Search

In a world where individuals interact in myriads of ways, one wonders how the benefits of one’s connections with others compare with those conferred by individual characteristics when it comes to acquisition of human capital. It is particularly interesting to be able to distinguish between connections that are the outcome of deliberate decisions by individuals and connections being given exogenously and beyond an individual’s control. The paper explores the consequences of the joint evolution of social connections and human capital investments. It thus allows one to study a broad range of possibilities in which social connections may influence inequality in consumption, human capital investment and welfare across the members of the economy, cross-sectionally and intertemporally. It embeds inequality analysis in models of endogenous social network formation. The novelty of the model lies in its joint treatment of human capital investment and social network formation in intergenerational settings, while distinguishing between the case of impact on human capital from endogenous as opposed to exogenous social networking. Among several results in the case of exogenous connections, we demonstrate conditions under which the limit distribution of human capital has a Pareto upper tail. One of the dynamic models we develop allow for intergenerational transfers in a dynastic version of the infinite horizon Ramsey-Cass-Koopmans model. The models share the property that human capital accumulation, transfers and social connections, when all are optimized, are, along steady states, proportional to cognitive skills. Thus, intergenerational transfers of both human capital endowments and social networking endowments are jointly determined. Interestingly, the consequences for inequality of the endogeneity of social connections are underscored by examining the models when they are assumed to be exogenous. When social connections are not optimized, individuals’ human capital reflects a much more general dependence on social connections. The dependence does not reduce to aggregate statistics of social connections. We show that the dynamics of demographically increasingly complex models, as expressed by a sequence of models with increasing number of overlapping generations, depend on the product of the adjacency matrices associated with each of the overlapping generations.

Strategic uncertainty is the uncertainty that players face with respect to the purposeful behavior of other players in an interactive decision situation. Our paper develops a new method for measuring strategic-uncertainty attitudes and distinguishing them from risk and ambiguity attitudes. We vary the source of uncertainty (whether strategic or not) across conditions in a ceteris paribus manner. We elicit certainty equivalents of participating in two strategic 2x2 games (a stag-hunt and a market-entry game) as well as certainty equivalents of related lotteries that yield the same possible payoffs with exogenously given probabilities (risk) and lotteries with unknown probabilities (ambiguity). We provide a structural model of uncertainty attitudes that allows us to measure a preference for or an aversion against the source of uncertainty, as well as optimism or pessimism regarding the desired outcome. We document systematic attitudes towards strategic uncertainty that vary across contexts. Under strategic complementarity [substitutability], the majority of participants tend to be pessimistic [optimistic] regarding the desired outcome. However, preferences for the source of uncertainty are distributed around zero., CEPA Discussion Papers; 54

We study a game theoretic model of a parliamentary democracy under proportional representation where ideologically motivated citizen groups form parties, voting occurs and governments are formed. We study the coalition governments that emerge as functions of the parties’ seat shares, the size of the rents from holding office and their ideologies. We show that governments may be minimal winning, minority or surplus. Moreover, coalitions may be ‘disconnected’. We then look at how the coalition formation game affects the incentives for party formation. In particular, we show that when the rents from office are low, the median citizen stands unopposed, and when rents are high, there is more political entry. For intermediate rents, we show that strategic dropouts can happen to influence the final policy. We show that the incentives for strategic dropout can be higher under proportional representation than plurality voting, contrary to Duverger’s law. Our model explains the diverse electoral outcomes seen under proportional representation and integrates models of political entry with models of coalitional bargaining.

The organizational behavior literature refers to persistent interaction patterns among members of an organization with distributed knowledge as organizational routines. To formalize this concept, as well as intuitions about organizational routines, we investigate dynamic coordination within a problem-solving team where team members cannot communicate. Each team member has a finite number of actions. There is a single action profile with a positive payoff. The task is to identify that profile through repeated trials. For each of their actions, team members have private information regarding their confidence in that action being required for a solution. In this environment, we refer to deterministic sequences of action profiles, where actions are labeled according to their confidence ranking, as organizational routines. We show that there are equilibria that give rise to organizational routines. These organizational routine equilibria partially solve the team’s coordination problem by synchronizing the team’s search efforts. These organizational routine equilibria are resilient to changes in the environment by being ex post equilibria, to agents having only a coarse understanding of other agents’ strategies by being fully cursed, and to natural forms of agents’ overconfidence. If the distribution over team members’ confidences is sufficiently dispersed, this resilience of organizational routine equilibria comes at the price of suboptimality. In contrast, generically, when this distribution is sufficiently concentrated, optimal equilibria induce organizational routines.

