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on Microeconomics |
| By: | Schumacher, Heiner; Thysen, Heidi |
| Abstract: | We study an informed-principal framework in which the principal chooses the variables the agent is aware of. The agent fits a causal model connecting these variables to the objective probability distribution. The principal may keep her unaware of some variables so that she incorrectly extrapolates how non-equilibrium actions map into outcomes. This framework captures models of contracting with unaware agents, shrouded attributes, and overconfidence in a unified manner. |
| JEL: | D03 D82 D86 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc17:168085&r=mic |
| By: | Lester, Benjamin (Federal Reserve Bank of Philadelphia); Shourideh, Ali (Carnegie Mellon University); Venkateswaran, Venky (NYU – Stern School of Business); Zetlin-Jones, Ariel (Carnegie Mellon University) |
| Abstract: | We incorporate a search-theoretic model of imperfect competition into a standard model of asymmetric information with unrestricted contracts. We characterize the unique equilibrium, and use our characterization to explore the interaction between adverse selection, screening, and imperfect competition. We show that the relationship between an agent’s type, the quantity he trades, and the price he pays is jointly determined by the severity of adverse selection and the concentration of market power. Therefore, quantifying the effects of adverse selection requires controlling for market structure. We also show that increasing competition and reducing informational asymmetries can decrease welfare. |
| Keywords: | Adverse Selection; Imperfect Competition; Screening; Transparency; Search Theory |
| JEL: | D41 D42 D43 D82 D83 D86 L13 |
| Date: | 2017–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:17-35&r=mic |
| By: | Yassine Lefouili (Toulouse School of Economics, university of Toulouse Capitole, Toulouse, France.); Joana Pinho (Catolica Porto Business School and CEF.UP, Universidade do Porto, Porto, Portugal.) |
| Abstract: | This paper explores the incentives for, and the effects of, collusion in prices between two-sided platforms. We characterize the most profitable sustainable agreement when platforms collude on both sides of the market and when they collude on a single side of the market. Under two-sided collusion, prices on both sides are higher than competitive prices, implying that agents on both sides become worse off as compared to the competitive outcome. An increase in cross-group externalities makes two-sided collusion at a given profit level harder to sustain, and reduces the harm from collusion suffered by the agents on a given side as long as the collusive price on that side is lower than the monopoly price. When platforms collude on a single side of the market, the price on the collusive side is lower (higher) than the competitive price if the magnitude of the cross-group externalities exerted on that side is sufficiently large (small). As a result, one-sided collusion may benefit the agents on the collusive side and harm the agents on the competitive side. |
| Keywords: | collusion; two-sided markets; cross-group externalities. |
| JEL: | L41 D43 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1705&r=mic |
| By: | Christian Ewerhart |
| Abstract: | While smooth exact potential games are easily characterized in terms of the cross-derivatives of players' payoff functions, an analogous differentiable characterization of ordinal or generalized ordinal potential games has been elusive for a long time. In this paper, it is shown that the existence of a generalized ordinal potential in a smooth game with multi-dimensional strategy spaces is crucially linked to the semipositivity (Fiedler and Ptak, 1966) of a modified Jacobian matrix on the set of interior strategy profiles at which at least two first-order conditions hold. Our findings imply, in particular, that any generalized ordinal potential game must exhibit pairwise strategic complements or substitutes at any interior Cournot-Nash equilibrium. Moreover, provided that there are more than two players, the cross-derivatives at any interior equilibrium must satisfy a rather stringent equality constraint. The two conditions, which may be conveniently condensed into a local variant of the differentiable condition for weighted potential games, are made explicit for sum-aggregative games, symmetric games, and two-person zero-sum games. For the purpose of illustration, the results are applied to classic games, including probabilistic all-pay contests with heterogeneous valuations, models of mixed oligopoly, and Cournot games with a dominant firm. |
| Keywords: | Ordinal potentials, smooth games, strategic complements and substitutes, semipositive matrices |
| JEL: | C6 C72 D43 D72 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:265&r=mic |
