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We design a laboratory experiment to test the importance of wealth as a channel for financial contagion across markets with unrelated fundamentals. In a sequential global game, we analyze the decisions of a group of investors that hold assets in two markets. We consider two treatments that vary the level of diversification of these assets across markets. In both treatments, we find evidence of financial contagion. When investors have completely diversified portfolios, we provide evidence of contagion due to a wealth effect: for certain ranges of fundamentals, we show that a decrease in wealth from the investment in the first market makes withdrawals more likely in the second, thereby increasing the probability of a crisis. When portfolio diversification is small, then social imitation is relevant in explaining contagion.

We consider the problem of a leader who can assign rewards for citizens for different anti-regime actions. Citizens face a coordination problem in which each citizen has a private, endogenous degree of optimism about the likelihood of regime change. Because more optimistic citizens are easier to motivate, the choice of optimal rewards entails optimal screening. This leads to a distribution of anti-regime actions. A key result is the emergence of a vanguard, consisting of citizens who engage in the endogenous, maximum level of action. Other citizens participate at varying degrees, with less optimistic citizens contributing less. We explore how the regime’s strength or the maximum reward available to the leader influences the distribution of actions. Moreover, we show that more heterogeneity (e.g., higher inequality) among potential revolutionaries reduces the likelihood of regime change. Our methodological contribution is that we deliver a sharp and novel marriage of screening and global games.

In this paper, I construct a two-period general equilibrium model and describe price competition among monopolistically competitive firms as a coordination game. While the model has multiple equilibria with different levels of inflation (positive or zero), the equilibrium selection in line with global games implies that the economy with a high natural interest rate, i.e., high expected productivity growth, tends to move into the equilibrium with positive inflation. The policy analyses indicate that monetary policy measures such as an increase in the target inflation rate and a decrease in the lower bound of nominal interest rates can prevent the economy from moving into the zero inflation equilibrium even in the face of low expected productivity growth.

Distributed, consensus-based algorithms have emerged as a promising approach for the coordination of distributed energy resources (DER) due to their communication, computation, privacy and reliability advantages over centralized approaches. However, state-of-the-art consensus-based algorithms address the DER coordination problem in independent time periods and therefore are inherently unable to capture the time-coupling operating characteristics of flexible demand (FD) and energy storage (ES) resources. This paper demonstrates that state-of-the-art algorithms fail to converge when these time-coupling characteristics are considered. In order to address this fundamental limitation, a novel consensus-based algorithm is proposed which includes additional consensus variables. These variables express relative maximum power limits imposed on the FD and ES resources which effectively mitigate the concentration of the FD and ES responses at the same time periods and steer the consensual outcome to a feasible and optimal solution. The convergence and optimality of the proposed algorithm are theoretically proven while case studies numerically demonstrate its convergence, optimality, robustness to initialization and information loss, and plug-and-play adaptability.

An inequality game is an asymmetric 2 × 2 coordination game in which player 1 earns a substantially higher payoff than player 2 except in the inefficient Nash equilibrium (NE). The two players may have either common or conflicting interests over the two NE. This paper studies a redistribution scheme which allows the players to voluntarily transfer their payoffs after the play of an inequality game. We find that the redistribution scheme induces positive transfer from player 1 to player 2 in both common- and conflicting- interest games, and is particularly effective in increasing efficient coordination and reducing coordination failures in conflicting-interest games. We explain these findings by considering reciprocity by player 1 in response to the sacrifice made by player 2 in achieving efficient coordination in conflicting-interest games.

In a transportation system with multiple equilibria, coordination failure occurs when a group of travelers could achieve the efficient equilibrium but fail because they cannot coordinate their decision‐making under strategic uncertainty. This study investigated factors that might affect coordination behavior in mode choice with both positive and negative externalities. Subjects participated in a mode‐choice game in which they were required to choose between public transport and private car. Positive or negative externalities occurred when subjects chose public transport or private car, respectively, thereby generating two pure‐strategy equilibria in the mode‐choice game. The experimental results indicated that (i) the transparency of descriptive information facilitated not only the convergence to the efficient equilibrium but also the stabilization of choice behavior, (ii) historical experiences of converging to the inefficient equilibrium could affect subjects' initial choices and even equilibrium selection, and (iii) a “higher” barrier between the two equilibria impeded and prolonged the transformation from the inefficient equilibrium to the efficient equilibrium, and a “deeper” attraction basin of the efficient equilibrium was more attractive in equilibrium selection.

