A myopic adjustment process leading to best-reply matching

We analyze a myopic strategy adjustment process in strategic-form games. It is shown that the steady states of the continuous time limit, which is constructed assuming frequent play and slow adjustment of strategies, are exactly the best-reply matching equilibria, as discussed by Droste, Kosfeld, and Voorneveld (2000. Mimeo, Tilburg University). In a best-reply matching equilibrium every player ‘matches’ the probability of playing a pure strategy to the probability that this pure strategy is a best reply to the pure-strategy profile played by his opponents. We derive stability results for the steady states of the continuous time limit in 2×2 bimatrix games and coordination games. Analyzing the asymptotic behavior of the stochastic adjustment process in discrete time shows convergence to minimal curb sets of the game. Moreover, absorbing states of the process correspond to best-reply matching equilibria of the game.     

Asynchronized multiperiod commitments and cycles

We consider a game where agents can synchronize or stagger their decisions. We compare the outcomes of both timing patterns, and show that spillovers and strategic interactions are crucial for such a comparison. A typology used in industrial organization, distinguishing four cases (‘Fat-Cat’, ‘Top Dog’, Lean and Hungry’, ‘Puppy Dog’), allows us to compare the actions taken in the staggered variant and in the synchronized one. The staggered variant exhibits cycles and players are both better-off when there are strategic complementarities between them. A timing game is then set-up so as to endogenize the choice between the two variants we study.Two examples are developed: (i) Bertrand competition and (ii) a wage setting game when there are two monopoly unions in two interrelated firms. We show that the staggering of price decisions generates counter-cyclical mark-ups in the first example, and the staggering of wage decisions generates cycling output in the industry in the second example.     

Corporate venture capital in Germany: A comparative analysis of 2000 and 2003

Established corporations are often at a disadvantage vis à vis technology-based entrepreneurial firms when it comes to generating and adapting to radical technological and business-model innovation. Consequently, industrial corporations increasingly wanted to participate in the financial or strategic success of start-ups. The tool of choice for many corporations was Corporate Venture Capital (CVC). CVC had already seen two waves of popularity in the USA when it was introduced in Germany in the early 1990s. This development is often assumed to have come to a halt in 2001, when so-called ‘New Economy’ spiraled into decline.This paper analyzes central attributes of strategy, investment and organization of the CVC units active in Germany in 2000 and 2003. We find evidence for a continuation of strong CVC activity in Germany. We differentiate between CVC units that were a) active at both points in time, i.e. ‘survivors’ b) those that have closed down since 2000, i.e. ‘losers’ and c) those that were founded after 2000, ‘new entrants’. The comparison of the characteristics allows us to make inferences for the use of CVC.     

Admissibility and common belief

The concept of ‘fully permissible sets’ is defined by an algorithm that eliminates strategy subsets. It is characterized as choice sets when there is common certain belief of the event that each player prefer one strategy to another if and only if the former weakly dominates the latter on the set of all opponent strategies or on the union of the choice sets that are deemed possible for the opponent. The concept refines the Dekel–Fudenberg procedure and captures aspects of forward induction.     

A learning-based model of repeated games with incomplete information

This paper tests a learning-based model of strategic teaching in repeated games with incomplete information. The repeated game has a long-run player whose type is unknown to a group of short-run players. The proposed model assumes a fraction of ‘short-run’ players follow a one-parameter learning model (self-tuning EWA). In addition, some ‘long-run’ players are myopic while others are sophisticated and rationally anticipate how short-run players adjust their actions over time and “teach” the short-run players to maximize their long-run payoffs. All players optimize noisily. The proposed model nests an agent-based quantal-response equilibrium (AQRE) and the standard equilibrium models as special cases. Using data from 28 experimental sessions of trust and entry repeated games, including 8 previously unpublished sessions, the model fits substantially better than chance and much better than standard equilibrium models. Estimates show that most of the long-run players are sophisticated, and short-run players become more sophisticated with experience.     