Any symmetric mixed-strategy equilibrium in a Tullock contest with intermediate values of the decisiveness parameter (" $$2

Outcomes and strategies shown in control questions prior to experimental play may provide subjects with anchors or induce experimenter demand effects. In a Cournot oligopoly experiment we explore whether control questions influence subjects' choices in initial periods and over the course of a repeated game. We vary the framing of the control question to explore the cause of potential influences. We find no evidence for an influence of the control question on choices, neither in the first period nor later in the game.

This paper characterizes the subgame-perfect pure-strategy equilibrium paths in discounted supergames with perfect monitoring. It is shown that all the equilibrium paths are composed of fragments called elementary subpaths. This characterization result is complemented with an algorithm for finding the elementary subpaths. By using these subpaths it is possible to generate equilibrium paths and payoffs. When there are finitely many elementary subpaths, all the equilibrium paths can be represented by a directed graph. These graphs can be used in analyzing the complexity of equilibrium outcomes. In particular, it is shown that the size and the density of the equilibrium set can be measured by the asymptotic growth rate of equilibrium paths and the Hausdorff dimension of the payoff set.

application/pdf, This study examines how each player chooses her/his optimal action in 〝normal-form games with unawareness" by applying a 〝discovery process" to them. We show that if each player implements a best response to the opponents' immediately preceding plays, then any discovery process converges to a set closed under rational behavior (CURB) on the realizable action set. Moreover, in the objective game in any initial normal-form game with unawareness, when every CURB set on the realizable action set is mutually known, every discovery process converges to a discovered game possessing a cognitively stable generalized Nash equilibrium. It is not necessary that each player must be aware of the opponents' utilities in our results.

The previous version of the paper has circulated under the title: "Does free trade benefit all?" Although global free trade is efficient, each country's benefit from free trade depends on the path that leads to the global free trade agreement. Using a dynamic model of trading bloc formation, we show that when global free trade is reached gradually the countries that are initially excluded gain less than the rest and may be even made worse off by the final free trade agreement than they were in the initial state of no trading blocs.

Game harmony is a generic game property that describes how harmonious (non-conflictual) or disharmonious (conflictual) the interests of players are, as embodied in the payoffs. Pure coordination games are games of complete harmony,and constant-sum games are games of pure disharmony: the majority of games is somewhere in the middle. This paper provides measures of game harmony that can be used to classify normal form games, and analyzes their properties. Game harmony is positively associated with cooperation, and we review evidence that this is so. Framing effects increasing cooperation may work by increasing perceived game harmony.

Equilibrium selection in coordination games has generated a large literature. Kandori, Mailath and Rob [Econometrica 61 (1993) 29] and Young [Econometrica 61 (1993) 57] studied dynamic models of aggregate behaviour where agents best-respond to observations of population play. Crucially, infrequent mistakes (“mutations”) allow agents to take actions contrary to current trends and prevent initial configurations from determining long-run play. An alternative approach is offered here: Trembles are added to payoffs so that with some probability it is optimal to act against the flow of play. The long-run distribution of population behaviour is characterised—modes correspond to stable Bayesian Nash equilibria. Allowing the variance of payoff trembles to vanish (a purification process) a single equilibrium is played almost always in the long run. Kandori, Mailath, and Rob, and Young, show that the number of contrary actions required to escape an equilibrium determines selection; here, the likelihood that such actions are taken is equally important.

This paper examines the convergence of payoffs and strategies in Erev and Roth`s model of reinforcement learning. When all players use this rule it eliminates iteratively dominated strategies and in two-person constant-sum games average payoffs converge to the value of the game. Strategies converge in constant-sum games with unique equilibria if they are pure or in 2 × 2 games also if they are mixed. The long-run behaviour of the learning rule is governed by equations related to Maynard Smith`s version of the replicator dynamic. Properties of the learning rule against general opponents are also studied. In particular it is shown that it guarantees that the lim sup of a player`s average payoffs is at least his minmax payoff.

In a collective-action game a player`s payoff is the sum of (i) a private component that depends only on that player`s action, and (ii) a public component, common to all players and dependent upon all actions. A classic application is the private provision of a public good. Play evolves: strategy revisions are made according to a multinomial-logit choice rule. Long-run behaviour is determined by a potential function, which incorporates the private (not social) benefits of activity. Behaviour may be influenced only by reducing public-good output (an application of a free-disposal property). When welfare is the expected time average of aggregate payoffs, it is socially optimal to either leave production well alone, or damage it as much as possible. This often takes the form of a production target, where all output is discarded unless some threshold is reached, potentially generating an equilibrium-selection problem. When the evolution of play approximates a best-reply process, the optimal threshold corresponds to the output level that an individual who pays all private costs but enjoys only private benefits would be just willing to provide.

