理论论文

The political economy setting of voting over general nonlinear income taxes with labor disincentives and information asymmetry in consumer/worker/voter types is considered. Agents do not communicate or coordinate with each other. The economy is the realization of a finite draw from a continuous distribution. The revenue required from a draw is determined by Pareto optimal provision of a public good for that draw. Assuming that the government must meet the revenue requirement for any possible draw, in other words the tax is robust, a majority rule equilibrium is shown to exist at the median voter’s preferred tax function out of this robust set. The key restrictions on utility are additive separability, quasi-linearity, and that utility from the public good is multiplicative in type.

A principal hires an agent to learn about the cost of a project (experimentation) and then to execute it (production). The agent is privately informed about the probability that the cost is low, with the high-type agent more optimistic than the low type. Learning is modeled as a series of experiments, where the agent privately chooses his effort in each experiment. Due to the joint presence of adverse selection and moral hazard, even the low type can misrepresent his type, shirk during experimentation and earn a rent. In the optimal contract, the principal uses the length and outcome of experimentation as well as the timing of payments to induce effort and screen the agent. The principal may find it optimal to reward the low type after failure in experimentation. We provide sufficient conditions for both success and failure to be rewarded. We show that over-experimentation can be optimal as it reduces the asymmetric information after a series of failed experiments. We also consider whether it may be optimal to separate experimentation and production between two different agents. When the same agent works on both tasks, the principal can leverage the adverse selection rent to mitigate moral hazard. Therefore, integrating experimentation and production is optimal when adverse selection is severe.

We theoretically and experimentally study centralized college admissions in which colleges evaluate students under a ‘translucent’ admission system and students can learn each college’s suitability through costly information acquisition. In centralized matching via Gale and Shapley’s deferred acceptance algorithm, students decide whether to acquire information before submitting their rank-order lists. However, uncertainty about the final assignment lowers the expected gain from learning, thereby reducing social welfare, compared to a scenario without such uncertainty. Our experiments demonstrate that the welfare loss is greater with more opaque admission systems. The empirical social welfare obtained in our experimental treatments is consistently lower than the theoretical welfare, and we identify non-equilibrium learning as a main contributor.

This article examines, both theoretically and experimentally, the welfare implications of implementing symmetric bid caps in lobbying competitions. We model lobbying games as lottery contests with two radicals and one centrist, where all players strictly prefer to win. However, if they lose, radicals prefer to lose to a centrist rather than to the opposing radical. We establish the existence and uniqueness of equilibrium and find that, in the absence of a bid cap, radicals may bid aggressively enough to drive the centrist out of the competition, thereby preventing the social welfare-maximizing outcome. Consequently, implementing a bid cap enhances social welfare in two ways: it reduces aggregate expenditure and increases the likelihood of the centrist winning. Our experimental results qualitatively align with the theoretical predictions. However, we also identify and address notable behavioral patterns: in contrast to the vast experimental literature (Sheremeta, 2013) on contests, aggregate bids do not exceed theoretical predictions in all treatments.

We provide a strategic model of the formation of production networks that subsumes the standard general equilibrium approach. The objective of firms in our setting is to choose their supply relationships so as to maximize their profit at the general equilibrium that unfolds. We show that this objective is equivalent to the maximization by the firms of their eigenvector centrality in the production network. As is common in network formation games based on centrality, there are multiple Nash equilibria in our setting. We have investigated the characteristics and the social efficiency of these equilibria in a stylized version of our model representing international trade networks. We show that the impact of network structure on social welfare is firstly determined by a trade-off between costs of increasing process complexity and positive spillovers on productivity induced by the diversification of the input mix. We further analyze a variant of our model that accounts for the risks of disruption of supply relationships. In this setting, we characterize how social welfare depends on the structure of the production network, the spatial distribution of risks, and the process of shock aggregation in supply chains. We finally show that simple trade policies characterized by sets of links that are either prevented or catalyzed can be a powerful equilibrium selection device.

This paper investigates how to persuade multiple interacting receivers under arbitrary equilibrium selection and when receivers’ preferences may exhibit psychological traits. Our main result characterizes the conditions under which the sender can categorize information using partitions and then disclose partition-related information without altering the equilibrium outcome. This finding broadens the traditional direct approach based on the revelation principle, which categorizes messages solely by equilibrium actions. Consequently, our results support a generalized direct approach, which we apply to study information disclosure in fostering fairness within groups where members may demonstrate altruistic behaviors.

We extend global games á la Carlsson and van Damme (1993) to environments where the risk-dominant equilibrium is selected even if there is no dominance solvable game in the underlying class of games. Strict dominance can emerge in the global game from strategic uncertainty due to discrete payoff changes in underlying games, and we provide sufficient conditions on payoff changes that warrant iterated dominance of the risk-dominant equilibrium. Thus, strategic uncertainty creates strictly dominant actions as well as fostering iterated dominance, in contrast to global games hitherto where strategic uncertainty does only the latter. Discrete payoff changes tend to arise, in particular, in situations where a public good can be provided with varying degrees of coordination depending on the state, so that coordinating actions can be strategic substitutes and free-riding incentives are present. We illustrate our findings in a stylized public good provision model.

We consider many-to-many matching with contracts where each agent can sign multiple contracts with the same agent. In other words, the unitarity condition is not assumed in this model. We offer a weaker substitutability condition called substitutability across doctors, which is a generalization of unilateral substitutability. We show that if every hospital’s choice function satisfies substitutability across doctors and every doctor’s choice function is responsive, then a stable outcome exists. We establish this result by generalizing the cumulative offer process. Moreover, we propose an even weaker substitutability condition that incorporates observability of doctors’ contract offers during the algorithm. The same algorithm guarantees the existence of a stable outcome even when substitutability across doctors is replaced with the weaker condition. We additionally present a specific class of choice functions satisfying the weaker condition that can be applied to a temporary staffing market, particularly in which temp agencies may assign multiple temporary workers to each client.

