Repeated Protection for Sale

This paper addresses whether the efficient equilibria characterized by Grossman and Helpman's one‐shot protection‐for‐sale game are renegotiation‐proof in an infinitely repeated setting. We propose a simple strategy profile that can support the efficient, truthful equilibrium in each period as a strongly renegotiation‐proof subgame perfect equilibrium. This result provides another plausible reason to explain why the truthful equilibrium may be focal in the game of protection‐for‐sale. In addition, when the timing of the contributions is specified explicitly, the special interest groups should minimize the upfront payment to the government before policy implementation to reduce the possibility of the collapse of such relational contracts.     

STRATEGY‐PROOF ALLOCATION OF INDIVISIBLE GOODS AMONG COUPLES

We consider the problem of allocating indivisible goods among couples. Agents in a couple share the indivisible good assigned to them. The main result is that an allocation rule is strategy‐proof, neutral and non‐bossy if and only if it is serially dictatorial. An allocation rule is serially dictatorial if there is a priority order of couples and a function that identifies who chooses in each couple, such that for all preference profiles, a good assigned to couple i is the best element according to the preference of the identified agent in couple i among the remaining goods when the couples with higher priorities have made their choice.     

Efficient and stable collective choices under gregarious preferences

We consider collective choice problems where a set of agents have to choose an alternative from a finite set and agents may or may not become users of the chosen alternative. An allocation is a pair given by the chosen alternative and the set of its users. Agents have gregarious preferences over allocations: given an allocation, they prefer that the set of users becomes larger. We require that the final allocation be efficient and stable (no agent can be forced to be a user and no agent who wants to be a user can be excluded). We propose a two-stage sequential mechanism whose unique subgame perfect equilibrium outcome is an efficient and stable allocation which also satisfies a maximal participation property.     

Efficient and stable collective choices under gregarious preferences

We consider collective choice problems where a set of agents have to choose an alternative from a finite set and agents may or may not become users of the chosen alternative. An allocation is a pair given by the chosen alternative and the set of its users. Agents have gregarious preferences over allocations: given an allocation, they prefer that the set of users becomes larger. We require that the final allocation be efficient and stable (no agent can be forced to be a user and no agent who wants to be a user can be excluded). We propose a two-stage sequential mechanism whose unique subgame perfect equilibrium outcome is an efficient and stable allocation which also satisfies a maximal participation property.     

Market Entry Regulation and International Competition*

We analyze a non‐cooperative two‐country game where each government decides whether to allow free market entry of firms or to regulate market access. We show that a Pareto‐efficient allocation may result in equilibrium. In particular, if the cost difference between home and foreign production is “significant,” production will be located in the cost‐efficient country exclusively; and if this cost difference is even “substantial,” the induced allocation is also Pareto efficient. Only if the cost difference is “insignificant,” production may take place in both countries and the allocation is inefficient.     

ON STRATEGY‐PROOFNESS AND THE SALIENCE OF SINGLE‐PEAKEDNESS

We consider strategy‐proof rules operating on a rich domain of preference profiles. We show that if the rule satisfies in addition tops‐onlyness, anonymity, and unanimity, then the preferences in the domain have to satisfy a variant of single‐peakedness (referred to as semilattice single‐peakedness). We do so by deriving from the rule an endogenous partial order (a semilattice) from which the concept of a semilattice single‐peaked preference can be defined. We also provide a converse of this main finding. Finally, we show how well‐known restricted domains under which nontrivial strategy‐proof rules are admissible are semilattice single‐peaked domains.     

EFFICIENT MIXED CLUBS: NONLINEAR-PRICING EQUILIBRIA WITH ENTREPRENEURIAL MANAGERS

Scotchmer and Wooders show that efficient clubs are homogeneous when consumers are divisible in Berglas's anonymous crowding model. However, if consumers are not divisible or if clubs have multiple facilities with economies of scope, mixed clubs are efficient. In such a model, we consider clubs with multiple membership policies for different types of consumers, and show the existence and efficiency of equilibrium with nonlinear policies. We employ entrepreneurial equilibrium, all equilibrium concept with profit-seeking entrepreneurs. Our theorem can be regarded as showing the existence of a core allocation that satisfies envy-free property in the absence of non-anonymous crowding effects.     

