward induction, we show that in high-impact markets, the gatekeeper's equilibrium strategy is strategic compliance, investing in legal complexity to deter enforcement. In low-impact markets, full compliance is the equilibrium outcome. We extend the base model by endogenizing the Commission's enforcement incentives, modeled as increasing in the fine imposed, and derive conditions under which raising fines may paradoxically fail to induce full compliance. The model contributes to an emerging literature on regulatory compliance in digital markets and identifies the negotiation-oriented nature of DMA enforcement as a key determinant of strategic gatekeeper behavior. |
| Keywords: | antitrust, Digital Markets Act (DMA), gatekeeper, platform regulation, strategic compliance |
| JEL: | C72 K20 K21 L40 L51 L86 M21 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:tuiedp:343557 |
| By: | Mira Frick; Ryota Iijima; Yuhta Ishii; Nicholas Wu |
| Abstract: | Consider an auction with buyers whose values depend on an underlying state (e.g., market fundamentals). How does the auction format shape the information that buyers' bids reveal about the state? We recast auctions as statistical experiments and compare different auction formats in terms of the (Lehmann) informativeness of the induced experiments. Our main finding is that among a large class of auctions (e.g., $k$th-price, all-pay), the first-price auction is the most informative. As a result, this auction guarantees the highest payoffs to a decision-maker who uses the information revealed by buyers' bids in a monotone decision problem (e.g., a prediction problem or the choice of a reserve price in a future auction). |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.21168 |
| By: | Yu Liu; Wenwen Li; Yifan Dou; Guangnan Ye |
| Abstract: | In-context learning (ICL) enables large language model (LLM) agents to improve decisions using interaction history, yet it remains unclear whether such improvement reflects refined internal reasoning or mere extrapolation of statistical patterns. To disentangle these mechanisms, we study LLM agents in multi-agent incomplete-information games that require recursive belief reasoning. By constructing a public goods game and manipulating the statistical structure of historical feedback, we evaluate decision quality against a history-independent rational expectations equilibrium (REE) benchmark. Our experiments reveal that when historical statistical patterns are disrupted, the benefits of longer context largely vanish, degrading decision quality to the no-context baseline in a way sharply amplified by stronger strategic interdependence. These results suggest that, in such strategic environments, ICL behavior is more consistent with statistical extrapolation than with strategic reasoning. Our work extends the mechanistic study of ICL to strategic multi-agent settings, introduces REE as a diagnostic tool for distinguishing reasoning from extrapolation, and provides a reusable framework for probing the boundaries of LLM reasoning in recursive belief tasks. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.18591 |
| By: | Mehdi Davoudi; Minghao Mou; Junjie Qin |
| Abstract: | This paper studies the strategic market participation of a monopolistic energy storage aggregator (ESA) in a day-ahead electricity market. The ESA coordinates geographically distributed storage units, submits a coordinated bid for its portfolio, and may hold financial transmission rights (FTRs). The system operator clears the market through a network-constrained, multi-period economic dispatch, determining generation and load schedules, nodal prices, energy-market payments, and FTR payoffs. We formulate the ESA--system-operator interaction as a Stackelberg game and characterize its equilibrium through a constraint-binding-pattern decomposition of the market-clearing problem. Beyond enabling equilibrium computation, the framework reveals how the ESA can increase its profit by strategically inducing or avoiding particular constraint-binding patterns. It also establishes a novel welfare result: although strategic storage without FTRs is known to weakly improve social welfare relative to the no-storage case, certain FTR positions can overturn this guarantee by strengthening the ESA's incentive to induce particular patterns, causing social welfare to fall below the no-storage level. Motivated by these findings, we develop two system-operator mechanisms for limiting undesirable ESA behavior and its adverse effects on market outcomes and social welfare. Finally, a three-bus study illustrates the theoretical findings, while IEEE test systems demonstrate the scalability of the proposed method. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.15755 |
| By: | Chizhe Cheng; Paan Jindapon; Ajalavat Viriyavipart |