| By: | Burak Can (Department of Economics, School of Business and Economics, Maastricht University); Ali Ihsan Ozkes (Aix-Marseille Univ. (Aix-Marseille School of Economics), CNRS, EHESS and Centrale Marseille); Ton Storcken (Department of Quantitative Economics, Maastricht University) |
| Abstract: | We provide axiomatic characterizations for measures of polarization in profiles of preferences that are represented as rankings of alternatives. Polarization is seen as the extent to which opinions are opposed. We provide characterizations for an extension of this simple intuition on the pairs of alternatives to the cases with more than two alternatives. Our primary generalization allows for different treatment among issues, i.e., pairs of alternatives. Secondly, we show that the characterization result continues to hold when preferences are allowed to attain indifferences. Finally, we show that we can also impose a domain restriction that only allows for single-peaked preferences and retain our characterization. Our results point to a fundamental feature of measures on profile of preferences that are based on pairwise comparisons of alternatives. |
| Keywords: | polarization, measurement, Social Choice, single-peaked preferences |
| JEL: | D63 D71 D72 D74 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1734&r=mic |
| By: | Gilles Saint-Paul; Davide Ticchi; Andrea Vindigni |
| Abstract: | If people understand that some macroeconomic policies are unsustainable, why would they vote for them in the first place? We develop a political economy theory of the endogenous emergence of fiscal crises, based on the idea that the adjustment mechanism to a crisis favors some social groups, that may be induced ex-ante to vote in favor of policies that are more likely to lead to a crisis. People are entitled to a certain level of a publicly provided good, which may be rationed in times of crises. After voting on that level, society votes on the extend to which it will be financed by debt. Under bad enough macro shocks, a crisis arises: taxes are set at their maximum but despite that some agents do not get their entitlement. Some social groups do better in this rationing process than others. We show that public debt - which makes crises more likely - is higher, as is the probability of a crisis, the greater the level of favoritism. If the favored group is important enough to be pivotal when society votes on the entitlement level, favoritism also leads to greater public expenditure. We show that the favored group may strategically favor a weaker state in order to make crises more frequent. Finally, the decisive voter when choosing expenditure may be different from the one when voting on debt. In such a case, constitutional limits on debt may raise the utility of all the poor, relative to the equilibrium outcome absent such limits. |
| Keywords: | political economy, fiscal crises, favoritism, entitlements, public debt, inequality, state capacity |
| JEL: | E62 F34 H12 H60 O11 P16 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6657&r=mic |
| By: | Pierre C. Boyer; Kai A. Konrad; Brian Roberson |
| Abstract: | We consider campaign competition in which candidates compete for votes among a continuum of voters by engaging in persuasive efforts that are targetable. Each individual voter is persuaded by campaign effort and votes for the candidate who targets more persuasive effort to this voter. Each candidate chooses a level of total campaign effort and allocates their effort among the set of voters. We completely characterize equilibrium for the majoritarian objective game and compare that to the vote-share maximizing game. If the candidates are symmetric ex ante, both types of electoral competition dissipate the rents from office in expectation. However, the equilibria arising under the two electoral objectives qualitatively differ. In majoritarian elections, candidates randomize over their level of total campaign effort, which provides support for the puzzling phenomenon of the emergence of supermajorities in majoritarian systems. Vote-share maximization leads to an equilibrium in which both candidates make deterministic budget choices and reach a precise fifty-fifty split of vote shares. We also study how asymmetry between the candidates affects the equilibrium. If some share of the voters is loyal to one of the candidates, then both candidates expend the same expected efforts in equilibrium, but the advantaged candidate wins with higher probability for majoritarian voting or a higher share of voters for vote-share maximization. |
| Keywords: | campaign competition, continuous general lotto game, vote buying, flexible budgets, supermajorities, loyal voters |
| JEL: | D72 D78 D82 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6409&r=mic |
| By: | Luciano Fanti; Marcella Scrimitore |