Tullock's (1971) Paradox of Revolution uses an Olsonian logic to conclude that revolutions should not happen in large societies. Cantoni et al.'s (2018) Hong Kong Experiment shows that, in sharp contrast to the literature that models protest as a coordination problem, actions can be strategic substitutes. We develop a model to address these standing puzzles, and investigate its empirical implications. We show that when the movement's goal is modest, free-riding concerns dominate the citizens' interactions, making their actions strategic substitutes. By contrast, when the movement's goal is to topple the regime, coordination concerns dominate, and actions become strategic complements. Moreover, with natural other-regarding preferences, some citizens participate in costly revolt even in large societies. A new empirical implication of the model is that as a regime grows stronger in the sense that a larger fraction of citizens is needed to overthrow it, the likelihood of regime change may rise.

The paper discusses the fiscal-monetary coordination and the resultant outcomes in macroeconomic aggregates from theoretical and empirical perspectives. The game-theoretic technique was also used to analyse the policy mix conundrum vis-a-vis the fiscal-monetary policies interaction and how that translates into optimal outcomes in an economy. However, the situation of making or forcing monetary policy to be subordinate to fiscal policy may still not generate socially optimal results. This is not far-fetched as the payoffs in the game-theoretic model suggest the presence of minimal coordination problem but high policy conflict even if both authorities are disciplined. Coordination problem and goal conflict seem to be non-existent - when both fiscal and monetary policy blocks are committed and responsible in their choices. Further analyses indicate that the policy mix of both fiscal and monetary authorities for inflation seemed complementary. Inflation responded negatively to the shock of debt in the short run. However, in the medium term, the shock becomes positive and later returns to the initial state. The study suggests that policy designs in Nigeria must harmonise both stabilisation and growth objectives to have optimal outcomes.

The transition from a traditional, constant returns technology to modern, increasing returns methods of production in manufacturing not only widens the scale of production but more crucially, it enhances product quality. Such a quality improvement consists mainly in a much higher level of transportability. The fact that products become “lighter” and easier to carry opens foreign markets to manufacturers thereby supporting larger scales of production. We model this situation through a one-stage game where firms distributed across two countries select technologies and fob mill prices. Contrasting with the Big Push approach, such a game is never a coordination game. In addition to cases where all firms adopt either modern or traditional technologies, the standard outcome is an asymmetric situation, where the modern firms in a country eliminate traditional units in the other country. Starting from a situation where all productive activity is traditional, deindustrialization can be viewed as a situation where firms in a country switch to more modern technologies while industrial units in the other country are unable to participate in this movement. info:eu-repo/semantics/publishedVersion

Friendship is commonly assumed to reduce strategic uncertainty and enhance tacit coordination. However, this assumption has never been tested across two opposite poles of coordination involving either strategic complementarity or substitutability. We had participants interact with friends or strangers in two classic coordination games: the stag-hunt game, which exhibits strategic complementarity and may foster “cooperation”, and the entry game, which exhibits strategic substitutability and may foster “competition”. Both games capture a frequent trade-off between a potentially high paying but uncertain option and a low paying but safe alternative. We find that, relative to strangers, friends are more likely to choose options involving uncertainty in stag-hunt games, but the opposite is true in entry games. Furthermore, in stag-hunt games, friends “tremble” less between options, coordinate better and earn more, but these advantages are largely decreased or lost in entry games. We further investigate how these effects are modulated by risk attitudes, friendship qualities, and interpersonal similarities.

We develop a model of cultural selection based on the labor market characteristics of different cultural types. Following Borjas (1994, 1995) we assume that cultural heterogeneity increases labor productivity due to skill complementarities, however following Jackson and Xing (2014) we also assume that cultural heterogeneity hampers communication. We model this as a game in which individuals from two cultural types first engage in random matching, then once matched play a coordination game. Other‐type matches are thus potentially more productive, but also less likely to coordinate. We show that these two labor market characteristics serve as important primitives in determining if a cultural minority persists. Essentially, when the productivity advantages from a cross‐cultural match sufficiently outweigh the disadvantages of coordination problems then the cultural minority will persist. If not it will be assimilated. Further, we obtain results concerning the efficient size of the cultural minority, the effects of tax and welfare programs on the size and welfare of the cultural minority, and the relationship between the intensity of social interaction and size and welfare of the cultural minority.