| Abstract: | Informal risk sharing enables individuals to smooth consumption when access to formal insurance is limited. While previous studies have examined the roles of income correlation and initial income inequality, little is known about how differences in individual risk exposure affect voluntary risk sharing. We investigate this question using a laboratory experiment based on an indefinitely repeated risk-sharing game. Subjects are randomly assigned to either homogeneous income risk, in which both members of a pair face the same level of risk, or heterogeneous income risk, in which one subject faces high income risk and the other faces low income risk. The benchmark repeated-game model predicts that transfers should be highest under homogeneous high income risk and lower, but comparable, under homogeneous low income risk and heterogeneous income risk. Consistent with this prediction, transfers are higher when both subjects face high income risk than when both face low income risk. However, subjects facing heterogeneous income risk exhibit a higher incidence of positive transfers than those in the homogeneous-risk configurations. Although average transfers under heterogeneous income risk lie between those observed under homogeneous high and homogeneous low income risk, they are considerably closer to the former than the latter. These findings provide the first experimental evidence that heterogeneous income risk does not undermine voluntary risk sharing and may instead encourage greater participation in reciprocal transfer arrangements. |
| Keywords: | Risk sharing; Heterogeneous risk; Cooperation; Infinitely repeated games; Economic experiment |
| JEL: | D81 C91 C73 O17 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:pui:dpaper:262 |
| By: | Dmitry Aldokhin (Bank of Russia, Russian Federation); Anton Belyakov (Bank of Russia, Russian Federation Author-Name: Elena Deryugina Author-Email: DeryuginaEB@cbr.ru Author-Workplace-Name: Bank of Russia, Russian Federation Author-Name: Alexey Ponomarenko Author-Email: PonomarenkoAA@cbr.ru Author-Workplace-Name: Bank of Russia, Russian Federation) |
| Abstract: | We model the deposit market, where commercial banks compete using deposit interest rates, and depositors initially distributed among banks, when switching to another bank, bear the exogenous switching costs associated with a lack of information and money transfer fee. We consider both discrete and continuous distribution of depositors over switching costs and find equilibria in pure strategies. The theoretical model in hand allows us to explain the empirically observed negative relation between the size of a bank and its weighted average deposit rate. We show that this dependence may be the result of the history of the banking market formation. Initially, established banks could manage to obtain a majority of depositors with high switching costs, while depositors with low costs could be lost to newly emerging banks. Because of this, previously established banks can set lower deposit rates without fear that their depositors will switch to competitors, and maintain a large share of all depositors in the market. It follows from the analysis that the division of large banks into smaller ones will not lead to an increase in their deposit interest rates, but on the contrary, may even increase discrimination against depositors with high transition costs. It is the reduction of depositors’ switching costs that makes banks to raise deposit rates and thus increase public welfare. |
| Keywords: | : banks, deposits, switching costs, Nash equilibrium, equilibrium in secure strategies, welfare |
| JEL: | D42 D43 D60 E58 G21 L13 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:bkr:wpaper:wp_151 |
| By: | Frank Stähler; Andrea Tulli |
| Abstract: | We study bidding in a broad class of price-based procurement mechanisms in which the lowest bid does not always win. These mechanisms are used when cost overruns and non-compliance affect contract execution. We first characterize equilibrium bidding behavior in a general setting with endogenous winning probabilities. We then analyze mixed auction formats in which bidders face uncertainty about the allocation rule, as in the Italian system where a lowest-price or average bid rule is selected based on participation. We show that increasing reliance on the latter can improve compliance but raises bids and expected payments, highlighting a trade-off between contract performance and low award prices. |
| Keywords: | procurement, average bid auction, cost overrun |
| JEL: | H57 D44 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12970 |
| By: | Natalie Collina; Surbhi Goel; Aaron Roth; Sikata Bela Sengupta |
| Abstract: | Long-running AI agents create a control problem: each action they take changes the state, which in turn affects the trajectory of future actions. If the agent is not fully aligned, then guaranteeing safety requires approving consequential actions before allowing them to be executed. But requiring human approval at every step makes attention a bottleneck. Delegating review to other AI agents raises the same alignment problem: the reviewers may themselves be misaligned. We identify a condition on a reviewing panel that is weaker than individual alignment yet necessary and sufficient for a guarantee that the principal fares at least as well in expectation as under a designated baseline policy. Each reviewer agent reports whether an action proposal made by a proposer agent improves its own utility relative to the baseline. We show that a threshold rule tolerating $k$ disapprovals is safe exactly when, after any $k$ reviewers are removed, the principal's utility can be written as a nonnegative combination of the remaining reviewers' utilities, plus a term that is nonnegative on every feasible proposal. We call this property $k$-robust coalitional alignment. The characterization lifts to sequential control: in a discounted MDP with an arbitrary proposer agent, safety at every state is both necessary and sufficient for the induced policy to match or improve on the baseline. When reviewers vote strategically, full-panel coverage in reward-function space guarantees that every Nash equilibrium is safe under the unanimous approval rule; in contrast, more permissive thresholds can admit unsafe equilibria even when reviewers are individually aligned. Experiments with existing reviewer models show that collective review can remain sound without an aligned individual, even when some disapprovals are tolerated. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.15803 |