| Abstract: | We study whether a quantity or a price contract is chosen at equilibrium by one integrated firm and its retail competitor in a differentiated duopoly. Using a similar vertical structure, Arya et al. (2008) showed that Bertrand competition is more profitable than Cournot competition, which contrasts with conventional wisdom. In this paper, we first demonstrate that such a result is robust to the endogenous determination of the type of contract. Second, by introducing managerial incentives in the model, we find that delegation to managers entails conflicting choices of the strategic variable by the two firms as long as products are sufficiently differentiated, causing non-existence of equilibrium in pure strategies. Significantly high product substitutability reconciles firms’ objectives under delegation, leading unique or multiple equilibria with symmetric types of contracts to arise. |
| Keywords: | Upstream monopolist, outsourcing, price competition, quantity competition, managerial delegation. |
| JEL: | D43 L13 L21 |
| Date: | 2017–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:pie:dsedps:2017/221&r=mic |
| By: | Planer-Friedrich, Lisa; Sahm, Marco |
| Abstract: | We compare the strategic potential of Corporate Social Responsibility (CSR) and Customer Orientation (CO) as commitments to larger quantities in Cournot competition, modeled as a multi-stage game. First, in addition to profits, firms can choose to care for the surplus of either all consumers (CSR) or their own customers only (CO). Second, they decide upon the weight of this additional objective. We find that firms prefer to care for all consumers, choosing positive levels of CSR. |
| JEL: | D43 L13 L21 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc17:168257&r=mic |
| By: | Camille Cornand (Univ Lyon, CNRS, GATE L-SE UMR 5824, F-69130 Ecully, France); Rodolphe Dos Santos Ferreira (BETA-Strasbourg University, 61 avenue de la Forêt Noire - 67085 Strasbourg Cedex, France; and Catolica Lisbon School of Business and Economics.) |
| Abstract: | We propose a unified framework bridging the gap between team and competition issues, in order to reconsider the social value of private and public information in price and quantity games under imperfect and dispersed information, and to compare the corresponding outcomes in terms of equilibrium and social welfare. The informational distortion associated with the competition motive may lead to a negative social value of private information and reverse the perfect information result in favor of strategic substitutability as the source of higher profit and social welfare. |
| Keywords: | beauty contest, competition, coordination, strategic complementarity, anti-coordination, strategic substitutability, price game, quantity game, dispersed information, public information. |
| JEL: | D43 D82 L13 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1727&r=mic |
| By: | T. Tony Ke (MIT Sloan School of Management); Baojun Jiang (Washington University in St. Louis); Monic Sun (Boston University) |
| Abstract: | We consider a platform that matches service providers with potential customers. Ratings of a service provider reveal the quality of his service while ratings of a consumer reveal the cost to serve her. Under a competitive search framework, we study how bilateral ratings influence market competition and segmentation. Two types of equilibria exist under bilateral ratings. In the first type, low-cost consumers only apply to high-quality service providers, who post a higher price, have longer queues and are less likely to accept an application than low-quality providers. High-cost consumers apply to all service providers and have a lower acceptance rate. In the second type of equilibria, both high- and low-quality service providers serve all consumers. Across all equilibria, equilibrium prices may decrease as the fraction of high-quality providers increases, as consumers become more costly to serve, and as the platform's commission rate increases. Compared with a platform with unilateral ratings where only service providers are rated, a platform with bilateral ratings may soften service providers' competition, leading to higher equilibrium prices. Lastly, we find that in the case of incomplete market coverage, high-quality service providers may charge lower prices than low-quality providers in equilibrium, because by charging a lower price, a high-quality service provider attracts more consumer applications, which enables him to cherrypick a low-cost consumer, while a low-quality service provider faces with consumers with higher serving costs and thus charge a higher price to make up the serving cost. |
| Keywords: | Platform; Peer-to-Peer; Competitive Search; Matching; Reviews; Information Disclosure; Segmentation |
| JEL: | D82 D83 M31 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1701&r=mic |
| By: | Grochulski, Borys (Federal Reserve Bank of Richmond); Wong, Russell (Federal Reserve Bank of Richmond); Zhang, Yuzhe (Texas A&M University) |