Recent works have suggested that most games arising in climate change diplomacy and sustainability choices, should have a coordinative nature rather than that of a prisoners' dilemma, as typically suggested. In this note, after having proposed a definition of sustainability game, we critically review the merits and shortcomings of these contributions and use a simple, yet sufficiently general, model to recall the difficulties for coordination to emerge in such games. Indeed, as far as the players' short-term interest is involved, at least in some degree, these games will most often generate a prisoner's dilemma, thereby allowing coordination only upon long-term interactions possibly under the pressure of a continuing environmental deterioration. A counter- intuitive result is proved, showing the circumstances when the deterioration of the environment can hinder cooperation in repeated games. We conclude by highlighting a number of factors forcing “brown” behaviour and therefore threatening coordination, first of all poverty and inequality, and pinpointing that, though ability to enact coordination will be key for a successful battle for climate, undue emphasis on coordination might be the deleterious in view of its optimistic message.

We study the effect of introducing a bilingual option on the long run equilibrium outcome in a class of two-strategy coordination games with distinct payoff and risk dominant equilibria under the logit choice rule. Existing results show that in the class of two-strategy games under consideration, the inefficient risk dominant equilibrium is selected in the long run under noisy best response models. We show that if the cost of the bilingual option is sufficiently low then the efficient payoff dominant equilibrium will be selected in the long run under the logit choice rule.

Purpose The purpose of this paper is to study the impact of bargaining powers of firms in supply chain coordination. It studies selected aspects of bargaining powers, namely, impatience, breakdown probability and outside options, and uses a bargaining-theoretic approach to analyze surplus allocation in a coordinated supply chain. Design/methodology/approach This paper proposes one-supplier one-buyer infinite horizon supply chain coordination game, where suppliers and buyers negotiate for the allocation of supply chain surplus arising out of supply chain coordination. Various aspects of the bargaining power of the negotiating parties are modeled and the paper studies impact of power levels on the results of the bargaining game. Findings A significance of impatience on the bargaining process and the surplus split has been established. This paper also demonstrates a rather counter-intuitive aspect of bargaining that the impatience (as perceived by the other party) can improve the bargaining position and therefore share of profits. Research limitations/implications This paper has limited its analysis to three key components of bargaining power. Future works can study other aspects of bargaining power, namely information asymmetry, learning curve, inside options, etc. Further, the paper has considered an infinite horizon model – this assumption can be relaxed in future research. Practical implications Equations to derive optimal split of the surplus have been derived and can be leveraged to design an autonomous bargaining agent to discover equilibrium profit splits in a cloud or e-commerce setting. Further, insights from this paper can be leveraged by managers to understand their relative bargaining power and drive to obtain the best profit split. Originality/value This paper establishes that impatience (in terms of counter-offer probability) has a significant impact on the bargaining position and on the split of the surplus that the firm can get for themselves. It establishes the advantage of higher levels of impatience, provided the other party recognizes the impatience and factors it in their decision-making process.

We study the potential role of correlated refinancing abilities among different countries for the disruption of government bond markets in a currency union. Following Morris and Shin (2004) we use a global games framework and model the simultaneous investment decision into two assets, which are subject to correlated fundamental states, as a coordination problem with correlated imperfect information. Based on this model we evaluate the role of information about one country for the coordination of creditors of another country. We find, however, that the contagious effects on the price of debt precipitated through correlation are modest. Hence, assuming that investors behave as modeled in the global game, we conclude that correlated fundamentals that precipitate informational spillovers appear to be unlikely to play a major role for e.g. the disruption of some Eurozone government bond markets in the aftermath of the recent financial and economic crisis.

Using a simple model of a coordination game, this paper explores how the information use of individuals affects an optimal committee size. Although enlarging the committee promotes information aggregation, it also stimulates the members’ coordination motive and distorts their voting behavior through higher-order beliefs. On the determination of a finite optimal committee size, the direction and degree of strategic interactions matter. When the strategic complementarity among members is strong, a finite optimal committee size exists. In contrast, it does not exist under strategic substitution. This mechanism is applied to the design of monetary policy committees in a New Keynesian model in which a committee conducts monetary policy under imperfect information.

