J. Choi, Yunsik Choi, Kookyoung Han, G. Lee, Andrew Whinston
We study a continuous-time reputation game in which an informed player bene ts from persistent private information while an uninformed player suffers from it. Observing noisy signals of the informed player's actions, the uninformed player chooses when to reveal the informed player's private information, but revelation is costly. We characterize the sequential equilibrium in Markov strategies, provide comparative statistics of equilibrium, and study the probability that the uninformed player reveals the informed player's private information. In addition, we contrast our model with Kyletype models in terms of informativeness of signals and analyze the extended model in which observation is costly.
{"title":"Misinformation and Optimal Time to Detect","authors":"J. Choi, Yunsik Choi, Kookyoung Han, G. Lee, Andrew Whinston","doi":"10.2139/ssrn.3435916","DOIUrl":"https://doi.org/10.2139/ssrn.3435916","url":null,"abstract":"We study a continuous-time reputation game in which an informed player bene ts from persistent private information while an uninformed player suffers from it. Observing noisy signals of the informed player's actions, the uninformed player chooses when to reveal the informed player's private information, but revelation is costly. We characterize the sequential equilibrium in Markov strategies, provide comparative statistics of equilibrium, and study the probability that the uninformed player reveals the informed player's private information. In addition, we contrast our model with Kyletype models in terms of informativeness of signals and analyze the extended model in which observation is costly.","PeriodicalId":423216,"journal":{"name":"Game Theory & Bargaining Theory eJournal","volume":"111 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129673692","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract Many important economic situations, such as auctions and signaling games, can be modeled as dynamic games of incomplete information with strategic complementarities of actions and types. In this paper, we extend the results of Athey (2001) and Reny (2011) from static Bayesian games to dynamic environments with observable actions, providing conditions that guarantee the existence of monotone equilibria in types in such games. A feature that distinguishes this environment from those of previous results is the endogeneity of beliefs, which can complicate continuity of payoffs, needed to find a fixed point. To address this, we perturb the strategies of the game, which pins down beliefs while preserving continuity of payoffs. We then provide conditions which guarantee that there will exist monotone best-replies to monotone strategies of one's opponents in a dynamic environment, enabling verification of existence by merely looking at the primitives of the model.
{"title":"On the Existence of Monotone Pure-Strategy Perfect Bayesian Equilibrium in Games with Complementarities","authors":"Jeffrey Mensch","doi":"10.2139/ssrn.3148958","DOIUrl":"https://doi.org/10.2139/ssrn.3148958","url":null,"abstract":"Abstract Many important economic situations, such as auctions and signaling games, can be modeled as dynamic games of incomplete information with strategic complementarities of actions and types. In this paper, we extend the results of Athey (2001) and Reny (2011) from static Bayesian games to dynamic environments with observable actions, providing conditions that guarantee the existence of monotone equilibria in types in such games. A feature that distinguishes this environment from those of previous results is the endogeneity of beliefs, which can complicate continuity of payoffs, needed to find a fixed point. To address this, we perturb the strategies of the game, which pins down beliefs while preserving continuity of payoffs. We then provide conditions which guarantee that there will exist monotone best-replies to monotone strategies of one's opponents in a dynamic environment, enabling verification of existence by merely looking at the primitives of the model.","PeriodicalId":423216,"journal":{"name":"Game Theory & Bargaining Theory eJournal","volume":"59 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127976405","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We consider games in which players search for a hidden prize, and they have asymmetric information about the prize's location. We study the social payoff in equilibria of these games. We present sufficient conditions for the existence of an equilibrium that yields the first-best payoff (i.e., the highest social payoff under any strategy profile), and we characterize the first-best payoff. The results have interesting implications for innovation contests and R&D races.
{"title":"Social Welfare in Search Games with Asymmetric Information","authors":"Gilad Bavly, Yuval Heller, Amnon Schreiber","doi":"10.2139/ssrn.3545184","DOIUrl":"https://doi.org/10.2139/ssrn.3545184","url":null,"abstract":"We consider games in which players search for a hidden prize, and they have asymmetric information about the prize's location. We study the social payoff in equilibria of these games. We present sufficient conditions for the existence of an equilibrium that yields the first-best payoff (i.e., the highest social payoff under any strategy profile), and we characterize the first-best payoff. The results have interesting implications for innovation contests and R&D races.","PeriodicalId":423216,"journal":{"name":"Game Theory & Bargaining Theory eJournal","volume":"298 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132185820","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We present a multiregional endogenous growth model in which forward-looking agents choose their regions to live in, in addition to consumption and capital accumulation paths. The spatial distribution of economic activity is determined by the interplay between production spillover effects and urban congestion effects. We characterize the global stability of the spatial equilibrium states in terms of economic primitives such as agents’ time preference and intra- and interregional spillovers. We also study how macroeconomic variables at the stable equilibrium state behave according to the structure of the spillover network.