| Abstract: | We study the implications of job destruction risk for optimal incentives in a long-term contract with moral hazard. We extend the dynamic principal-agent model of Sannikov (2008) by adding an exogenous Poisson shock that makes the match between the firm and the agent permanently unproductive. In modeling job destruction as an exogenous Poisson shock, we follow the Diamond-Mortensen-Pissarides search-and-matching literature. The optimal contract shows how job destruction risk is shared between the rm and the agent. Arrival of the job-destruction shock is always bad news for the rm but can be good news for the agent. In particular, under weak conditions, the optimal contract has exactly two regions. If the agent's continuation value is below a threshold, the agent's continuation value experiences a negative jump upon arrival of the job-destruction shock. If the agent's value is above this threshold, however, the jump in the agent's continuation value is positive, i.e., the agent gets rewarded when the match becomes unproductive. This pattern of adjustment of the agent's value at job destruction allows the firm to reduce the costs of effort incentives while the match is productive. In particular, it allows the firm to adjust the drift of the agent's continuation value process so as to decrease the risk of reaching either of the two inefficient agent retirement points. Further, we study the sensitivity of the optimal contract to the arrival rate of job destruction. |
| Keywords: | dynamic moral hazard; job destruction; jump risk |
| JEL: | D86 |
| Date: | 2017–10–06 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedrwp:17-11&r=mic |
| By: | Herweg, Fabian (University of Bayreuth); Schmidt, Klaus (LMU) |
| Abstract: | The procurement of complex projects is often plagued by large cost overruns. One important reason for these additional costs are flaws in the initial design. If the project is procured with a price-only auction, sellers who spotted some of the flaws have no incentive to reveal them early. Each seller prefers to conceal his information until he is awarded the contract and then renegotiate when he is in a bilateral monopoly position with the buyer. We show that this gives rise to three inefficiencies: inefficient renegotiation, inefficient production and inefficient design. We derive the welfare optimal direct mechanism that implements the efficient allocation at the lowest possible cost to the buyer. The direct mechanism, however, imposes strong assumptions on the buyer\'s prior knowledge of possible flaws and their payoff consequences. Therefore, we also propose an indirect mechanism that implements the same allocation but does not require any such prior knowledge. The optimal direct and indirect mechanisms separate the improvement of the design and the selection of the seller who produces the good. |
| Keywords: | procurement; renegotiation; auctions; design flaws; adaptation costs; behavioral contract theory; |
| JEL: | D44 D82 D83 H57 |
| Date: | 2017–10–17 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:47&r=mic |
| By: | Itai Areili; Yakov Babichenko; Rann Smorodinsky |
| Abstract: | Bayesian experts with a common prior who are exposed to different evidence often make contradictory probabilistic forecasts. An aggregator who receives the forecasts must aggregate them in the best way possible. This may prove to be a challenge whenever the aggregator is not familiar with the prior or the model and evidence available to the experts. We propose a model where experts provide forecasts over a binary state space. We adapt the notion of regret as a means of evaluating schemes that aggregate their forecasts into a single forecast. Our results show that arbitrary correlation between the experts entails high regret, whereas if there are two experts who are Blackwell-ordered (i.e., one of the experts is more informed) or who have conditionally independent evidence, then the regret is surprisingly low. For these latter cases we construct (nearly) optimal aggregation schemes. |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1710.02838&r=mic |
| By: | Lionel DE BOISDEFFRE |
| Abstract: | We study the existence of equilibrium in a two-period production economy, where typically asymmetrically informed agents exchange securities, on incomplete financial markets, and commodities, on spot markets, whose prices are perfectly anticipated by all agents. Extending our pure-exchange existence theorems with differential information, we show that equilibria exist for an open dense set of economies, parametrized by assets' payoffs, and for all economies, whose assets are nominal or numeraire. The model covers all types of private ownerships in a same setting, that is, sole proprietorship, partnership and corporations. Consistently with competition, returns to scale can be constant or decreasing. The model is a step towards proving the existence of equilibria in stochastic production economies of the various ownership types, and, in a companion paper, the full existence of financial equilibria in two-period production economies, where perfect price foresight cannot prevail. |