The knowledge production of ‘R’ and ‘D’

Many studies investigate the relationship between R&D and patents applying knowledge production functions. Using aggregated R&D may underestimate the productivity of ‘R’, as mainly ‘R’ but not ‘D’ leads to patents. Disaggregating ‘R’ and ‘D’ shows a significant premium of ‘R’ towards patenting.     

Closure in risk debates: Pre-assessment of Finnish forest biotechnology

The aim of this paper is to contribute to a more systematic and integrative pre-assessment of risk. The paper argues that although there are many insights into ‘pre-assessment’ within the field of risk studies, it suffers from a lack of robust methodological tools and approaches. A problem with the neglect of such approaches is that factors that set the stage for further steps in the risk-handling chain can remain in a state of implicit assumptions, impose biased interpretation of relevant risk issues and mislead the consideration of active intervention options. The suggestion of this article is that ‘social arena analysis,’ combined with the identification of ‘closure mechanisms,’ can provide a practical and theoretically anchored tool for the pre-assessment of risk. The value of this approach is demonstrated through the analysis of a debate on the future and risks of Finnish forest biotechnology, and in a final discussion on policy options emerging from the analysis.     

Maximal elements of non-binary choice functions on compact sets

We give sufficient conditions for the existence of maximal elements on compact sets for ‘contraction consistent’ (but possibly non-binary) choice functions. Our result generalizes the Bergstrom-Walker theorem on the existence of maximal elements with acyclic preference relations.     

A systems approach to policy analysis and development planning: Construction sector in the Turkish 5-year development plans

In this study, we propose a new model for systems analysis ‘of’ policy and systems analysis ‘for’ policy with the example of construction sector in the Turkish 5-year development plans.Our proposed model—integrated development management model (IDMM)—is conceptually based on the principles of systems thinking and integrated management approach.We present and discuss the results of our work in which we extracted all construction-related policies and strategies from eight 5-year development plans and analyzed them using the IDMM. In the light of the analyses, we give several answers to the question: “Why did the development plans fail to meet their targets in Turkey?” We propose that any development plan has to have claritas–unitas–integritas–consonantia between the management levels (normative, strategic, and operational) and components (goals, structures, and behavior) of IDMM.The paper is the first work that brings the concepts of development planning and foresight together. In a complementary stance, the time of integrating foresight and development planning has come.     

Using justice principles to resolve the ‘Impossibility of a Paretian Liberal’

A simple, but general, possibility result is presented showing how ‘justice’ principles can be effectively used to resolve Amartya Sen's ‘The Impossibility of a Paretian Liberal’ (1970a).     

Exploring e-government futures through the application of scenario planning

In this paper, we examine the impact of information and communications technologies (ICT) on government departments/agencies and the contribution of external agents to change and development programs. We present empirical evidence of externally facilitated change to mindsets and patterns of behavior within local government through use of a scenario planning-based approach. Our aim was to facilitate the organizational actors' conduct of investigation of the ‘limits of the possible’ for a range of plausible futures and determination of strategic responses to these. Participants used their own current knowledge and understanding as a basis for development, with the introduction of external ‘expertise’ to challenge their thinking and to expand their understanding. Following this, we facilitated the participants' elucidation of key uncertainties on the future, exploration of the relationships between them and possible outcomes. The participants then constructed scenarios that outlined four possible and plausible futures. These held explicit meaning for the participants, enabled them to identify implications of each possible future in relation to structure and service requirements and informed analysis of current structure, service, etc. We compare and contrast the process and outcomes of our scenario-planning intervention (based on intuitive logics) with both those of other futures methodologies (decision analysis, Delphi and environmental scanning) and with other scenario methodologies (trend-impact analysis and cross-impact analysis). We argue that the external facilitation of internal generation of knowledge, understanding and meaning, and of exploration of the limits of the possible for the future, is a valuable tool for comprehending strategic choices. We conclude that our scenario approach, utilizing intuitive logics, enables organizational actors to make sense of the complexities and ambiguities that they face and so facilitates strategic change.     

