How long can excess pollution persist? The non-cooperative case

This paper describes a world composed of two (groups of) countries, which derive their utility from a polluting activity and from the enjoyment of a common environmental quality. The initial situation is both suboptimal and unsustainable: pollution leads to a continuous deterioration of environmental quality. The two countries have heterogeneous preferences for the environment, which are private knowledge. This prevents the adoption of abatement policies negotiated between the two countries, because each one has a strong incentive to announce in every negotiation an arbitrarily low preference for the environment. The two countries then engage in a war of attrition, each of them postponing abatement policies, in the hope that the other will concede first and abate more. We study for how long the adjustment is postponed, according to initial conditions, the greenness of the greenest country, the possible range of preferences and the rates of discount and natural regeneration.     

Gambling in contests

This paper presents a strategic model of risk-taking behavior in contests. Formally, we analyze an n-player winner-take-all contest in which each player decides when to stop a privately observed Brownian motion with drift. A player whose process reaches zero has to stop. The player with the highest stopping point wins. Unlike the explicit cost for a higher stopping time in a war of attrition, here, higher stopping times are riskier, because players can go bankrupt. We derive a closed-form solution of a Nash equilibrium outcome. In equilibrium, highest expected losses occur at an intermediate negative value of the drift.     

A theory of efficient coexistence

Abstract

Neighbours have to coexist over an infinite horizon. Neither of them can eradicate the other or extricate him or herself from the bondage. Their respective resources regenerate themselves periodically. Hence, the capacities for production and war repeatedly recuperate from exhaustion. This paper uses a simple dynamic model to study the cooperation and conflict between two neighbours. It is shown that the way for one party to enhance its own prosperity without inducing a war with its neighbour is to collaborate on mutually beneficial projects and divide the output according to each side's contribution. Rejecting potential collaboration or dividing the joint output disproportionately risks the eruption of war. If the duration that one side is prepared to fight exceeds that of the other, the one with a shorter duration will concede defeat before the war starts. Nonetheless, when the planned durations of war of both sides are identical, the first-strike advantage induces them to wage war simultaneously.     

The influence of political fragmentation on public enterprises: Evidence from German municipalities

This study investigates the influence of politically fragmented municipal councils on the investment behaviour of municipally owned public enterprises. We argue that common public choice theories can also be applied to public enterprises. For our observation period (2002–2014), we use a data set encompassing 8,685 municipally owned enterprises subject to commercial accounting located in 3,237 municipalities drawn from all 13 German federal area states. On average, our results point to a negative effect of fragmentation on investment per capita, supporting a war of attrition or veto player approach. Effects are heterogeneous among different sectors, possibly due to higher visibility to voters. Thus, veto players might actively try to block prestigious and publicly perceivable investment projects to hinder their opponents. Political budget cycles additionally influence this effect for some sectors. However, testing non-linearities reveal that the common-pool hypothesis cannot be completely ruled out.     

Robust monopoly pricing

We consider a robust version of the classic problem of optimal monopoly pricing with incomplete information. In the robust version, the seller faces model uncertainty and only knows that the true demand distribution is in the neighborhood of a given model distribution. We characterize the pricing policies under two distinct decision criteria with multiple priors: (i) maximin utility and (ii) minimax regret. The equilibrium price under either criterion is lower then in the absence of uncertainty. The concern for robustness leads the seller to concede a larger information rent to all buyers with values below the optimal price without uncertainty.     

BREAKING THE IMPEDIMENTS TO BUDGETARY REFORMS: EVIDENCE FROM EUROPE

In addition to the known effects of government fractionalization, we find that larger deficits are associated with a reduced likelihood of budgetary reforms. In a war of attrition setting, larger deficits signify stronger entitlements on the budget, generating unwillingness to impose self‐discipline. A sense of crisis emerges only when macroeconomic imbalances appear. However, while a crisis creates the opportunity for reform, policy credibility is important for effectively using that opportunity. We find that one way of establishing credibility is by undertaking measures in opposition to the government's known ideological position – these presumably signal motivation by broader social welfare considerations.     

Collusive dominant-strategy truthfulness

We show that collusion and wrong beliefs may cause a dramatic efficiency loss in the Vickrey mechanism for auctioning a single good in limited supply. We thus put forward a new mechanism guaranteeing efficiency in a very adversarial collusion model, where the players can partition themselves into arbitrarily many coalitions, exchange money with each other, and perfectly coordinate their actions. Our mechanism bypasses classic impossibility results (such as those of Green and Laffont, and of Schummer) by providing the players with a richer set of strategies, making it dominant for every coalition C to instruct each of its members to report truthfully not only his own valuation, but also his belonging to C. Our mechanism is coalitionally rational, which implies being individually rational for independent players.     