We study the determinants of convergence to efficient conventions in coordination games played on networks, when agents focus on past performance (imitative play). Previous theoretical results provide an incomplete picture and suggest potentially-complex interactions between the features of dynamics and behavior. We conducted an extensive simulation study (with approximately 1.12 million simulations) varying network size, interaction and information radius, the probability of actual interaction, the probability of mistakes, tie-breaking rules, and the process governing revision opportunities. Our main result is that “more interactions,” be it in the form of larger interaction neighborhoods or of a higher interaction probability, lead to less coordination on efficient conventions. A second observation, confirming previous but partial theoretical results, is that a large network size relative to the size of neighborhoods (a “large world”) facilitates convergence to efficient conventions. Third, a larger information neighborhood helps efficiency because it increases visibility of efficient payoffs across the network. Last, technical details of the dynamic specification as tie-breaking or inertia, while often relevant for specific theoretical results, appear to be of little empirical relevance in the larger space of dynamics.

A catch-22 situation or coordination failure between the slow creation of well-integrated regional markets and low economic diversification (plus sophistication and specialization) is unfolding in Africa. Ubiquitous trade barriers translate into a paradoxical tariff pattern by which African neighbours are treated worse than remote trade partners. In the face of widespread irregularities and high trade costs, ‘trade facilitation’ has become an important technical approach to easing trade with the support of donor agencies. This chapter examines the systemic potential and limits of trade facilitation programmes. As a general alternative to institution-heavy, imperfect integration along the trodden linear path, ‘light integration’ is suggested in parts of the economic literature. The extent to which light integration can avoid the pitfalls of the classical approach is investigated. Dynamic effects are invoked as the last line of defence for the classical model of economic unions but remain contested, as trade research cannot empirically identify them in South-South RECs. The chapter concludes by asking what kind of new economic policy is required to effectively realize such dynamic effects. The answer is given in Part II.

Ranking information is often provided to improve task performance, yet its welfare and spillover effects are rarely measured. We measure these effects in a controlled laboratory experiment, in which participants conduct a simple cognitive task and report their willingness-to-pay (WTP) to receive or avoid private ranking information, and for a partial or full public announcement of the ranking information, both unconditionally and conditional on the realized rankings. The results show that although modest performance improvements are achieved by providing ranking information, low-performing individuals do bear utility losses under a full public announcement, whereas in other cases individuals mostly enjoy significant utility gains from both social comparison and social recognition. Estimates from the structural model show that all the ranking information provision schemes we consider bring positive net emotional effects for our sample. Finally, we find that partially announcing the rankings in the cognitive task increases contribution levels in a public good game played afterward; however, no spillover effects are found in a subsequent coordination game or Vendetta game.

This paper analyzes the option coordination problem of a fresh agricultural product supply chain under two supply chain structures, when the production cost and the loss rate are disrupted simultaneously. This paper provides the explicit option coordination conditions for the disrupted supply chain under two supply chain structures, and then explores the effects of the disruptions and supply chain structure on the option coordination conditions. The results suggest that it is unfavorable to apply the original coordinating contracts without disruptions to coordinate the disrupted supply chain. The coordination of the disrupted supply chain can be achieved with knowledge of the distribution of demand. In two coordinating contracts for the disrupted supply chain, the exercise price is still at the original level without disruptions while the option price deviates from the original level without disruptions. Moreover, the relationships of the coordination conditions in two supply chain structures depend on the value of the profit allocation coefficient. When the profit allocation coefficient exceeds (falls behind) a certain threshold, the option price is set at a higher (lower) value in the supplier-led supply chain structure than in the distributor-led supply chain structure, while the exercise price is set at a lower (higher) value in the supplier-led supply chain structure than in the distributor-led supply chain structure. Finally, the disrupted supply chain with any supply chain structure will perform better in the modified coordinating contracts than in the original coordinating contracts without disruptions.

This paper develops a strategic model of procrastination in which present-biased agents prefer to perform an onerous task with someone else. This turns their decision of when to perform the task into a procrastination game—a dynamic coordination game between present-biased players. The model characterizes the conditions under which interaction mitigates or exacerbates procrastination. A procrastinator matched with a worse procrastinator may perform her task earlier than she otherwise would: she wants to avoid the increased temptation that her peer's company would generate. Procrastinators can thus use bad company as a commitment device to mitigate their self-control problem. (JEL C72, C73, D03, D91)

The paper presents a model of two-speed evolution in which the payoffs in the population game (or, alternatively, the individual preferences) slowly adjust to changes in the aggregate behavior of the population. The model investigates how, for a population of myopic agents with homogeneous preferences, changes in the environment caused by current aggregate behavior may affect future payoffs and hence alter future behavior. The interaction between the agents is based on a symmetric two-strategy game with positive externalities and negative feedback from aggregate behavior to payoffs, so that at every point in time the population has an incentive to coordinate, whereas over time the more popular strategy becomes less appealing. Under the best response dynamics and the logit dynamics with small noise levels the joint trajectories of preferences and behavior converge to closed orbits around the unique steady state, whereas for large noise levels the steady state of the logit dynamics becomes a sink. Under the replicator dynamics the unique steady state of the system is repelling and the trajectories are unbounded unstable spirals.

