This paper extends the theory of endogenous coalition formation, with complete information and transferable utility, to the overlapping case. We propose a cover function bargaining game which allows the formation of overlapping coalitions at equilibrium. We show the existence of subgame perfect equilibrium and provide an algorithm to compute this equilibrium in the symmetric case. As an application, we establish an interesting link with the formation of networks.
We study hedonic games with heterogeneous player types that reflect her nationality, ethnic background, or skill type. Agents’ preferences are dictated by status-seeking where status can be either local or global. The two dimensions of status define the two components of a generalized constant elasticity of substitution utility function. In this setting, we characterize the core as a function of the utility’s parameter values and show that in all cases the corresponding cores are non-empty. We further discuss the core stable outcomes in terms of their segregating versus integrating properties.
Coalitions, Core, Stability, Status-seeking
Core-stable Rings in Second Price Auctions with Common Values
In a common value auction in which the information partitions of the bidders are connected, all rings are core-stable. More precisely, the ex ante expected utilities of rings, at the (noncooperative) sophisticated equilibrium proposed by Einy, Haimanko, Orzach and Sela (Journal of Mathematical Economics, 2002), describe a cooperative game, in characteristic function form, in spite of the underlying strategic externalities. A ring is core-stable if the core of this characteristic function is not empty. Furthermore, every ring can implement its sophisticated equilibrium strategy by means of an incentive compatible mechanism.
Auctions, Bayesian Game, Collusion, Core, Partition Form Game, Characteristic Function
Imperfect private monitoring in an infinitely repeated discounted Prisoner’s Dilemma played on a communication network is studied. Players observe their direct neighbors’ behavior only, but communicate strategically the repeated game’s history throughout the network. The delay in receiving this information requires the players to be more patient to sustain the same level of cooperation as in a complete network, although a Folk Theorem obtains when the players are patient enough. All equilibria under exogenously imposed truth-telling extend to strategic communication, and additional ones arise due to richer communication. There are equilibria in which a player lies. The flow of information is related with network centrality measures.
In this paper we study the effects of institutional constraints on stability, efficiency and network formation. More precisely, an exogenous « societal cover » consisting of a collection of possibly overlapping subsets that covers the whole set of players and such that no set in this collection is contained in another specifies the social organization in different groups or « societies ». It is assumed that a player may initiate links only with players that belong to at least one society that s/he also belongs to, thus restricting the feasible strategies and networks. In this way only the players in the possibly empty « societal core », i.e., those that belong to all societies, may initiate links with all individuals. In this setting the part of the current network within each connected component of the cover is assumed to be common knowledge to all players in that component. Based on this two-ingredient model, network and soci etal cover, we examine the impact of societal constraints on stable/efficient architectures and on dynamics.
Network, Non-cooperative Game, Dynamics
Stochastic Stability in the Best Shot Game
Leonardo Boncinelli (Università degli Studi di Siena)
Paolo Pin (Università degli Studi di Siena)
The best shot game applied to networks is a discrete model of many processes of contribution to local public goods. It has generally a wide multiplicity of equilibria that we refine through stochastic stability. In this paper we show that, depending on how we define perturbations, i.e. the possible mistakes that agents can make, we can obtain very different sets of stochastically stable equilibria. In particular and non-trivially, if we assume that the only possible source of error is that of an agent contributing that stops doing so, then the only stochastically stable equilibria are those in which the maximal number of players contributes.
Some labor markets have recently developed formal signalling mechanisms, e.g. the signalling for interviews in the job market for new Ph.D. economists. We evaluate the effect of such mechanisms on two-sided matching markets by considering a game of incomplete information between firms and workers. Workers have almost aligned preferences over firms: each worker has “typical” commonly known preferences with probability close to one and “atypical” idiosyncratic preferences with the complementary probability close to zero. Firms have some commonly known preferences over workers. We show that the introduction of a signalling mechanism is harmful for this environment. Though signals transmit previously unavailable information, they also facilitate information asymmetry that leads to coordination failures. As a result, the introduction of a signalling mechanism lessens the expected number of matches when signals are info rmative.
Signaling, Cheaptalk, Matching
Does procedural fairness crowd out other-regarding concerns? A bidding experiment
Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group)
M. Vittoria Levati (Max Planck Institute of Economics, Strategic Interaction Group)
Matteo Ploner (Department of Economics, CEEL, University of Trento, Italy)
Bidding rules that guarantee procedural fairness may induce more equilibrium bidding and moderate other-regarding concerns. In our experiment, we assume commonly known true values and only two bidders to implement a best-case scenario for other-regarding concerns. The two-by-two factorial design varies ownership of the single indivisible commodity (an outside seller versus collective ownership) and the price rule (first versus second price). Our results indicate more equilibrium behavior under the procedurally fair price rule, what, however, does not completely crowd out equality and efficiency seekin
We consider a situation where groups negotiate over the allocation of a surplus (which is used to fund group specific goods). Each group is composed of agents who have differing valuations for public goods. Members choose a representative to take decisions on their behalf. Specifically, representatives can decide to enter either a (cooperative) negotiation protocol or a conflict to appropriate the surplus. In the cooperative negotiations, disagreement corresponds to a pro rata allocation (as a function of the size of the groups). We analyse the conditions (on the internal composition of the groups) under which conflict will be preferred to negotiated agreements (and vice versa), and we derive welfare implications. Finally, we provide results of comparative statics that highlight the influence of changes in the internal composition of groups and in their relative size on the profitability of negotiated agreements.
