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on Game Theory |
| By: | Antoine Mandel; Van-Quy Nguyen; Bach Dong-Xuan |
| Abstract: | We provide a strategic model of the formation of production networks that subsumes the standard general equilibrium approach. The objective of firms in our setting is to choose their supply relationships so as to maximize their profit at the general equilibrium that unfolds. We show that this objective is equivalent to the maximization by the firms of their eigenvector centrality in the production network. As is common in network formation games based on centrality, there are multiple Nash equilibria in our setting. We have investigated the characteristics and the social efficiency of these equilibria in a stylized version of our model representing international trade networks. We show that the impact of network structure on social welfare is firstly determined by a trade-off between costs of increasing process complexity and positive spillovers on productivity induced by the diversification of the input mix. We further analyze a variant of our model that accounts for the risks of disruption of supply relationships. In this setting, we characterize how social welfare depends on the structure of the production network, the spatial distribution of risks, and the process of shock aggregation in supply chains. We finally show that simple trade policies characterized by sets of links that are either prevented or catalyzed can be a powerful equilibrium selection device. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.08929&r=gth |
| By: | Shaofei Jiang |
| Abstract: | I study a model of costly Bayesian persuasion by a privately and partially informed sender who conducts a public experiment. The cost of running an experiment is the expected reduction of a weighted log-likelihood ratio function of the sender's belief. This is microfounded by a Wald's sequential sampling problem where good news and bad news cost differently. I focus on equilibria that satisfy the D1 criterion. The equilibrium outcome depends on the relative costs of drawing good and bad news in the experiment. If bad news is more costly, there exists a unique separating equilibrium, and the receiver unambiguously benefits from the sender's private information. If good news is more costly, the single-crossing property fails. There may exist pooling and partial pooling equilibria, and in some equilibria, the receiver strictly suffers from sender private information. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.14087&r=gth |
| By: | András Simonovits (HUN-REN Centre for Economic and Regional Studies, BME MI) |
| Abstract: | John von Neumann (Budapest, 1903–Washington D.C., 1957) was an exceptional polymath, who made fundamental contributions to mathematical logics, functional analysis, quantum mechanics, game theory, computer architecture and automata theory. In this brief paper, I shall review the game-theoretic results of von Neumann and their legacy in an informal way. |
| Keywords: | Keywords: game theory |
| JEL: | B16 C7 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:2401&r=gth |
| By: | Hannes Wallimann; Silvio Sticher |
| Abstract: | We present a classroom game that integrates economics and data-science competencies. In the first two parts of the game, participants assume the roles of firms in a procurement market, where they must either adopt competitive behaviors or have the option to engage in collusion. Success in these parts hinges on their comprehension of market dynamics. In the third part of the game, participants transition to the role of competition-authority members. Drawing from recent literature on machine-learning-based cartel detection, they analyze the bids for patterns indicative of collusive (cartel) behavior. In this part of the game, success depends on data-science skills. We offer a detailed discussion on implementing the game, emphasizing considerations for accommodating diverging levels of preexisting knowledge in data science. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.14757&r=gth |
| By: | Daniel Krähmer (Universität Bonn) |
| Abstract: | The paper studies the canonical hold-up problem with one-sided investment by the buyer and full ex post bargaining power by the seller. The buyer can covertly choose any distribution of valuations at a cost and privately observes her valuation. The main result shows that in contrast to the well-understood case with linear costs, if investment costs are strictly convex in the buyer’s valuation distribution, the buyer’s equilibrium utility is strictly positive and to tal welfare is strictly higher than in the benchmark when valuations are public information, thus alleviating the hold-up problem. In fact, when costs are mean-based or display decreasing risk, the hold-up problem may disappear completely. Moreover, the buyer’s equilibrium utility and total welfare might be non-monotone in costs. The paper utilizes an equilibrium characterization in terms of the Gateaux derivative of the cost function. |
| Keywords: | Information Design, Hold-Up Problem, Unobservable Information |