This paper studies a coordination game with incomplete information and the option to delay. The delay option enables the agents to observe a binary signal depending on whether the early actions (e.g., investment) surpasses a threshold. The anticipation of information incentivizes agents to wait and free-ride on the information, whereas acting early can help to generate good news, and consequently induce more coordination. Relying on this trade-off, we find the unique monotone equilibrium, which features the inability of the delay option in facilitating coordination. If the waiting period is sufficiently short or the interest rate is sufficiently low, the delay option induces more inaction and makes coordination more difficult to achieve, as compared with the static case. We further discuss the theoretical implications for understanding the impact of monetary policy on economic recovery and how the accessibility of information affects financial stability.

An individual can only experience regret if she learns about an unchosen alternative. In many situations, learning about an unchosen alternative is possible only if someone else chose it. We develop a model where the ex-post information available to each regret averse individual depends both on their own choice and on the choices of others, as others can reveal ex-post information about what might have been. This implies that what appears to be a series of isolated single-person decision problems is in fact a rich multi-player behavioural game, the regret game, where the psychological payoffs that depend on ex-post information are interconnected. For an open set of parameters, the regret game is a coordination game with multiple equilibria, despite the fact that all individuals possess a uniquely optimal choice in isolation. We experimentally test this prediction and find support for it.

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.

During the Bretton Woods era, OECD countries grew at historically unprecedented rates. This Golden Age has many possible explanations, ranging from the return to liberal policies in international trade to a backlog of profitable growth opportunities after the neglect of the 1930s and war-time damage. Eichengreen (1996) has argued that the proximate cause of the rapid growth was high investment, and that this high investment was made possible by certain institutions that were particularly well suited to reconstruction and growth. On the domestic side, these institutions led to high investment rates and moderate wage claims. This paper interprets the interaction between unions and firms as a coordination game. The risk-dominant equilibrium is selected via a global game argument. Only small changes to the payoffs are necessary to explain a change in the selected equilibrium, and therefore, the growth slowdown.

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.

A duopoly game with timing announcements endogenizes the sequence of commitments. In duopolistic price competition, endogenous moves lead to a coordination problem with two non-Pareto ranked subgame perfect equilibria (SPEs). In these SPEs both firms prefer followership to leadership. We suggest that a unique SPE can be found if firms use partial commitments to their timing announcements. Using partial commitments, the firms first announce the timing of moves but reserve the option to deviate from this announcement and pay a deviation cost. We show that given a sufficient asymmetry in stochastic production technologies, there exists a unique SPE with sequential moves if the deviation costs are sufficiently different or if a common deviation cost belongs to a suitable interval. We also discuss the information sharing implications of the results and find that information is not shared at the unique SPE.

Correlated equilibrium ( Aumann, 1974 , Aumann, 1987 ) is an important generalization of the Nash equilibrium concept for multiplayer non-cooperative games. In a correlated equilibrium, players rationally condition their strategies on realizations of a common external randomization device and, as a consequence, can achieve payoffs that Pareto dominate any of the game's Nash equilibria. In this paper we explore whether such correlated equilibria can be learned over time using an evolutionary learning model where agents do not start with any knowledge of the distribution of random draws made by the external randomization device. Furthermore, we validate our learning algorithm findings by comparing the end behavior of simulations of our algorithm with both the correlated equilibrium of the game and the behavior of human subjects that play that same game. Our results suggest that the evolutionary learning model is capable of learning the correlated equilibria of these games in a manner that approximates well the learning behavior of human subjects and that our findings are robust to changes in the specification and parameterization of the model.