Bargaining, Conflict, Agency Problem
On the (In-)Efficiency of Unanimity in Multilateral Bargaining with Endogenous Recognition
In this paper, we study the (symmetric) equilibria of a model of multilateral bar- gaining where players are heterogeneous regarding their time preferences, and make costly efforts at the beginning of the process in order to inuence their probabilities of being the proposer for all stages of the negotiation process. We analyse whether the optimality of the unanimity rule (as the voting rule minimizing the social cost resulting from the agents’ willingness to buy inuence) characterised in Yildirim (2007) extends to the present situation. In the case of weakly heterogeneous agents, we show that k-majority rules may actually become strictly optimal. Then we provide numerical ex- amples that suggest that there are situations where each type of voting rule (unanimity and strict k-majority) may be socially optimal.
Power indices suggest that adding new members to a voting body may increase the power of an existing member, even if the number of votes of all existing members and the decision rule remain constant. This phenomenon is known as the paradox of new members. This paper uses the leading model of majoritarian bargaining and shows that the paradox is predicted in equilibrium for past EU enlargements. Furthermore, a majority of members would have been in favor of the 1981 enlargement even if members were bargaining over a fixed budget.
Majoritarian Bargaining, Weighted Voting, Power Measures, EU Enlargement, Paradox of New Members
Competitive Equilibria in Decentralized Matching with Incomplete Information
This paper shows that all perfect Bayesian equilibria of a dynamic matching game with two-sided incomplete information of independent private values variety are asymptotically Walrasian. Buyers purchase a bundle of heterogeneous, indivisible goods and sellers own one unit of an indivisible good. Buyer preferences and endowments as well as seller costs are private information. Agents engage in costly search and meet randomly. The terms of trade are determined through a Bayesian mechanism proposal game. The paper considers a market in steady state. As discounting and the fixed cost of search become small, all trade takes place at a Walrasian price. However, a robust example is presented where the limit price vector is a Walrasian price for an economy where only a strict subsets of the goods in the original economy are traded, i.e, markets are missing at the limit. Nevertheless, there exists a sequence of equilibria that con verge to a Walrasian equilibria for the whole economy where all markets are open.
A DynamicModel of Conflict and Appropriation
Wolfgang Eggert (University of Freiburg)
Jun-ichi Itaya (Graduate School of Economics and Business Admministration, Hokkaido University)
Kazuo Mino (Institute of Economic Research, Kyoto University)
This paper conducts the analysis of conflict and appropriation by extending the static contest models such as Hirshleifer (1991, 1995) and Skaperdas (1992) to a continuoustime, differential game setting. This paper shows that there is a unique Markov perfect equilibrium (MPE) strategy, which may be linear or nonlinear depending on the structural parameters of the model, when strategies are defined over the entire state space. We show that ‘partial cooperation’ can be seen as a long-run response to conflict. In particular, we find that a decrease in the effectiveness of appropriation, the depreciation rate of a common-pool stock which is subject to appropriation or the rate of time preferences or an increase in the ‘degree of noise’ improves the degree of ‘partial cooperation’ and thus the welfare of an anarchic society in the long run.
Government by majority rule voting requires that compromise be attainable, but not too easily. Little of the nation’s business could be transacted without an ability on the part of the legislators and political parties to strike bargains, but government by majority rule voting could not withstand a bargaining equilibrium comparable to the general equilibrium in a competitive economy. Democratic government is designed to foster bargaining where it should be fostered and to impede bargaining where it should be impeded.
This article characterizes the conditions under which holdout (i.e. bargaining inefficiency) may, or may not be significant in a two-sided, one-buyer-many-seller model with complementarity. Our central result is that the severity of holdout (i.e. inefficiency) is critically dependent on three factors, (a) the transparency of the bargaining protocol, (b) the outside option of the buyer, and (c) the marginal contribution of the last seller. We find that although the accepted wisdom that holdout is severe, goes through whenever either the buyer has no outside option, or the bargaining protocol is secret, the holdout problem however is largely resolved whenever either the bargaining protocol is transparent and the buyer has a positive outside option, or if the marginal contribution of the last seller is not too large.
In this paper we extend the standard approach of horizontal tax competition by endogenizing the timing of decisions made by the competing jurisdictions. Following the literature on the endogenous timing in duopoly games, we consider a pre-play stage, where jurisdictions commit themselves to more early or late, i.e. to fix their tax rate at a first or second stage. We highlight that at least one jurisdiction experiments a second-mover advantage. We show that the Subgame Perfect Equilibria (SPEs) correspond to the two Stackelberg situations yielding to a coordination problem. In order to solve this issue, we consider a quadratic specification of the production function, and we use two criteria of selection: Pareto-dominance and risk-dominance. We emphasize that at the safer equilibrium the less productive or smaller jurisdiction leads and hence loses the second-mover advantage. If asymmetry among jurisdictions is sufficient , Pareto-dominance reinforces risk-domination in selecting the same SPE. Three results may be deduced from our analysis: (i) the downward pressure on tax rates is less severe than predicted; (ii) the smaller jurisdiction leads; (iii) the ‘big-country-higher-tax-rate’ rule does not always hold. Classification-JEL: H30, H87, C72.