{"title":"Equilibrium Dynamics in a Model of Growth and Spatial Agglomeration","authors":"Shota Fujishima, Daisuke Oyama","doi":"10.2139/ssrn.3290371","DOIUrl":"https://doi.org/10.2139/ssrn.3290371","url":null,"abstract":"\u0000 We present a multiregional endogenous growth model in which forward-looking agents choose their regions to live in, in addition to consumption and capital accumulation paths. The spatial distribution of economic activity is determined by the interplay between production spillover effects and urban congestion effects. We characterize the global stability of the spatial equilibrium states in terms of economic primitives such as agents’ time preference and intra- and interregional spillovers. We also study how macroeconomic variables at the stable equilibrium state behave according to the structure of the spillover network.","PeriodicalId":423216,"journal":{"name":"Game Theory & Bargaining Theory eJournal","volume":"35 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114884085","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study a dynamic continuous-time principal-agent model with endogenous cash flow volatility. The principal supplies the agent with capital for investment, but the agent can misallocate capital for private benefit and has private control over both the volatility of the project and the size of the investment. The optimal incentive-compatible contract can yield either overly risky or overly prudent project selection; it can be implemented as a time-varying cost of capital in the form of a hurdle rate. Our model captures stylized facts about the use of hurdle rates in capital budgeting and helps to reconcile the mixed empirical evidence on the correlations among firm size, risk and managerial compensation.
{"title":"Dynamic Resource Allocation with Hidden Volatility","authors":"F. Z. Feng, Mark M. Westerfield","doi":"10.2139/ssrn.2874612","DOIUrl":"https://doi.org/10.2139/ssrn.2874612","url":null,"abstract":"We study a dynamic continuous-time principal-agent model with endogenous cash flow volatility. The principal supplies the agent with capital for investment, but the agent can misallocate capital for private benefit and has private control over both the volatility of the project and the size of the investment. The optimal incentive-compatible contract can yield either overly risky or overly prudent project selection; it can be implemented as a time-varying cost of capital in the form of a hurdle rate. Our model captures stylized facts about the use of hurdle rates in capital budgeting and helps to reconcile the mixed empirical evidence on the correlations among firm size, risk and managerial compensation.","PeriodicalId":423216,"journal":{"name":"Game Theory & Bargaining Theory eJournal","volume":"38 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133010186","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract This paper develops a micro-founded global games model of debt crises. I use this model to study which policies can help to prevent expectations-driven crises and how the desirability of such policies depends on market participants' expectations and the presence of economic policy uncertainty. I show that endogenous expectations amplify the effects of government policies, so that even a small policy adjustment can have significant effects. I find that policy uncertainty may increase the range of situations in which government policies can help prevent a crisis but decrease their overall impact. Finally, I apply these insights to study two policies that are often at the center of political discussions: austerity (an increase in taxes) and government stimulus. I show that under plausible conditions an increase in taxes is preferable to a government stimulus, and that policy uncertainty further increases the relative attractiveness of austerity.
{"title":"Preventing Self-fulfilling Debt Crises: A Global Games Approach","authors":"Michal Szkup","doi":"10.2139/ssrn.3527210","DOIUrl":"https://doi.org/10.2139/ssrn.3527210","url":null,"abstract":"Abstract This paper develops a micro-founded global games model of debt crises. I use this model to study which policies can help to prevent expectations-driven crises and how the desirability of such policies depends on market participants' expectations and the presence of economic policy uncertainty. I show that endogenous expectations amplify the effects of government policies, so that even a small policy adjustment can have significant effects. I find that policy uncertainty may increase the range of situations in which government policies can help prevent a crisis but decrease their overall impact. Finally, I apply these insights to study two policies that are often at the center of political discussions: austerity (an increase in taxes) and government stimulus. I show that under plausible conditions an increase in taxes is preferable to a government stimulus, and that policy uncertainty further increases the relative attractiveness of austerity.","PeriodicalId":423216,"journal":{"name":"Game Theory & Bargaining Theory eJournal","volume":"34 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125838873","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract Cognitive hierarchy theory, a collection of structural models of non-equilibrium thinking, in which players’ best responses rely on heterogeneous beliefs on others’ strategies including naive behavior, proved powerful in explaining observations from a wide range of games. We propose an inclusive cognitive hierarchy model, in which players do not rule out the possibility of facing opponents at their own thinking level. Our theoretical results show that inclusiveness is crucial for asymptotic properties of deviations from equilibrium behavior in expansive games. We show that the limiting behaviors are categorized in three distinct types: naive, Savage rational with inconsistent beliefs, and sophisticated. We test the model in a laboratory experiment of collective decision-making. The data suggests that inclusiveness is indispensable with regard to explanatory power of the models of hierarchical thinking.