| Keywords: | Sequential equilibrium, Production economies, Perfect foresight, Existence, Rational expectations, Financial markets, Asymmetric information, Arbitrage |
| JEL: | D52 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:tac:wpaper:2017-2018_3&r=mic |
| By: | Ali Ihsan Ozkes (Aix-Marseille Univ. (Aix-Marseille School of Economics), CNRS, EHESS and Centrale Marseille); M. Remzi Sanver (Université Paris-Dauphine, PSL Research University, CNRS, UMR 7243, LAMSADE) |
| Abstract: | We revisit the neutrality requirement in social choice theory. We propose a weakening of the standard neutrality condition, by allowing for different procedural treatment for different alternatives while entailing that alternatives enjoy same ex-ante possibility to be chosen. We compare these two conditions theoretically and computationally. Furthermore, we explore social choice problems in which this weakening resolves impossibilities that stem from a fundamental tension between neutrality and anonymity. Finally, we show that in certain social choice problems, this weakening provides an immediate refinement of anonymous, neutral, and Pareto optimal social choice rules towards retaining resoluteness. |
| Keywords: | anonymity, neutrality, Pareto optimality, social choice functions |
| JEL: | D63 D71 D72 D74 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1736&r=mic |
| By: | Vladimir Asriyan; William Fuchs; Brett Green |
| Abstract: | We study a dynamic market for durable assets, in which asset owners are privately informed about the quality of their assets and experience occasional productivity shocks that generate gains from trade. An important feature of our environment is that asset buyers must worry not only about the quality of assets they are buying, but also about the prices at which they can re-sell the assets in the future. We show that this interaction between adverse selection and resale concerns generates an inter-temporal coordination problem and gives rise to multiple self-fulfilling equilibria. We find that there is a rich set of sentiment driven equilibria, in which sunspots generate large fluctuations in asset prices, output and welfare, resembling what one may refer to as “bubbles.” |
| Keywords: | Sentiment, adverse selection, liquidity, capital reallocation, bubbles |
| JEL: | D82 E32 G12 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1583&r=mic |
| By: | Jaroslav Borovicka; John Stachurski |
| Abstract: | We study existence, uniqueness and computability of solutions for a class of discrete time recursive utilities models. By combining two streams of the recent literature on recursive preferences---one that analyzes principal eigenvalues of valuation operators and another that exploits the theory of monotone concave operators---we obtain conditions that are both necessary and sufficient for existence and uniqueness of solutions. We also show that the natural iterative algorithm is convergent if and only if a solution exists. Consumption processes are allowed to be nonstationary. |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1710.06526&r=mic |
| By: | Philipp Kohlgruber (University of Graz, Austria); Christoph Kuzmics (University of Graz, Austria) |
| Abstract: | We build an oligopoly model of the market of scientific journals that allows us to relate the (in-)efficiency of this market to the exogenous distribution of article quality. Journal quality is endogenously determined by the submission choices of scientists. The efficiency of any stable equilibrium depends crucially on the exogenous distribution of article quality, especially on the fatness of the upper tail. For the empirically plausible Pareto distribution the market is inefficient even in the limit as the number of publishers tends to infinity. |
| Keywords: | Oligopoly; Natural monopoly; Efficiency; Price competition; Endogenous product differentiation |
| JEL: | C72 C73 D43 L13 L15 L82 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:grz:wpaper:2017-11&r=mic |
| By: | Yinbo Feng (School of Management, Fudan University, Shanghai, China, 200433); Ming Hu (Rotman School of Management, University of Toronto, Toronto, Ontario, Canada M5S 3E6) |