| JEL: | C61 D42 D82 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:278&r=gth |
| By: | Maryam Bahrani; Pranav Garimidi; Tim Roughgarden |
| Abstract: | The goal of this paper is to rigorously interrogate conventional wisdom about centralization in block-building (due to, e.g., MEV and private order flow) and the outsourcing of block-building by validators to specialists (i.e., proposer-builder separation): 1. Does heterogeneity in skills and knowledge across block producers inevitably lead to centralization? 2. Does proposer-builder separation eliminate heterogeneity and preserve decentralization among proposers? This paper develops mathematical models and results that offer answers to these questions: 1. In a game-theoretic model with endogenous staking, heterogeneous block producer rewards, and staking costs, we quantify the extent to which heterogeneous rewards lead to concentration in the equilibrium staking distribution. 2. In a stochastic model in which heterogeneous block producers repeatedly reinvest rewards into staking, we quantify, as a function of the block producer heterogeneity, the rate at which stake concentrates on the most sophisticated block producers. 3. In a model with heterogeneous proposers and specialized builders, we quantify, as a function of the competitiveness of the builder ecosystem, the extent to which proposer-builder separation reduces the heterogeneity in rewards across different proposers. Our models and results take advantage of connections to contest design, P\'olya urn processes, and auction theory. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.12120&r=gth |
| By: | Roland Bénabou; Armin Falk; Luca Henkel |
| Abstract: | Choosing what is morally right can be based on the consequences (ends) resulting from the decision – the Consequentialist view – or on the conformity of the means involved with some overarching notion of duty – the Deontological view. Using a series of experiments, we investigate the overall prevalence and the consistency of consequentialist and deontological decision-making, when these two moral principles come into conflict. Our design includes a real-stakes version of the classical trolley dilemma, four novel games that induce ends-versus-means tradeoffs, and a rule-following task. These six main games are supplemented with six classical self-versus-other choice tasks, allowing us to relate consequential/deontological behavior to standard measures of prosociality. Across the six main games, we find a sizeable prevalence (20 to 44%) of nonconsequentialist choices by subjects, but no evidence of stable individual preference types across situations. In particular, trolley behavior predicts no other ends-versus-means choices. Instead, which moral principle prevails appears to be context-dependent. In contrast, we find a substantial level of consistency across self-versus-other decisions, but individuals’ degree of prosociality is unrelated to how they choose in ends-versus-means tradeoffs. |
| JEL: | C91 D01 D64 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32073&r=gth |
| By: | Dirk Bergemann; Tibor Heumann; Michael C. Wang |
| Abstract: | We analyze the welfare impact of a monopolist able to segment a multiproduct market and offer differentiated price menus within each segment. We characterize a family of extremal distributions such that all achievable welfare outcomes can be reached by selecting segments from within these distributions. This family of distributions arises as the solution to the consumer maximizing distribution of values for multigood markets. With these results, we analyze the effect of segmentation on consumer surplus and prices in both interior and extremal markets, including conditions under which there exists a segmentation benefiting all consumers. Finally, we present an efficient algorithm for computing segmentations. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.12366&r=gth |
| By: | Anomita Ghosh (National Council of Applied Economic Research); Rupayan Pal (Indira Gandhi Institute of Development Research (IGIDR)) |
| Abstract: | This paper examines strategic trade policy for differentiated network-goods oligopolies under alternative scenarios when there is export-rivalry between two countries. We demonstrate that, in the absence of managerial delegation, the optimal trade policy entails an export tax (subsidy) if network externalities are weak (strong). However, when price competition is combined with managerial delegation, the opposite is true. Subsidizing exports, on the other hand, is always optimal under quantity competition. We also show that the welfare consequences of strategic trade policy depend not only on the mode of product market competition, but also on firms’ internal organizations and the strength of network externalities. |
| Keywords: | Strategic trade policy, network goods, relative-performance based managerial delegation, price competition, quantity competition. |
| JEL: | F12 F13 L13 L22 D21 |
| Date: | 2024–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:nca:ncaerw:152&r=gth |
| By: | Chengyi Tu; Renfei Chen; Ying Fan; Yongliang Yang |