This paper studies n-player collective-action games in which a public good is produced if and only if m or more volunteers contribute to it. Quantal-response strategy revisions allow play to move between equilibria in which a team of m players successfully provide, and an equilibrium in which the collective action fails. A full characterisation of long-run play reveals the determinants of success. These include the correlation between players' costs of provision and their valuations for the good. The addition of an extra "bad apple" player can "spoil the barrel" by destabilising successful teams. A contemporary application is the team-based provision of open-source software. The analysis reveals the features of successful open-source projects, and suggests a rationale for limiting the pool of possible contributors.

This paper models the indirect evolution of the preferences of a population of fully rational agents repeatedly matched to play a symmetric 2 £ 2 game in biological fitnesses. Each agent is biased in favor of one of the strategies, and receives a noisy signal of his and his opponent's bias. With sufficiently accurate signals, the resulting global game selects a unique outcome, allowing preference biases to be shaped by the replicator dynamics. Stability analysis in this setting requires the extension of recent techniques for evolution on infinite strategy spaces, introducing new setwise stability concepts. In coordination games, the interval of preference biases supporting the Pareto-dominant equilibrium is Lyapunov stable and weakly attracting, by virtue of constituting a "strongly uninvadable set." In Prisoners' Dilemmas that satisfy Kandori and Rob's (Games and Economic Behavior 22, 1998, 30{60) "marginal bandwagon property," meanwhile, an interval of biases supporting efficient cooperation is a "neutrally uninvadable set," and thus Lyapunov stable.

We construct a dynamic epistemic model for extensive form games, which generates a hierarchy of beliefs for each player over her opponents` strategies and beliefs, and tells us how those beliefs will be revised as the game proceeds. We use the model to analyze the implications of the assumption that the players possess common (true) belief in rationality, thus extending the concept of rationalizability to extensive form games.

Game harmony is a generic game property that describes how harmonious (non-conflictual) or disharmonious (conflictual) the interests of players are, as embodied in the payoffs. It can be used to predict cooperation in two-player games. We show how, for large enough positive harmony transformations of the game, a utilitarian solution is always a Nash equilibrium, coincides with the Nash bargaining solution and acquires further desirable properties of payoff and risk dominance. Case-based reasoning and team reasoning are alternative mechanisms by which game harmony measures can successfully predict cooperative behavior.

This paper analyses how competition over rebates for customer loyalty across product lines affects firms` pricing and consumers generally. If buyers incur firm specific costs or have shop specific tastes then competitive loyalty discounts lower consumer surplus overall and raise profits - the same is true of competitive volume discounts. Competition without these discounts causes all prices to be kept low as larger customers are targetted; with discounts the prices for heavy users drop, but more is extracted from small users. The consumer surplus result is reversed if the differentiation between components as opposed to firms is key. Price discrimination is shown not to be the driving force behind the equilibrium prices - sellers price to steal customers from their rivals. The implications for diverse industries from professional services to cars and supermarkets are explored.

The single crossing property plays a crucial role in monotone comparative statics (Milgrom and Shannon (1994)), yet in some important applications the property cannot be directly assumed or easily derived. Difficulties often arise because the property cannot be aggregated: the sum of two functions with the single crossing property need not have the same property. We obtain the precise conditions under which functions with the single crossing property add up to functions with this property. We apply our results to certain Bayesian games when establishing the monotonicity of strategies is an important step in proving equilibrium existence. In particular, we find conditions under which first-price auctions have monotone equilibria, generalizing the result of Reny and Zamir (2004).

Through an experiment, this study investigates the effects that verification has on honest traders. This paper demonstrates that by reducing the scope for trust verification can have a negative effect on the behaviour of honest individuals. Specifically, the analysis shows that trustworthy agents are willing to punish or seek compensation from those that deprive them of trust opportunities through the use of verification. Regulatory implications are discussed. JEL

A positive correlation between relative position and the neurotransmitter serotonin exists in non-human primates, within an optimal range. This paper explores the reasons of this correlation. The main function of serotonin appears cognitive: it determines how optimally agents perceive and behave in game theoretical interactions, and this can explain the correlational finding. Among humans, within the optimal range serotonin works as a form of human capital, capable of improving the work functioning of agents who respond to serotonergic promoter treatment. Limitations of the existing evidence are also discussed.