Tough negotiations: Bilateral bargaining with durable commitments

We offer a tractable model of tough negotiations and delayed agreement. The setting is an infinite horizon bilateral bargaining game in which negotiators can make strategic commitments to durable offers. Commitments decay stochastically, but uncommitted negotiators can make new commitments. The game's unique Markov Perfect equilibrium outcome takes the form of a war of attrition: Negotiators initially commit to incompatible offers, but agreement occurs once a negotiator's commitment decays. If commitments decay more quickly, the terms of the agreement become more equal. In expectation, more patient, committed, and less risk averse negotiators obtain a larger fraction of the surplus.     

Exit from Rent‐Seeking Contests

The object of this paper is to investigate the long‐run behaviour of rent‐seekers in a situation where they incur negative expected payoffs due to increasing returns to rent‐seeking expenditures. To this end, we embed the one‐shot rent‐seeking game presented by Tullock (1980) in the war‐of‐attrition framework. In this multi‐period setting, each player not only determines his or her rent‐seeking expenditure but also chooses a mixed strategy on whether to stay in or exit from rent‐seeking competition in each period. JEL Classification Numbers: D72, C72, L12     

Stationary equilibria in bargaining with externalities

This paper studies infinite-horizon bargaining between a seller and multiple buyers when externalities are present. We extend the analysis in Jehiel and Moldovanu by allowing for both pure and mixed equilibria [Jehiel, P., Moldovanu, B., 1995a. Cyclical delay in bargaining with externalities. Rev. Econ. Stud. 62, 619–637]. A characterization of the stationary subgame perfect equilibria in generic games is presented. Equilibria with delay exist only for strong positive externalities. Since each buyer receives a positive payoff when the seller makes an agreement with some other buyer, positive externalities induce a war of attrition between buyers.     

On the continuous equilibria of affiliated-value,all-pay auctions with private budget constraints

We consider all-pay auctions in the presence of interdependent, affiliated valuations and private budget constraints. For the sealed-bid, all-pay auction we characterize a symmetric equilibrium in continuous strategies for the case of N bidders. Budget constraints encourage more aggressive bidding among participants with large endowments and intermediate valuations. We extend our results to the war of attrition where we show that budget constraints lead to a uniform amplification of equilibrium bids among bidders with sufficient endowments. An example shows that with both interdependent valuations and private budget constraints, a revenue ranking between the two auction formats is generally not possible. Equilibria with discontinuous bidding strategies are discussed.     

Volunteering for heterogeneous tasks

We model the search for volunteers as a war of attrition. Every player is tempted to wait for someone else to volunteer for the tasks. When tasks are not equivalent, it may be optimal to volunteer quickly to perform an easy task. We analyze the trade-off between volunteering for an easy task and taking the risk of having to perform a more strenuous task in order to get the chance of avoiding all tasks. When the cost of waiting is borne by agents until every task has found a volunteer, we show that it may be optimal to volunteer for the difficult task even if an easier task is available, in order to speed up the process and reduce the costs of waiting.     

Belief and higher-order belief in the centipede games: An experimental investigation

This paper experimentally explores the epistemic conditions behind people's non-equilibrium behaviour in the centipede games. We propose a novel design of laboratory experiment to elicit people's first- and second-order beliefs regarding their opponents' choices and beliefs. The measured beliefs, together with the choice data, help us to estimate people's level of rationality, belief of rationality and second-order belief of rationality. To examine how these epistemic variables are affected by the social-efficiency property of the classic increasing-sum centipede game, we revisit the constant-sum centipede and compare the measured epistemic conditions from the constant-sum with those from the classic centipede. We find that people's non-backward induction behaviour may be attributed to the diffusion of beliefs and higher-order beliefs in the increasing-sum centipede. We consider a behavioural model in which people's preferences for social efficiency are incorporated into the extended utility maximization problem. Our analytical and estimation results indicate that the presence of efficiency-oriented players and people's belief towards the uncertain portion of such type of players may play a part in the non-backward-induction outcomes in experimental centipede games.     

CIVIL WAR EXPOSURE AND VIOLENCE

In recent years scholars have begun to focus on the consequences of individuals' exposure to civil war, including its severe health and psychological consequences. Our innovation is to move beyond the survey methodology that is widespread in this literature to analyze the actual behavior of individuals with varying degrees of exposure to civil war in a common institutional setting. We exploit the presence of thousands of international soccer (football) players with different exposures to civil conflict in the European professional leagues, and find a strong relationship between the extent of civil conflict in a player's home country and his propensity to behave violently on the soccer field, as measured by yellow and red cards. This link is robust to region fixed effects, country characteristics (e.g. rule of law, per capita income), player characteristics (e.g. age, field position, quality), outliers, and team fixed effects. Reinforcing our claim that we isolate the effect of civil war exposure rather than simple rule breaking or something else entirely, there is no meaningful correlation between our measure of exposure to civil war and soccer performance measures not closely related to violent conduct. The result is also robust to controlling for civil wars before a player's birth, suggesting that it is not driven by factors from the distant historical past.     