| By: | Wei Li (Shanghai Jiaotong University); Jie Ouyang (Hong Kong Baptist University); Bin Qiu (Southeast University); Zi Wang (Hong Kong Baptist University); Yuan Zi (Graduate Institute of International and Development Studies) |
| Abstract: | Modern protectionism has increasingly taken the form of decentralized trade coercion rather than multilateral escalation. What tariffs prevail in such local trade wars? How are welfare consequences shared between participants and bystanders? And can targeted economies credibly deter unilateralism? Using a multi-country, multi-sector Armington model that distinguishes the elasticity of substitution between domestic and imported goods from that across foreign varieties, we show that bilateral tariffs generate substantial third-market leakage. Applied to recent U.S. trade policy, this leakage magnifies U.S. losses and bystander gains under Trump 1.0, with bilateral Nash tariffs that are lower but more costly than those implied by standard models with a uniform trade elasticity. Trump 2.0's Liberation Day tariffs reverse these patterns by largely shutting down third-market leakage through broad-based tariff escalation. In a dynamic setting, no individual trading partner can credibly deter U.S. unilateralism: bilateral retaliation is either too weak or too costly. Only a near-universal coalition, broadly resembling the WTO membership, can flip U.S. incentives. |
| Keywords: | Local Trade Wars; Third-Market Leakage; Bilateral Tariffs; Unilateral Protectionism; Strategic Deterrence |
| JEL: | F10 F13 F14 |
| Date: | 2026–09–18 |
| URL: | https://d.repec.org/n?u=RePEc:gii:giihei:heidwp26-2026 |
| By: | Kevin Dano; Bryan S. Graham; Yassine Sbai Sassi |
| Abstract: | In social and economic networks linked agents often share connections in common. There are two competing explanations for this phenomenon. First, agents may have a structural taste for transitive links - the returns to linking may be higher if two agents share a common connection. Second, agents may assortatively match on unobserved attributes, a process called homophily. We study parameter identifiability in a simple model of dynamic network formation with both effects. Agents form, maintain, and dissolve links over time to maximize utility. The return to linking may be higher if agents share connections in common. A pair-specific utility component allows for arbitrary homophily on time-invariant agent attributes. We derive conditions under which it is possible to detect the presence of a taste for transitivity in the presence of assortative matching on unobservables. We leave the joint distribution of the initial network and the pair-specific utility component, both high dimensional nuisance parameters, unrestricted. Our identification result is constructive, suggesting an analog estimator, whose finite and (single) large network properties we characterize. We show, via examples, the delicacy of information accumulation in the single (large) network setting. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.14049 |
| By: | Mauro Marè (Luiss University); Francesco Porcelli (Sapienza University of Rome); Francesco Vidoli (Department of Economics, Society & Politics, Università di Urbino Carlo Bo) |
| Abstract: | Tax expenditures are delivered through many legally distinct provisions rather than through a few salient programs. We argue that the number of provisions, not the aggregate revenue foregone, is the margin on which their political economy operates. We develop a three-agent model in which a rent-seeking firm lobbies for tax expenditures, a vote-maximizing politician chooses visible public goods, the volume of tax expenditures and the number of provisions through which they are delivered, and a Treasury official with an institutional preference for budget transparency can expose their hidden cost at the risk of political retaliation. Fiscal illusion is micro-founded as an increasing, concave function of the number of provisions, so that fragmentation is the channel through which opacity is produced. In the subgameperfect equilibrium, a stronger Treasury enforces more, and stronger enforcement reduces both the volume and the fragmentation of tax expenditures while leaving visible public goods essentially unchanged. The number of provisions has no source of variation independent of the opacity mechanism, whereas revenue foregone also reflects legitimate redistributive demand: the count of provisions is therefore a structurally cleaner signal of political capture than the aggregate fiscal magnitude, and institutional quality should discipline fragmentation more robustly than volume. The model yields three testable hypotheses for cross-country data in which provisions are counted separately from revenue foregone. |
| Keywords: | Tax Expenditures, Fragmentation, Fiscal Illusion, Lobbying, Budget Institutions |
| JEL: | D72 D78 H20 H30 H61 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:urb:wpaper:26_02 |