We exploit a unique opportunity to study how a large population of players in the field learn to play a novel game with a complicated and non-intuitive mixed strategy equilibrium. We argue that standard models of belief-based learning and reinforcement learning are unable to explain the data, but that a simple model of similarity-based global cumulative imitation can do so. We corroborate our findings using laboratory data from a scaled-down version of the same game, as well as from three other games. The theoretical properties of the proposed learning model are studied by means of stochastic approximation.

Culture constrains individual choice by making certain behaviour taboo. We propose an evolutionary model in which members of different groups attempt to coordinate over time. We show that cultural constraints can lead to a permanent break down in coordination between groups, even when coordination is attainable and Pareto-efficient. Hence restrictive cultures make coordination with out-group members more difficult. By limiting a person's options, however, highly restrictive cultures act as a strategic commitment, forcing out-group members to conform to in-group norms if they want to coordinate. In this way, cultural constraints on behaviour may lead to higher expected welfare. When people rationally choose their culture, we demonstrate that restrictive and permissive cultures can co-exist in the long run.

In the context of macroeconomic coordination, studies of the social value of information distinguish sharply between private and public information. However, no information is truly public (that is, common knowledge) or private in the established sense. This paper develops a general approach by allowing for many informative signals each of which incorporates elements of both public and private information. A measure of relative publicity determines a signal's equilibrium use and its social value. Output gaps (and hence social losses) arise when signals differ in their publicity: such differences drive a wedge between price-formation and expectations-formation processes. Turning to the effect of public announcements, and contrary to previous results, it is never socially optimal to withhold information completely, nor is it optimal to release perfectly public (or, indeed, perfectly private) information. Instead, when perfect communication is feasible, limited clarity enhances macroeconomic performance.

An observer makes a number of observations of an industry producing a homoge- neous good. Each observation consists of the market price, the output of individual firms and perhaps information on each firm's production cost. We provide vari- ous tests (typically, linear programs) with which the observer can determine if the data set is consistent with the hypothesis that firms in this industry are playing a Cournot game at each observation. When cost information is wholly or partially unavailable, these tests could potentially be used to derive cost information on the firms. This paper is a contribution to the literature that aims to characterize (in various contexts) the restrictions that a data set must satisfy for it to be consis- tent with Nash outcomes in a game. It is also inspired by the seminal result of Afriat (and the subsequent literature) which addresses similar issues in the context of consumer demand, though one important technical difference from most of these results is that the objective functions of firms in a Cournot game are not necessarily quasiconcave.

We examine some of the factors that might influence the quality of information produced in discussion groups on the internet, such as USENET and the WELL. In particular, we look at the impact of various different pricing structures, and compare regimes in which anonymity is enforced with regimes in which all contributors must identify themselves. Our main finding is that the flow of quality-weighted information within the group is maximized by a regime which front loads the cost of sending messages, and identification is required. If there is a positive spillover from the intra-group transmission of good quality information, however, benefiting society at large, then the social value of the flow of quality-weighted information may be maximized by a different regime, in which all replying is anonymous. Reputation effects play a key role in our analysis: posters who have sent high quality messages in the past are considered more likely to send high quality messages in the future, and are thus more likely to be taken notice of.

The volunteer's dilemma is an asymmetric n-player binary-action game in which a public good is provided if and only if at least one player volunteers, and consequently bears some private cost. So long as the value generated for every player exceeds this private cost there are n pure-strategy Nash equilibria in each of which a single player volunteers. Quantal-response strategy revisions allow play to move between the different equilibria. A complete characterisation of long-run play as strategy revisions approximate best replies provides an equilibrium selection device. The volunteer need not be the lowest-cost player: relatively high-cost, but nonetheless "stable" players may instead provide the public good. The cost of provision is (weakly) reduced when higher values are associated with lower costs.

The use of coarse categories is prevalent in various situations and has been linked to biased economic outcomes, ranging from discrimination against minorities to empirical anomalies in financial markets. In this paper we study economic rationales for categorizing coarsely. We think of the way one categorizes one's past experiences as a model of the world that is used to make predictions about unobservable attributes in new situations. We first show that coarse categorization may be optimal for making predictions in stochastic environments in which an individual has a limited number of past experiences. Building on this result, and this is a key new insight from our paper, we show formally that cases in which people have a motive to coordinate their predictions with others may provide an economic rationale for categorizing coarsely. Our analysis explains the intuition behind this rationale.