Dynamic stochastic general equilibrium (DSGE) modeling remains the workhorse of contemporary macroeconomics despite a growing number of critiques of its ability to explain the aggregate properties of an economic system. For the most part, those critiques accept the DSGE presumption that traditional macro data are primitive, causal data. This leads to a stipulative style of analysis where macro variables are explained in terms of one another. In contrast, we set forth an open-ended evolutionary (OEE) framework for an OEE macroeconomics. Within this framework, systems data are not primitive, but are derived from prior microlevel interactions without any presumption that those macrolevel derivations reflect systemic equilibrium among the microlevel primitive sources of action. We explore some contours of an OEE framework by placing coordination games within an ecological setting where there is no agent who has universal knowledge relevant to that ecology of games.JEL Classifications: B40, C73, D51, D85, E02

Demand response (DR) programs incentivize consumers for using their elastic demand for demand shaping, supply-demand balancing, and other ancillary and network support services. This paper proposes a dynamic nonlinear pricing scheme for behind-the-meter distributed energy resources (DERs), such as residential batteries, plug-in electric vehicles, and smart appliances, participating in a DR program, based on distributed mechanism design concepts. The underlying method is a faithful mechanism that can overlay any tractable dual-decomposition algorithm that solves the DER management and coordination problem in a distributed fashion. Since electricity is a continuously produced and divisible commodity that cannot be invariably allocated or stored, the pricing scheme is designed to couple the negotiated allocations and the actual consumption in a proportionally fair way, which means that it assigns lower payments to consumers who require less energy and are more accurate in following these requirements. Specifically, this pricing scheme is based on the Lagrange multipliers, which are the byproducts of any dual-decomposition algorithm that solves the nonconvex DER management and coordination problem. As a result, and in contrast to most existing time-varying pricing schemes, this pricing strategy does not suffer from rebound peaks repercussions. Furthermore, the proposed distributed mechanism is proven to be asymptotically faithful, i.e., faithful when the number of households grows large, collusion proof and weakly budget balanced.

Electric irrigation contributes to food security in rural India, but deteriorating electrical infrastructures threaten the functioning of farmers’ pump sets. This problem could be solved through investments in energy-efficient technologies. However, network externalities create a coordination problem for farmers. We develop a framed field experiment to study the effects of group size, leading by example, and payoff structures on the ability to coordinate technology adoption investments. The experiment is based on a game that combines features of a step-level public goods game and a critical mass game. Our findings show that smaller groups more frequently coordinate on payoff- superior equilibria and that higher payoffs lead to more investments. Contrary to previous studies, leading by example reduces investments but has no effect on efficiency. Building on this analysis, we discuss possible bottom-up solutions to the energy crisis in rural India.

Are people better at coordinating on a focal point when the game is framed as coordinating on a division of losses rather than gains? In an experimental coordination game, we vary the payoff framing (gain vs loss) and stake size (low vs high) to examine this question. We find that loss framing reduces coordination on the focal point, with the strongest effect observed in high stakes games.

The “ratchet effect” is a phenomenon where workers strategically restrict their output because they anticipate high levels of productivity will be met with increased expectations in the future. Using a real-effort work task and a piece-rate incentive scheme, we investigate the presence of the ratchet effect using two different methods for evaluating worker productivity: (i) when productivity is evaluated individually, and (ii) when productivity is evaluated collectively among a group of workers. We find strong evidence that workers restrict output when productivity is evaluated individually. However, we find little evidence of output restriction when productivity is evaluated at the group-level, which we attribute to the coordination problem and the free-riding incentive that emerge within the group. Although, output restriction re-emerges if workers are able to communicate. We also examine an important dynamic implication of the ratchet effect, and our results indicate that output restriction reduces future productivity through reduced learning-by-doing.

This article studies stimulus policies in a simple macroeconomic model featuring a dynamic coordination problem that arises from demand externalities and fixed costs of investment. In times of low economic activity, firms face low demand and hence have lower incentives for investing, which reinforces their low‐demand expectations. In a benchmark case with no shocks, the economy might get trapped in a low‐output regime and a social planner would be particularly keen to incentivise investment at times of low economic activity. However, this result vanishes once shocks are considered.

In this study, we present about the interaction between monetary and fiscal policy makers in the Turkish economy since the 2001 crisis. This interaction is evaluated by a theoretical perspective of the game. The data show that there is a conflict between the monetary and fiscal policy makers in the Turkish economy, especially in some periods. The coordination problem created by this conflict is affecting social welfare negatively. Therefore, we argue that during these periods, there is a state of "Prisoners' Dilemma" among policy makers.