Building rational cooperation on their own: Learning to start small

We report experimental results for a twice‐played prisoners' dilemma in which the players can choose the allocation of the stakes across the two periods. Our point of departure is the assumption that some (but not all) people are willing to cooperate, as long as their opponent is sufficiently likely to do so. The presence of such types can be exploited to enhance cooperation by structuring the twice‐played prisoners' dilemma to “start small,” so that the second‐stage stakes are larger (but not too much larger) than the first‐stage stakes. We compare conditions where the allocation of stakes is chosen exogenously to conditions where it is chosen by the players themselves. We show that players gravitate toward the payoff‐maximizing strategy of starting small in a twice‐played prisoners' dilemma. Intriguingly, the salutary payoff effects of doing so are larger than those that arise when the same allocation is exogenously chosen.     

A note on budget balance under interim participation constraints: the case of independent types

We provide a simple proof of the equivalence between ex ante and ex post budget balance constraints in Bayesian mechanism design with independent types when participation decisions are made at the interim stage. The result is given an interpretation in terms of efficient allocation of risk.     

A COMPARATIVE STUDY OF ALLOCATION OF DECISION‐MAKING ACROSS STAKEHOLDER GROUPS: THE CASE OF PERSONAL CARE INDUSTRIES

ABSTRACT 1 : The article compares the allocation of decision‐making across stakeholder groups in for‐profit, nonprofit and local government personal care facilities in one state in the United States. We analyze detailed survey data on nursing homes, childcare centers and group homes. We find that in comparison to nonprofit and government organizations, for‐profit firms delegate more decision‐making power to executives and owners, and less to their employees, consumers, families, boards of directors, and community representatives. The differences, although generally small, support the hypothesis that decision‐making is allocated to different groups in accord with the broad objectives of the organization.     

Market Instability in a Stackelberg Duopoly

m -period duopoly model with inventory costs, where each firm chooses when to produce. We find that, in contrast to most existing works concerning endogenous roles of the firms, no pure strategy equilibrium exists when m is strictly larger than two. This result indicates that no stable pattern of allocation of roles exists except for a two-period model; thus the leader-follower relationship inevitably becomes instable. Received August 1, 2000; revised version received July 20, 2001     

For the Student: Matching and Economic Design

This article presents a brief survey of two‐sided matching. We introduce the reader to the problem of two‐sided matching in the context of the college admission model and explain two central requirements for a matching mechanism: stability and non‐manipulability. We show how the frequently used ‘Boston Mechanism’ fails these key requirements and describe how an alternative, the Deferred Acceptance Algorithm, leads to stable matchings but fails to be non‐manipulable in general. A third mechanism, the Top Trading Cycle, is efficient and non‐manipulable when only one side of the match acts strategically. We also discuss some applications of matching theory.     

Strategy-Proofness and the Tops-Only Property

A social choice function satisfies the tops‐only property if the chosen alternative only depends on each person's report of his most‐preferred alternatives on the range of this function. On many domains, strategy‐proofness implies the tops‐only property provided that the range of the social choice function satisfies some regularity condition. The existing proofs of this result are model specific. In this paper, a general proof strategy is proposed for showing that a strategy‐proof social choice function satisfies the tops‐only property when everyone has the same set of admissible preferences.     

Power fluctuations and political economy

We study (constrained) Pareto efficient allocations in a dynamic production economy where the group that holds political power decides the allocation of resources. For high discount factors, the economy converges to a first-best allocation where labor supply decisions are not distorted. For low discount factors, distortions do not disappear and fluctuate over time. Most importantly, the set of sustainable first-best allocations is larger when there is less persistence in the identity of the party in power (because this encourages political compromise). This result contradicts the common presumption that there will be fewer distortions when there is a “stable ruling group”.     