A usual explanation to low levels of contribution to public goods is the fear of getting the sucker’s payoff (cooperation by the participant and defection by the other players). In order to disentangle the effect of this fear from other motives, we design a public good game where people have an assurance against getting the sucker’s payoff. We show that contributions to the public good under this ‘protective’ design are significantly higher and interact with expectations on other individuals’ contribution to the public good. Some research extensions are suggested., Une des raisons à la faible contribution volontaire aux biens publics est l’aversion au sucker’s payoff (coopération individuelle quand les autres font défection). Afin de distinguer l’effet de cette aversion d’autres causes, nous réalisons une expérience de contribution à un bien public dans laquelle les joueurs ont une assurance contre le risque de sucker’s payoff. Les résultats montrent que l’assurance augmente les contributions de manière directe mais également de manière indirecte à travers les anticipations des individus sur les contributions des autres.

We present an evolutionary growth model where the degree of gender equality evolves towards the value maximising social output. It follows that a woman’s bar- gaining power should depend positively on her relative productivity. When an economy is less developed, physical strength plays a key role in production and thus, total out- put is greater when the man gets a larger share. As society develops and accumulates physical capital and human capital, the woman becomes relatively more productive, which drives the output maximising social norm towards gender equality. Empirical results support these predictions of the theoretical model. Simulations show that in the long run, an economy with gender equality can outperform an economy where gender balance of power maximises social output, although in the short run, it can lag behind.

Considered are imperfectly discriminating contests in which players may possess private information about the primitives of the game, such as the contest technology, valuations of the prize, cost functions, and budget constraints. We find general conditions under which a given contest of incomplete information admits a unique pure-strategy Nash equilibrium. In particular, provided that all players have positive budgets in all states of the world, existence requires only the usual concavity and convexity assumptions. Information structures that satisfy our conditions for uniqueness include independent private valuations, correlated private values, pure common values, and examples of interdependent valuations. The results allow dealing with inactive types, asymmetric equilibria, population uncertainty, and the possibility of resale. It is also shown that any player that is active with positive probability ends up with a positive net rent.

International audience; We experimentally investigate how much value people put in observable information about others in strategic interactions. The incentivized experimental task is to predict an unknown target player's trustworthiness in an earlier hidden action game. In Experiment 1, we vary the source of information about the target player (neutral picture, neutral video, video containing strategic content). The observed prediction accuracy rates then serve as an empirical measure of the objective value of information. In Experiment 2, we elicit the subjective value of information using the standard stated preferences method (willingness to accept). While the elicited subjective values are ranked in the same manner as the objective ones, subjects attach value to information which does not help predict target behavior, and exaggerate the value of helpful information.

We develop a framework in which individuals' preferences coevolve with their abilities to deceive others about their preferences and intentions. Specifically, individuals are characterized by (i) a level of cognitive sophistication and (ii) a subjective utility function. Increased cognition is costly, but higher-level individuals have the advantage of being able to completely deceive lower-level opponents about their preferences and intentions. Only individuals who are of the same cognitive level can observe each other's preferences. Our main result shows that, despite the limited possibility to observe preferences, and despite the strong form of deception, essentially only efficient population states can be stable. Moreover, if the marginal cognitive costs are not too high, then only efficient Nash equilibria are stable. We extend our model to study preferences that depend also on the opponent's type.

We study a class of sender–receiver disclosure games in the lab. Our experiment relies on a graphical representation of sender's incentives in these games, and permits partial disclosure. We use local and global properties of the incentive graph to explain behavior and performance of players across different games. Sender types whose interests are aligned with those of the receiver fully disclose, while other types use vague messages. Receivers take the evidence disclosed by senders into account, and perform better in games with an acyclic graph. Senders perform better in games with a cyclic graph. The data is largely consistent with a non-equilibrium model of strategic thinking based on the iterated elimination of obviously dominated strategies.