{"title":"Inclusive Cognitive Hierarchy","authors":"Yukio Koriyama, Ali Ozkes","doi":"10.2139/ssrn.3526920","DOIUrl":"https://doi.org/10.2139/ssrn.3526920","url":null,"abstract":"Abstract Cognitive hierarchy theory, a collection of structural models of non-equilibrium thinking, in which players’ best responses rely on heterogeneous beliefs on others’ strategies including naive behavior, proved powerful in explaining observations from a wide range of games. We propose an inclusive cognitive hierarchy model, in which players do not rule out the possibility of facing opponents at their own thinking level. Our theoretical results show that inclusiveness is crucial for asymptotic properties of deviations from equilibrium behavior in expansive games. We show that the limiting behaviors are categorized in three distinct types: naive, Savage rational with inconsistent beliefs, and sophisticated. We test the model in a laboratory experiment of collective decision-making. The data suggests that inclusiveness is indispensable with regard to explanatory power of the models of hierarchical thinking.","PeriodicalId":423216,"journal":{"name":"Game Theory & Bargaining Theory eJournal","volume":"3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125976833","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A new model of TU game is introduced and studied. Here apart from the characteristic function, two additional functions are used: relations between the players and the probability of coalition formation. We suggest and study the sufficient properties of the probability function to transform it into a probability measure. The generalized Shapley's value is defined for a new class of games by analogy with the original Shapley approach. For the games under study, we give the axiomatization of value functions. It unambiguously characterizes the (generalized) Shapley's value.
{"title":"Shapley's Value and Its Axiomatization in Games with Prior Probabilities of Coalition Formation","authors":"V. Kamionko, V. Marakulin","doi":"10.2139/ssrn.3524864","DOIUrl":"https://doi.org/10.2139/ssrn.3524864","url":null,"abstract":"A new model of TU game is introduced and studied. Here apart from the characteristic function, two additional functions are used: relations between the players and the probability of coalition formation. We suggest and study the sufficient properties of the probability function to transform it into a probability measure. The generalized Shapley's value is defined for a new class of games by analogy with the original Shapley approach. For the games under study, we give the axiomatization of value functions. It unambiguously characterizes the (generalized) Shapley's value.","PeriodicalId":423216,"journal":{"name":"Game Theory & Bargaining Theory eJournal","volume":"123 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127064618","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Non-price strategies are pervasive in non-cooperative environments. The often utilized measure of the market power of a firm suggests that when it attains the maximum the strategic choices are also efficient and conversely. In non-cooperative environments firm level market power is as yet ambiguous and its relationship with strategic dominance has not been explored. A fundamentally new approach to the measurement of market dominance and market power of every firm in the industry for each of the non-price strategies is provided. A few salient patterns of behavior and the significance of both these measurements for managerial practices have been outlined as well.
{"title":"Non-Price Strategies, Market Dominance and Market Power","authors":"Ramamohan Rao","doi":"10.2139/ssrn.3523947","DOIUrl":"https://doi.org/10.2139/ssrn.3523947","url":null,"abstract":"Non-price strategies are pervasive in non-cooperative environments. The often utilized measure of the market power of a firm suggests that when it attains the maximum the strategic choices are also efficient and conversely. In non-cooperative environments firm level market power is as yet ambiguous and its relationship with strategic dominance has not been explored. A fundamentally new approach to the measurement of market dominance and market power of every firm in the industry for each of the non-price strategies is provided. A few salient patterns of behavior and the significance of both these measurements for managerial practices have been outlined as well.","PeriodicalId":423216,"journal":{"name":"Game Theory & Bargaining Theory eJournal","volume":"47 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132076508","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We model the production of complex goods in a large supply network. Each firm sources several essential inputs through relationships with other firms. Individual supply relationships are at risk of idiosyncratic failure, which threatens to disrupt production. To protect against this, firms multisource inputs and strategically invest to make relationships stronger, trading off the cost of investment against the benefits of increased robustness. A supply network is called fragile if aggregate output is very sensitive to small aggregate shocks. We show that supply networks of intermediate productivity are fragile in equilibrium, even though this is always inefficient. The endogenous configuration of supply networks provides a new channel for the powerful amplification of shocks. (JEL D21, G31, L14)
{"title":"Supply Network Formation and Fragility","authors":"M. Elliott, B. Golub, Mathieu V. Leduc","doi":"10.2139/ssrn.3525459","DOIUrl":"https://doi.org/10.2139/ssrn.3525459","url":null,"abstract":"We model the production of complex goods in a large supply network. Each firm sources several essential inputs through relationships with other firms. Individual supply relationships are at risk of idiosyncratic failure, which threatens to disrupt production. To protect against this, firms multisource inputs and strategically invest to make relationships stronger, trading off the cost of investment against the benefits of increased robustness. A supply network is called fragile if aggregate output is very sensitive to small aggregate shocks. We show that supply networks of intermediate productivity are fragile in equilibrium, even though this is always inefficient. The endogenous configuration of supply networks provides a new channel for the powerful amplification of shocks. (JEL D21, G31, L14)","PeriodicalId":423216,"journal":{"name":"Game Theory & Bargaining Theory eJournal","volume":"31 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124430221","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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