The article explores parametric management of economic entity production volume within framework of weak and strong hypothesis of bounded rationality. The concept of parametric management with the example of economic entity behavior modeling under the conditions of bounded rationality is considered. The qualitative analysis of nonlinear kinetics differential equations is applied as the basic method of the investigation suggested. The investigation proves the possibility of parametric stimulation of economic entity production volume increasing by the means of: transfers, taxes, fixed prices depending on different conditions, such as the model of economic entity rationality, demand function, borrowing financial assets accessibility. The invariant instruments of parametric management for different models of economic actors strategic behavior are proposed. The managerial problems explored may be generalized for solving the coordination problem as a hole.

The Agglomeration Bonus is a Payment for Ecosystem Services scheme that focuses on achieving spatially-coordinated land use across neighboring, privately-owned agricultural properties. In this article, I use a laboratory experiment to examine the role of two mechanisms in incentivizing spatially-coordinated land uses under the Agglomeration Bonus scheme on a geographical landscape resembling a local circular network. The first mechanism is pecuniary in format and varies the payoffs associated with coordination, while the second is a non-pecuniary mechanism that varies the amount of information participants have about the land use choices of other participants, specifically of those from another community. The payoff variation is implemented as a within-subject treatment and the information treatment in a between-subject format. The results indicate that the coordination rates are higher if payments associated with coordination are higher. Also, having information about outcomes of the Agglomeration Bonus scheme from another community improves spatial coordination rates in both communities.

The aim of this study is twofold. The first is to question the claim that the price system is the only form of coordination of individual actions. The attempt to overcome this assumption highlights the need for other forms of coordination to regulate behaviours that are not price-related, proposing the concept of Keynesian Convention as a special kind of coordination. The second is an effort to define the theoretical-political dimension of the economics of conventions. In fact, focusing on the strategic approach of conventions, depending on whether the concept of a convention is used to resolve problems finding a balance in coordination games, it seems reasonable to seek a political dimension of the economics of conventions. We will show how the assumptions underlying the theory of general economic balance are extremely restrictive, because they assume a complete lack of uncertainty or strategic interaction between the different agents. For the purpose of ensuring objectivity, we will highlight th...

How can human rights abuses be prevented or reduced? Using a simple game-theoretic model, we demonstrate that repression can become a coordination game when the potential for abuses is greatest: when dissent against a regime has grown sufficiently powerful. In such scenarios, repression depends on how the leader’s agents coordinate on implementing a repression order. If and to the extent agents believe other agents will not comply with an order to repress, leaders can expect agents to disobey orders and will be less likely to order repression. This logic of expectations constitutes a third mechanism for constraining repression, in addition to sanctioning (i.e., the logic of consequences) and normative mechanisms (i.e., the logic of appropriateness). We formally explore how the logic of expectations can constrain the implementation of repression and also show that the logic of expectations has the greatest potential to constrain repression in middle regimes or “anocracies.” In turn, this has broader implications for the strategies human rights advocates use in such regimes, how leaders structure their security forces, and for the study of why legal rules might be especially effective in such regimes.

To better understand the evolutionary history of human decision-making, we compare human behavior to that of two monkey species in a symmetric game of conflict with two asymmetric equilibria. While all of these species routinely make decisions in the context of social cooperation and competition, they have different socio-ecologies, which leads to different predictions about how they will respond. Our prediction was that anti-matching would be more difficult than matching in a symmetric coordination with simultaneous moves. To our surprise, not only do rhesus macaques frequently play one asymmetric Nash equilibrium, but so do capuchin monkeys, whose play in the coordination game was literally not distinguishable from randomness (in simultaneous play). Humans are the only species to play both asymmetric equilibria in a repeated game.

This paper reviews the literature on the sustainability of Japanese government debt/deficit. First, we offer an overview of the approaches and the key findings on the sustainability analysis. Second, we introduce the arguments of Hoshi and Ito [1], which they predict that foreign investors’ share of JGBs could exceed beyond domestic ownership. Finally, we discuss the coordination problem in the JGB market based on the findings of Onji et al. [2] that examine how government withdrawal from the JGBs could roil the market.