Proponemos un modelo cuasi racional de ajustes de precios en el mercado minorista que es coherente con la evidencia micro y macro de la dinamica de los precios. Nuestro marco esta basado en la idea de que evitar errores en las decisiones implica un coste. Dada la asumida funcion del coste de evitar errores, los momentos escogidos para cambiar los precios se determinan por un logit binario ponderado, mientras que los precios escogidos se determinan por un logit multinomio. Incorporamos este comportamiento en un modelo DSGE, estimamos la funcion de costes de decision ajustando los datos micro y simulamos la dinamica agregada utilizando un algoritmo manejable de agentes heterogeneos. Tanto los errores en los precios que establecen las empresas como los errores en los momentos escogidos para cambiar son relevantes para nuestros resultados. Los errores del primer tipo ayudan al modelo a reproducir algunas observaciones sorprendentes de los datos micro, como la coexistencia de cambios de precios pequenos y grandes, el comportamiento de la probabilidad de ajuste en funcion de la edad de los precios, y la variabilidad relativa de los precios y los costes. Los errores del segundo tipo aumentan los efectos reales de shocks monetarios, reduciendo la correlacion entre el valor de ajustar y la probabilidad de ajuste (es decir, reduciendo el «efecto de seleccion»). Permitir ambos tipos de errores tambien ayuda a reproducir los efectos de la inflacion sobre el comportamiento del ajuste de los precios. Nuestro modelo de fijacion de precios sujeto a errores se parece en muchos aspectos al modelo de costes de menu estocasticos (CME), pero tiene menos parametros libres que la mayoria de los modelos CME y, a diferencia de estos modelos, no requiere el supuesto implausible de que los costes de menu esten distribuidos identicamente y de manera independiente. Nuestra derivacion de un logit ponderado basado en costes de control ofrece una justificacion alternativa al modelo de ajuste de Woodford (2008). Nuestro supuesto de que los costes estan relacionados con la entropia es similar al marco de Sims (2003) y a la literatura posterior sobre «falta de atencion racional». No obstante, nuestro modelo tiene la principal ventaja de que la variable de estado idiosincratica de la empresa incluye solo su precio y productividad, mientras que en el modelo de «falta de atencion racional» la variable de estado idiosincratica incluye el prior de la empresa (en general, un objeto de dimension infinita).

One acclaimed role of managers is to monitor workers in team production processes and discipline them through the threat of terminating them from the team (Alchian and Demsetz, 1972). We extend a standard weakest link experiment with a manager that can decide to replace some of her team members at a cost. The amount of contractual commitment (‘termination possibilities’) and the precision of the manager’s monitoring information serve as treatment variables. Our results show that the fear of exclusion has a profound effect on team performance even if workers are imperfectly monitored; the most flexible contract induces the highest output while the one with no firing possibilities leads to the lowest production. However, once the fear is eliminated for some workers, because permanent workers cannot be fired after a probation phase, effort levels steadily decrease.

We use a laboratory experiment to compare general equilibrium economies in which agents individually allocate their private goods among consumption, investment in production, and replenishing or refurbishing a depreciating public facility in a dynamic game with long-term investment opportunities. The public facility is financed either by voluntary anonymous contributions (VAC) or taxes. We find that rates of taxation chosen by majority vote remain at an intermediate level close to the finite-horizon optimum, and the experimental economies sustain public goods at levels between the finite- and infinite-horizon optima. This contrasts with a rapid decline of public goods under VAC. Both the payoff efficiency and production of private goods are higher when taxes are set endogenously instead of being fixed at the infinite-horizon optimum level externally. When taxes are adjusted to the respective finite-horizon optimum each period, production levels and efficiency remain as high as in the voting treatments at least in the latter half of the sessions. When subjects choose between VAC and taxation, 23 out of 24 majority votes favor taxation, demonstrating a clear preference for enforceable taxes to finance public goods in this setting.

New technologies such as product simulators and virtual reality now allow firms to provide realistic product usage experiences and reduce buyer uncertainty about product quality. We argue that today’s firms should view product design and investments to reduce buyer uncertainty as an integrated process, which is in turn influenced by how much information buyers can obtain from third-party infomediaries. We introduce a game-theoretic model of a competitive market where both quality production and quality disclosure are endogenous decisions, affected by information made available by third parties. We show that quality investment under uncertainty never exceeds the level of quality investment under perfect information. Furthermore, we show that information availability by third parties allows firms to free ride, and it especially favors lower quality firms, who can reduce their information disclosure investments more so than higher-quality firms. Finally, we show that the intuitive argument that firms must improve their product quality when overall information availability in the market improves does not always hold. Instead, improved information availability may enable firms to reduce their quality in some situations. The online appendix is available at https://doi.org/10.1287/mnsc.2016.2634 . This paper was accepted by Chris Forman, information systems.