结构化多人博弈的分析框架

结构化多人博弈是一种把博弈方嵌入到具体的社会关系之中,在两两博弈的基础上求解整体博弈均衡状态的分析框架。和现有的合作博弈(Cooperative Game Theory)、网络博弈(Network Games)、进化图论(Evolutionary Graph Theory,EGT)、计算博弈论(Computational Game Theory)等多人博弈分析框架相比,结构化博弈既有和它们相似的地方,也有非常重要的差别。结构化博弈更适合用来分析政治问题和社会现象中的多人博弈局面。作为最简单的情况,本文先给出了一个三人结构化博弈的一般分析框架,然后根据这个分析框架对传统的联盟博弈进行了新的分析,发现经典的"三人分300元"博弈事实上有稳定的均衡解,即三人各分100元。作为一个简单的应用,文章分析了三个国家之间的"战争-同盟博弈",我们发现该博弈有两个稳定的均衡解,在这两个稳定的均衡解中,超级大国和小国总是选择结盟,而小国总是选择和地区大国进行战争。从这两个例子可以看出,结构化多人博弈在分析复杂的政治、经济、社会问题上具有传统博弈论方法所不具备的很多优势,其获得的均衡解也更符合社会实际。     

Economic Diplomacy

We study bilateral conflicts that affect the welfare of third parties, the stakeholders. The conflict takes the form of a war of attrition and intervention is modeled as the possibility that the stakeholder “aids” the agreement with transfers to the contenders. We characterize the optimal policy when the stakeholder limits its intervention to a unilateral commitment to compensate the contenders if the conflict is resolved, and show that if contenders must be treated equally after agreement, then the optimal policy cannot eliminate the delay in resolving the conflict, and intervention is only advisable when the stakes are high enough. Economic diplomacy is modeled as a three‐player game where the stakeholder is actively involved in the negotiation where transfers are discussed simultaneously with a settlement for the conflict. We prove that, provided that none of the parties involved is too impatient, diplomacy benefits the third party in all conflicts.     

Positional learning with noise

We propose (and test experimentally) a model of observational learning in which players have social preferences. To this end, we design an experiment–based on a classic parlor game known as the Chinos Game–in which we vary (by way of an exogenous iid stochastic process) the probability of getting the prize in the event of a correct guess. By this design, we are able to estimate more efficiently players’ sensitivity to difference in payoffs (and how this sensitivity affects information decoding along the sequence). We also condition our estimates upon additional information on subjects’ socio-demographics, risk attitudes and cognitive reflection by way of a questionnaire that we collect at the end of each session.     

Leadership Giving in Charitable Fund-Raising

Why do charities often begin new capital fund drives by announcing a large contribution by a single wealthy donor? This paper explores the possibility that such “leadership giving” provides a signal to all other givers that the charity is of high quality. The dilemma is that if the lead giver can deceive others to believe the charity is of higher quality than it truly is, then these followers will make larger contributions, which will benefit the leader. Hence, the leader must give an unusually large amount to convey a credible signal of the quality. This sets up a war‐of‐attrition game for who will pay the cost to signal the quality. Since the wealthy have the lowest opportunity cost of providing the signal, they, in equilibrium, move first to provide the signal of quality with exceptionally large gifts.     

The Emergence of Structural Faults on the Supply Side in Deregulated 'Energy Only' Electricity Markets

This article examines the effect of plant entry and exit in a deregulated ‘energy only’ electricity market. A partial equilibrium framework is presented that determines the optimal portfolio of base, intermediate and peaking plant for a given electricity load curve. An optimal result for Queensland is compared against the actual plant stock. Analysis of the portfolio indicates that deregulation is failing a key objective, namely enhancing dynamic efficiency, because too much base plant has been delivered. The research presents scenarios of structural corrections, using the theory of the generalised war of attrition to develop the cases. Results from simulation experiments are clear—consumers will secure lower electricity prices in the short run. But oversupply of base plant may suppress prices to such an extent that they fail to signal timely entry of peaking plant—the consequence of this failure being eventual price shocks and, potentially, load shedding.     

Exploitable actions of believers in the “law of small numbers” in repeated constant-sum games

In repeated fixed-pair constant-sum games with unique equilibria in mixed strategies, such as matching pennies, the subgame perfect equilibrium is repeating the stage-game mixed-strategy equilibrium action. In such games rational players avoid strategies that are exploitable, in that current actions either deviate systematically from the equilibrium action probabilities or fail to be serially independent of past actions. I revisit classic experiments and find that subjects’ actions are sometimes exploitable because they are serially dependent. Subjects have difficulty in producing serially independent actions and in recognizing serially dependent sequences due to a bias called local representativeness.