| Abstract: | We provide a theory unifying the long tail and blockbuster phenomenon. Specifically, we analyze a three-stage game where the firms first make entry decisions, then decide on the investment in its product and lastly customers sequentially arrive to make purchase decisions based on product quality and historic sales under the network effect. We analytically show that a growing network effect always contributes to the demand concentration on a small number of products. However, product variety and quality investments, as an outcome of firms¡¯ ex-ante competitive decisions, may increase or decrease, as the network effect grows. When the network effect parameter is smaller than a threshold, the increasing network effect would shift more demand towards the products with higher qualities, preempting more products from entering the market ex ante and inducing firms to adopt the blockbuster equilibrium strategy by making larger quality investment. When the network effect is stronger than the threshold, the increasing network effect would make the market easily concentrated to a few products. Even some low quality ones may have chances to become a ¡°hit.¡± Interestingly, in this case, the ex-ante equilibrium product variety would be broader and firms adopt the niche equilibrium strategy by maker smaller quality investment. We empirically test the theory with the movie box office data and find strong supporting evidence. |
| Keywords: | long tail; blockbuster; niche; product variety; network effect |
| JEL: | C72 D43 L11 L25 M21 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1713&r=mic |
| By: | Kyle Bagwell; Robert W. Staiger; Ali Yurukoglu |
| Abstract: | We provide an equilibrium analysis of the efficiency properties of bilateral tariff negotiations in a three-country, two-good general equilibrium model of international trade when transfers are not feasible. We consider "weak-rules" settings characterized by two cases: a no-rules case in which discriminatory tariffs are allowed, and an MFN-only case in which negotiated tariffs must be non-discriminatory (i.e., satisfy the MFN rule). We allow for a general family of political-economic country welfare functions and assess efficiency relative to these welfare functions. For the no-rules case with discriminatory tariffs, we consider simultaneous bilateral tariff negotiations and utilize the "Nash-in-Nash" solution concept of Horn and Wolinsky (1988). We establish a sense in which the resulting tariffs are inefficient and too low, so that excessive liberalization occurs from the perspective of the three countries. In the MFN-only case, we consider negotiations between two countries that are "principal suppliers" to each other and employ the Nash bargaining solution concept. Different possibilities arise. For one important situation, we establish a sense in which the resulting tariffs are inefficient and too high when evaluated relative to the unrestricted set of efficient tariffs. We also compare the negotiated tariffs under the MFN rule with the MFN-constrained efficiency frontier, finding that the negotiated tariffs are generically inefficient relative to this frontier and may lead to too little or too much liberalization. Finally, we illustrate our findings with a numerical analysis of a particular representation of the model as an endowment economy with Cobb-Douglas preferences and under the assumption that each government maximizes the indirect utility of the representative agent in its country. |
| JEL: | F13 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23894&r=mic |
| By: | Wagner, Alexander K.; Granic, Dura-Georg |
| Abstract: | We investigate the effects of voting power in a committee in which one member (the chairman) holds, on top of a regular vote, also the power to break ties. The chairman is able to induce her preferred outcome much more often than predicted by theory, but only partially because of exercising tie-breaking power directly. The advantage of the chairman is largely determined by the limited strategic sophistication of committee members. |
| JEL: | C91 C92 D71 D72 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc17:168187&r=mic |
| By: | Helfrich, Magdalena; Herweg, Fabian |
| Abstract: | We provide an explanation for a brand manufacturer's rationale to prohibit retailers to distribute its products over the internet, based on the assumption that a consumer's purchasing decision is distorted by salient thinking. We find that banning online distribution of the branded good aligns retailers’ incentives with the manufacturer's interest to make quality the salient product attribute and allows it to charge a higher wholesale price than under free distribution. |
| JEL: | D43 K21 L42 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc17:168276&r=mic |
| By: | Elon Kohlberg; Abraham Neyman |
| Abstract: | A game of threats on a finite set of players, $N$, is a function $d$ that assigns a real number to any coalition, $S \subseteq N$, such that $d \left( S \right) = - d \left( N \setminus S \right)$. A game of threats is not necessarily a coalitional game as it may fail to satisfy the condition $d \left( \emptyset \right) = 0$. We show that analogs of the classic Shapley axioms for coaltional games determine a unique value for games of threats. This value assigns to each player an average of the threat powers, $d \left( S \right)$, of the coalitions that include the player. |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:huj:dispap:dp710&r=mic |