Phenomena like meat sharing in hunter-gatherers, self-sacrifice in intergroup conflicts, and voluntary contribution to public goods provision in laboratory experiments have led to the development of numerous theories on the evolution of altruistic in-group beneficial behavior in humans. Many of these theories abstract away from the effects of kinship on the incentives for public goods provision, though. Here, it is investigated analytically how genetic relatedness changes the incentive structure of that paradigmatic game which is conventionally used to model and experimentally investigate collective action problems: the linear public goods game. Using recent anthropological data sets on relatedness in 61 contemporary hunter-gatherer and horticulturalist societies the relevant parameters of this model are then estimated. It turns out that the kinship patterns observed in these societies substantially reduce the negative effect of increasing group size on incentives for public goods provision. It is suggested, therefore, that renewed attention should be given to inclusive fitness theory in the context of public goods provision also in sizable groups, because its explanatory power with respect to this central problem in the evolution of human cooperativeness and altruism might have been substantially underrated. JEL: B15, C72, D64, H41

This paper investigates the private provision of public goods in segregated societies. While most research agrees that segregation undermines public provision, the findings are mixed for private provision: social interactions, being strong within groups and limited across groups, may either increase or impede voluntary contributions. Moreover, although efficiency concerns generally provide a rationale for government intervention, surprisingly, little light is shed in the literature on the potential effectiveness of such intervention in a segregated society. This paper first develops an index based on social interactions, which, roughly speaking, measures the welfare impact of income redistribution in an arbitrary society. It then shows that the proposed index vanishes when applied to large segregated societies, which suggests an “asymptotic neutrality” of redistributive policies.

We investigate efficiency properties of sealed-bid second-price auctions with costly participation and resale. Each bidder chooses to participate in the auction if her valuation is higher than her optimally chosen participation cutoff. If resale is not allowed and the bidder valuations are drawn from a strictly convex distribution function, the symmetric equilibrium (where all bidders use the same cutoff) is less efficient than a class of two-cutoff asymmetric equilibria. Existence of these equilibria without resale is sufficient for existence of similarly constructed two-cutoff equilibria with resale. Moreover, these equilibria with resale are more asymmetric and (under a sufficient condition) more efficient than the corresponding equilibria without resale.

In everyday economic interactions, it is not clear whether each agent’s sequential choices are visible to other participants or not: agents might be deluded about others’ ability to acquire, interpret or keep track of data. Following this idea, this paper introduces uncertainty about players’ ability to observe each others’ past choices in extensive-form games. In this context, we show that monitoring opponents’ choices does not affect the outcome of the interaction when every player expects their opponents indeed to be monitoring. Specifically, we prove that if players are rational and there is common strong belief in opponents being rational, having perfect information and believing in their own perfect information, then, the backward induction outcome is obtained regardless of which of her opponents’ choices each player observes. The paper examines the constraints on the rationalization process under which reasoning according to Battigalli’s (1996) best rationalization principle yields the same outcome irrespective of whether players observe their opponents’ choices or not. To this respect we find that the obtention of the backward induction outcome crucially depends on tight higher-order restrictions on beliefs about opponents’ perfect information. The analysis provides a new framework for the study of uncertainty about information structures and generalizes the work by Battigalli and Siniscalchi (2002) in this direction.

We experimentally test different rule-based contribution mechanisms in a repeated 4-player public goods game with endowment heterogeneity and compare them to a VCM, distinguishing between a random- and an effort-based allocation of endowments. We find that endowment heterogeneities limit the efficiency gains from minimum contribution rules under random allocation. Under effort-based allocations, substantial efficiency gains relative to a VCM occur, though being largely driven by significant reductions of contributions in VCM. By apparently influencing the perception of fair burden sharing, the endowment allocation procedure crucially impacts voluntary contributions under VCM, while the rule-based mechanisms generate stable efficiency levels, even though endowment heterogeneity substantially limits the ability of rule-based mechanisms to achieve the potential efficiency gains.

I study the optimal audit mechanism when the principal cannot commit to an audit strategy. Invoking a relevation principle, the agent reports her type to a mediator whi assigns contracts and recommends the principla whether to audit. For each reported type the mediator randomizes over a base-contract and the audit contract, accompanied by a recommendation to audit. For large penalties the optimal mechanism uses strictly more contracts than types and cannot be implemented via offering a menu of contracts. The analysis provides a proper benchmark for studying auditing under limited commitment and sheds new light on the usefulness of mediation in contracting and on the design of optimal mechanisms.