The allocation of volatile aid and economic growth: Theory and evidence

We analyse, both theoretically and empirically, the growth effects associated with two components of volatile foreign financial assistance: ‘directly productive’ (or ‘tied’) aid and ‘pure’ aid. We find that scenarios in which aid can hurt the recipient's growth rate emerge only in cases where foreign aid is volatile. As a result, we conclude that it is only in conjunction with the presence of aid variability that aid allocation determines whether foreign aid hurts or promotes long-run growth.     

Some empirical evidence on the ‘discouraged worker’ effect

This note produces empirical evidence on the existence of a significant ‘discouraged worker’ effect in US data–namely, on the tendency for groups of secondary workers to move in and out of the labor force with the business cycle, looking for jobs when these are available, while giving up job search during recessions — by focusing on the behavior of the ‘not in the labor force’ series, as well as of two of its segments (‘going to school’, and ‘keeping house’), at the business-cycle frequencies. Both in the aggregate, and for a number of age–sex groups, the series display a clear counter-cyclical pattern, thus lending support to the discouraged worker notion.     

Voluntary provision of a pure public good as the game of ‘chicken’

The voluntary exchange model, where the amount of a public good and contributions to its cost are simultaneously determined, is treated as a (2×2) non-cooperative non-constant-sum game. Three conceptually different types of games emerge. One of them is ‘Chicken’; each player can gain by pre-emptively threatening to pay nothing—unless the other player acts likewise. ‘Zero public goods’ is thus a possible outcome of voluntary exchange, even though it is Pareto inferior.     

Mixed estimation as generated data

Mixed estimation with an informative prior can be regarded as a form of least squares estimation with an enlarged data set. The relationship between such additional ‘pseudo data’ and the sample data is studied.     

Sentimental fools: a critique of Amartya Sen’s notion of commitment

Commitment is problematic because one sometimes pursues it against one’s interest. To solve it, the paper proposes a distinction between ‘non-binding’ and ‘binding’ commitments. Non-binding commitment is about ambition, such as becoming a great chef, which bolsters welfare in the pecuniary sense as well as self-respect. In contrast, ‘binding commitment’ is about honesty. While it diminishes welfare, it augments self-integrity. The neoclassical view reduces both commitments to interest, while the multiple-self approach separates both commitments from interest. The separation permits the confusion of sentimental fools, who enter commitments without regard to interest, with rational sentimentalists, who take interest into consideration.     

Limited asset markets participation, monetary policy and (inverted) aggregate demand logic

This paper incorporates limited asset markets participation in dynamic general equilibrium and develops a simple analytical framework for monetary policy analysis. Aggregate dynamics and stability properties of an otherwise standard business cycle model depend nonlinearly on the degree of asset market participation. While ‘moderate’ participation rates strengthen the role of monetary policy, low enough participation causes an inversion of results dictated by conventional wisdom. The slope of the ‘IS’ curve changes sign, the ‘Taylor principle’ is inverted, optimal welfare-maximizing discretionary monetary policy requires a passive policy rule and the effects and propagation of shocks are changed. However, a targeting rule implementing optimal policy under commitment delivers equilibrium determinacy regardless of the degree of asset market participation. Our results may justify Fed's behavior during the ‘Great Inflation’ period.     

Growth dynamics in a model of endogenous time preference

We incorporate endogenous time preference in a simple Diamond-type economy with production and analyze the resulting dynamics both for the competitive and command equilibrium. We assume an individual's rate of time preference is decreasing in consumption (decreasing marginal impatience) and show that this intuitively more appealing assumption is consistent with a stable, non-trivial competitive equilibrium. Analysis of the competitive equilibrium indicates that the observed ‘non-convergence’ of cross-country per capita income could partially be explained by cross-country differences in ‘innate patience’. Examination of the local dynamics around the ‘optimal’ solution suggests that this particular preference structure exhibiting diminishing marginal impatience may generate endogenous business cycle phenomenon.