We study an evolutionary model akin to the one studied in Anwar (2002) where a set of agents use myopic best response learning to i) determine their action in a 2 × 2 coordination game and ii) to choose on which of multiple islands to interact. We focus on the case where the number of agents maximally allowed on each islands is constrained. We extend Anwar’s original analysis by considering the case when there may be more than two islands. We find that if the constraints are such that one island may be empty, universal coordination on the payoff dominant action is possible in the long run. If the constraints are such that all islands will be full, then for relatively mild constraints, and apart from special cases, the coexistence of conventions will occur, with one island coordinating on the risk dominant action and all remaining islands coordinating on the payoff dominant action. For relatively stringent constraints all agents will play the risk dominant action.

Many common pool resources (CPRs) have tipping points—stock levels below which the resource is permanently damaged or destroyed—but the specific levels at which these thresholds are crossed are rarely known with certainty. We model a CPR in which uncertainty simultaneously creates a Prisoner's Dilemma and a Coordination Game. This model highlights a novel mechanism through which uncertainty incentivizes the overuse of a CPR. In the model, two Nash Equilibria exist, both of which lead to a Tragedy of the Commons, but one is an inferior solution because it leads to assured resource destruction. We use a single-period laboratory experiment to investigate the effects of uncertain tipping points on constituents' resource extraction decisions. Experimental results suggest that uncertainty reduces coordination in this type of CPR setting and increases the likelihood of resource destruction. We also find that tax and fine policies reduce consumption rates and prevent resource destruction.

Using coordination games, we elicit social norms directly for two different games where either an agreement to take the first best action has been reached or where no such agreement exists. We combine the norms data with separately measured choice data to predict changes in behavior. We demonstrate that including social norms as a utility component significantly improves predictive performance. Then we compare social norms to guilt aversion and lying aversion. We estimate that honoring an agreement in the double dictator game is worth giving up approximately 10% of total earnings and more than 120% in the Bertrand game. We show that informal agreements affect behavior through their direct effect on social norms as well as through an indirect effect on beliefs. This paper was accepted by Uri Gneezy, behavioral economics.

Evidence shows that sovereign risk increases funding cost and risk of banks highly exposed to it. I build a model that rationalizes this fact. Banks act as delegated monitors and invest in risky projects and in risky sovereign bonds. As investors hear rumors of increased asset risk, they run the bank through an information coordination game. Banks could rollover liquidity in repo market using government bonds as collateral, but as sovereign risk raises collateral values shrink. Overall banks’ liquidity falls (its cost increases) and so does banks’ credit. The model features a balance sheet, a collateral channel and a liquidity channel of sovereign risk. The latter two play a major role in the fiscal transmission.

We thank the European Investment Bank (EIB) for financial support under the EIB-University Research Action Programme (theme Financial and Economic Valuation of Environmental Impacts). Agricultural producer participation and spatial coordination of land use decisions are key components for enhancing the effective delivery of ecosystem services from private land. However, inducing participation in Payment for Ecosystem Services schemes for coordinating land management choices is challenging from a policy design perspective owing to transaction costs associated with participation. This paper employs a laboratory experiment to investigate the impact of such costs on participation and land use in the context of an Agglomeration Bonus (AB) scheme. The AB creates a coordination game with multiple Nash equilibria related to alternative spatially-coordinated land use patterns. The experiment varies transaction costs between two levels (high and low), which affects the risks and payoffs of coordinating on the different equilibria. Additionally, an option to communicate is implemented between neighboring producers arranged on a local network to facilitate spatial coordination. Results indicate a significant difference in participation and performance under high and low transaction costs, with lower uptake and performance when transaction costs are high. These effects are, however, impacted by transaction costs faced in the past. Communication improves both AB participation rates and performance with the effect being greater for participants facing high transaction costs. Postprint

The implications of clientelism for democratic accountability are mixed: Brokers not only help coordinate votes for collective gain but also exploit their position to advance personal interest. I argue that brokers use distinct strategies—persuasion, reciprocation, and punishment—to motivate voters as a function of their local institutional context. Competitively selected brokers whose preferences are aligned with those of followers can rely more on persuasion than instrumental inducements. Economically autonomous brokers are more likely to rely on sanctions than reciprocity. Evidence to support both the proposed typology of broker strategies and their determinants is collected in Senegal, a clientelistic democracy where group-level heterogeneity generates natural variation in broker types. A coordination game played with real brokers illustrates that participants are less likely to sacrifice personal gain when brokers are competitively selected, more likely when they most fear retribution. Qualitative data suggest that results from the laboratory game plausibly generalize to behavior in elections.