Efficient resource allocation under multi-unit demand

We study resource allocation with multi-unit demand, such as the allocation of courses to students. In contrast to the case of single-unit demand, no stable mechanism, not even the (student-proposing) deferred acceptance algorithm, achieves desirable properties: it is not strategy-proof and the resulting allocation is not even weakly efficient under submitted preferences. We characterize the priority structure of courses over students under which stability is consistent with strategy-proofness or efficiency. We show that stability is compatible with strategy-proofness or efficiency if and only if the priority structure is essentially homogeneous. This result suggests that efficient allocation under multi-unit demand is difficult and that the use of stable mechanisms may not deliver desirable outcomes.     

Climate Change and the Stability of Water Allocation Agreements

We analyse agreements on river water allocation between riparian countries. Besides being efficient, water allocation agreements need to be stable in order to be effective in increasing the efficiency of water use. In this paper we assess the stability of water allocation agreements using a game theoretic model. We consider the effects of climate change and the choice of a sharing rule on stability. Our results show that a decrease in mean river flow decreases the stability of an agreement, while an increased variance can have a positive or a negative effect on stability. An agreement where the downstream country is allocated a fixed amount of water has the lowest stability compared to other sharing rules. These results hold for both constant and flexible non-water transfers.     

EFFICIENT LEARNING AND JOB TURNOVER IN THE LABOR MARKET

This article nests a continuous‐time learning model la Jovanovic (Journal of Political Economy 92 (1984), 108–22) into a directed on‐the‐job search framework. We prove that the socially efficient allocation is separable, that is, the workers' value functions and optimal controls are independent of both the distribution of workers across their current match qualities and the unemployment rate. We characterize the dynamics of job transitions in the efficient allocation. Furthermore, when the matching technology is linear, our numerical results show that increasing the vacancy creation cost and the speed of learning have ambiguous effects on the unemployment rate and aggregate job transition.     

Rent Seeking for Pure Public Goods: Wealth and Group's Size Heterogeneity

We study how between‐group wealth and size asymmetries affect aggregate rent‐seeking efforts when two groups compete for the allocation of a pure public good. Unlike with previous analyses on between‐group asymmetries, we measure the utility cost of rent‐seeking in terms of the loss in private consumption an individual faces when contributing to this activity. Our main result is that fewer between‐group asymmetries do not necessarily imply greater aggregate rent‐seeking efforts. The result is at odds with the commonly held notion that the more homogeneous the contestants in a static rent‐seeking model, the greater the aggregate rent‐seeking efforts.     

A Comparison of Multiple‐Unit All‐Pay and Winner‐Pay Auctions Under Incomplete Information*

This article examines the properties of independent‐private‐value all‐pay and winner‐pay auctions when there are multiple units sold. We study bidding behavior, efficiency, and revenue in a set of 23 experimental sessions. Our data show that the all‐pay auction and the winner‐pay auction are empirically revenue equivalent, though both yield higher revenue than the risk neutral Bayesian equilibrium. Our evidence also suggests that the winner‐pay auction is more likely to lead to a Pareto‐efficient allocation than the all‐pay auction.     

Networks of Free Trade Agreements among Heterogeneous Countries

The paper examines the formation of free trade agreements as a network formation game. We consider an n‐country model in which international trade occurs between economies with imperfectly competitive product markets. In each country, the labor market is either unionized or non‐unionized. We show that, if all countries are non‐unionized, the global free trade network is both the unique pairwise stable network and the unique efficient network. If all countries are unionized, the global free trade network is pairwise stable and the unique efficient network among the class of symmetric networks. If some countries are unionized while others are non‐unionized, other networks apart from the global free trade network may be pairwise stable. However, the efficient network is still the global free trade network. Thus, a conflict between stability and efficiency may occur. Moreover, starting from the network in which no country has signed a free trade agreement, all sequences of networks due to continuously profitable deviations do not lead (in most cases) to the global free trade network, even when global free trade is stable.