| Abstract: | Common-pool resource governance requires users to cooperate and avoid overexploitation, but defection and free-riding often undermine cooperation. We model a human-environmental system that integrates dynamics of resource and users' strategies. The resource follows a logistic function that depends on natural growth rate, carrying capacity, and extraction rates of cooperators and defectors. The users' strategies evolve according to different processes that capture effects of payoff, resource, and noise. We analyze the feedback between resource availability and strategic adaptation, and explores the conditions for the emergence and maintenance of cooperation. We find different processes lead to different regimes of equilibrium solutions and resource levels depending on the parameter configuration and initial conditions. We also show that some processes can enhance the sustainability of the resource by making the users more responsive to the resource scarcity. The paper advances the understanding of human-environmental system and offers insights for resource governance policies and interventions. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.11269&r=gth |
| By: | Marco Scarsini; Eran Shmaya |
| Abstract: | We consider an M/M/1 queueing model where customers can strategically decide whether to join the queue or balk and when to renege. We characterize the class of queueing regimes such that, for any parameters of the model, the socially efficient behavior is an equilibrium outcome. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.13812&r=gth |
| By: | Ville Korpela; Michele Lombardi; Riccardo D. Saulle |
| Abstract: | We fully identify the class of social choice functions that are implementable in von Neumann Morgenstern (vNM) stable sets (von Neumann and Morgenstern, 1944) by a rights structure. A rights structure formalizes the idea of power distribution in a society. Following the so-called Harsanyi’s critique (Harsanyi, 1974), we also study the implementation of social choice correspondences in strict vNM stable sets |
| Keywords: | vNM Stable Set, Implementation, Rights Structures |
| JEL: | C71 D02 D71 D82 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:liv:livedp:202313&r=gth |
| By: | Andrew W. Macpherson |
| Abstract: | We study a new "laminated" queueing model for orders on batched trading venues such as decentralised exchanges. The model aims to capture and generalise transaction queueing infrastructure that has arisen to organise MEV activity on public blockchains such as Ethereum, providing convenient channels for sophisticated agents to extract value by acting on end-user order flow by performing arbitrage and related HFT activities. In our model, market orders are interspersed with orders created by arbitrageurs that under idealised conditions reset the marginal price to a global equilibrium between each trade, improving predictability of execution for liquidity traders. If an arbitrageur has a chance to land multiple opportunities in a row, he may attempt to manipulate the execution price of the intervening market order by a probabilistic blind sandwiching strategy. To study how bad this manipulation can get, we introduce and bound a price manipulation coefficient that measures the deviation from global equilibrium of local pricing quoted by a rational arbitrageur. We exhibit cases in which this coefficient is well approximated by a "zeta value' with interpretable and empirically measurable parameters. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.08302&r=gth |
| By: | Ziv Hellman; Miklos Pinter |
| Abstract: | We consider finite information structures, and quest for the answer of the question: What is the proper definition of prior? In the single player setting we conclude that a probability distribution is a prior if it is disintegrable, because this definition excludes money pump. In the multiplayer setting our analysis does not boil down to one proper notion of common prior (the multiplayer version of prior). The appropriate notion is a choice of the modeller in this setting. We consider three variants of money pump, each "defines" a notion of common prior. Furthermore, we also consider three variants of trade, each correspond to one of the money pump variants, hence to one of the common prior variants. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.13132&r=gth |
| By: | Martimort, David; Pouyet, Jérôme |
| Abstract: | Pay-TV firms compete both downstream to attract viewers and upstream to acquire broadcasting rights. Because profits inherited from downstream competition satisfy a convexity property, allocating rights to the dominant firm maximizes the industry profit. Such an exclusive allocation of rights emerges as a robust equilibrium outcome but may fail to maximize welfare. We analyze whether a ban on resale and a ban on package bidding may improve welfare. These corrective policies have no impact on the final allocation but lead to profit redistribution along the value chain. |
| Keywords: | Broadcasting rights; Upstream and downstream competition; Exclusivity |
| JEL: | L13 L42 |
| Date: | 2024–01–23 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:129026&r=gth |