We study from both a theoretical and an empirical perspective how a network of military alliances and enmities affects the intensity of a conflict. The model combines elements from network theory and from the politico-economic theory of conflict. We postulate a Tullock contest success function augmented by an externality: each group’s strength is increased by the fighting effort of its allies, and weakened by the fighting effort of its rivals. We obtain a closed form characterization of the Nash equilibrium of the fighting game, and of how the network structure affects individual and total fighting efforts. We then perform an empirical analysis using data on the Second Congo War, a conflict that involves many groups in a complex network of informal alliances and rivalries. We estimate the fighting externalities, and use these to infer the extent to which the conflict intensity can be reduced through (i) removing individual groups involved in the conflict; (ii) pacification policies aimed at alleviating animosity among groups.

International audience; In an environment with privately informed agents who can produce evidence, we study implementation of a social choice function by reading mechanisms: mechanisms that simply apply the social choice function to a consistent interpretation of the evidence. We provide sufficient conditions on the social choice function and the evidence structure for ex post implementability by such mechanisms. If the first-best policy of a mechanism designer satisfies this condition, then its implementation by a reading mechanism does not require commitment. We show that with rich evidence structures, (1) a function that is implementable with transfers is also implementable with evidence but no transfer, (2) under private value, the efficient allocation is implementable with budget balanced and individually rational transfers, and (3) in single-object auction and bilateral trade environments with interdependent values, the efficient allocation is implementable with budget balanced and individually rational transfers.

This paper deals with the identification and estimation of dynamic games when players' beliefs about other players' actions are biased, i.e., beliefs do not represent the probability distribution of the actual behavior of other players conditional on the information available. First, we show that a exclusion restriction, typically used to identify empirical games, provides testable nonparametric restrictions of the null hypothesis of equilibrium beliefs. Second, we prove that this exclusion restriction, together with consistent estimates of beliefs at several points in the support of the special state variable (i.e., the variable involved in the exclusion restriction), is sufficient for nonparametric point-identification of players' payoffs and belief functions. The consistent estimates of beliefs at some points of support may come either from an assumption of unbiased beliefs at these points in the state space, or from available data on elicited beliefs for some values of the state variables. Third, we propose a simple two-step estimation method. We illustrate our model and methods using both Monte Carlo experiments and an empirical application of a dynamic game of store location by retail chains. The key conditions for the identification of beliefs and payoffs in our application are the following: (a) the previous year's network of stores of the competitor does not have a direct effect on the profit of a firm, but the firm's own network of stores at previous year does affect its profit because the existence of sunk entry costs and economies of density in these costs; and (b) firms' beliefs are unbiased in those markets that are close, in a geographic sense, to the opponent's network of stores, though beliefs are unrestricted, and potentially biased, for unexplored markets which are farther away from the competitors' network. Our estimates show significant evidence of biased beliefs. Furthermore, imposing the restriction of unbiased beliefs generates a substantial attenuation bias in the estimate of competition effects.

In using their citizen candidate framework, Besley and Coate (2001) fi nd that if citizen candidates with sufficiently extreme preferences are available, lobbying has no in fluence on equilibrium policy. I show that this result does not hold in a model with ideological parties instead of citizen candidates. Even if forward-looking voters are aware that lobbying will take place, their choice between policies is di erent when lobbies do and do not exist. In many cases, the majority of voters is better off with lobbying.

We present an experiment in which extrinsic information (signals) may generate sunspot equilibria. The underlying coordination game has a unique symmetric non-sunspot equilibrium, which is also risk-dominant. Other equilibria can be ordered according to risk dominance. We compare treatments with different salient, but extrinsic signals. By increasing the precision of private signals, we manipulate the available public information, which allows us to measure the force of extrinsic signals. We also vary the number of signals and combine public and private signals, allowing us to see how subjects aggregate available (and possibly irrelevant) information. Results indicate that sunspot equilibria emerge naturally if there are salient (but extrinsic) public signals. However, salient private signals of high precision may also cause sunspot-driven behavior, even though this is no equilibrium. The higher the precision of signals and the easier they can be aggregated, the more powerful they are in dragging behavior away from the risk-dominant to risk-dominated strategies. Sunspot-driven behavior may lead to welfare losses and exert negative externalities on agents, who do not receive extrinsic signals.

This paper proposes an equilibrium concept, Language-Based Expectation Equilibrium, which accounts for partial language understanding in sender-receiver cheap talk games. Each player is endowed with a privately known language competence which represents all the messages that he understands. For the messages he does not understand, he has correct but only coarse expectations about the equilibrium strategies of the other player. In general, a language-based expectation equilibrium outcome differs from Nash and communication equilibrium outcomes, but is always a Bayesian solution. Partial language competence of the sender rationalizes information transmission and lies in pure persuasion problems, and facilitates information transmission from a moderately biased sender.