In a recent paper, Lin & Palfrey (2024) developed a theory of cognitive hierarchies (CH) in sequential games and observed that this solution concept is not reduced-normal-form invariant. In this paper I qualify and explain this observation. I show that the CH model is normal-form invariant, and that the differences arising from the application of the CH model to the reduced normal form depend only on how randomization by level-0 types is modeled. Indeed, while the uniform behavior strategy in the extensive form yields the uniform mixed strategy in the normal form, the latter does not correspond to the uniform randomization in the reduced normal form, because different reduced strategies may correspond to sets of equivalent strategies with different cardinalities. I also comment on (i) the invariance of the CH model to some transformations of the sequential game, and (ii) the independence of conditional beliefs about co-players' level-types.

We analyze optimal procurement contracts when suppliers learn about project costs over time and retain an ex-post right to exit. In the first period, the firm observes a private signal on the likelihood of high costs; in the second, it learns the realized cost type and decides whether to continue or exercise its outside option. We show that when exit opportunities are sufficiently attractive, the optimal mechanism pools all first-period signals and reduces to a cost-plus contract, with payments tied only to realized, verifiable costs. Attempts to elicit cost forecasts ex-ante backfire: firms strategically under-report expectations, triggering exit in high-cost states and generating overruns. This provides a mechanism-based interpretation of cost overruns as failures of incentive design. Finally, we demonstrate that more generous outside options can raise procurement costs and lower firm profits, identifying conditions where limiting exit rights is ex-ante Pareto improving. (JEL D82, D86, H57)

We examine a unique auction format used in the Istanbul flower market, which could transform into either Dutch or English auction depending on bidders’ bidding behaviors. By introducing a time cost that reduces the value of a perishable good as time passes, we explore how this hybrid auction format accommodates the desire for speed via an adaptive starting price. We show that the Istanbul Flower Auction outperforms both the Dutch and English auctions in terms of the auctioneer’s utility. With numerical analysis, we also illustrate the Istanbul Flower Auction’s superiority in terms of social welfare and auction duration. Our results highlight the critical role of auction design in improving welfare when the duration of the auction process matters.

Quantal response equilibrium (QRE), a statistical generalization of Nash equilibrium, is a standard benchmark in the analysis of experimental data. Despite its influence, nonparametric characterizations and tests of QRE are unavailable beyond the case of finite games. We address this gap by completely characterizing the set of QRE in a class of binary-action games with a continuum of types. Our characterization provides sharp predictions in settings such as global games, volunteer's dilemma, and the compromise game. Further, we leverage our results to develop nonparametric tests of QRE. As an empirical application, we revisit the experimental data from Carrillo and Palfrey (2009) on the compromise game.

The effect of group size and effort cost on rent dissipation in the standard Tullock rent seeking model is examined using a laboratory experiment. Data support qualitative comparative static Nash equilibrium predictions as reductions in both group size and effort cost increase effort levels. However, effort and dissipation rates are above Nash predictions for all treatments. In addition, while cutting per-unit effort costs in half increases individual effort levels, they do not fully double as predicted and therefore lower rent dissipation, creating a policy-relevant “streamlining effect”. A quantal response equilibrium, which adds stochastic elements into the game structure, predicts the observed higher effort levels and dissipation but is proven to be unable to explain the streamlining effect. A modification of quantal response that incorporates implementation error noise and loss aversion outperforms other estimated models and tracks the observed all data patterns more closely, including the streamlining effect.

We propose a model of electoral accountability, and we test it in a lab setting. As predicted by the model, moral incentives and the desire for reelection interact to deter politicians from accepting bribes early in their careers. Treatments with weaker reelection incentives perform worse in encouraging good initial behavior among politicians, but are more effective in promoting good behavior later on. The probability of voter errors and politicians' intrinsic motivation for good behavior in the final period vary across treatments, with opportunistic behavior being more prevalent in environments with stronger electoral incentives.

This paper aims to connect epistemic and behavioral game theory by examining the epistemic foundations of quantal response equilibrium (QRE) in static games. We focus on how much information agents possess about the probability distributions of idiosyncratic payoff shocks, in addition to the standard assumptions of rationality and common belief in rationality. When these distributions are transparent, we obtain a solution concept called Δ p -rationalizability, which includes action distributions derived from QRE; we also give a condition under which this relationship holds true in reverse. When agents only have common belief in the monotonicity of these distributions (for example, extreme value distributions), we obtain another solution concept called Δ M -rationalizability, which includes action distributions derived from rank-dependent choice equilibrium, a parameter-free variant of QRE. Our solution concepts also provide insights for interpreting experimental and empirical data.

This article introduces the concept of duality in financial networks, which entails the division of losses versus gains. In bankruptcy problems, in which a bankrupt entity divides its non-negative assets among a group of claimants, duality is well understood. Financial networks generalize bankruptcy problems by allowing for multiple agents with individual assets interconnected by mutual claims. We argue that allowing for negative assets is imperative to adequately formulate duality for financial networks. We show that there is a linear relationship between transfer schemes based on claims rules in a financial network and transfer schemes based on the dual of those claims rules in the dual financial network. Moreover, dual financial networks enable us to define dual transfer rules and dual allocation rules. We show that both self-dual transfer rules and self-dual allocation rules have to be based on self-dual claims rules. On the other hand, we demonstrate that transfer rules based on self-dual claims rules need not be self-dual, whereas allocation rules based on self-dual claims rules are always self-dual.

We consider contests with a large set (continuum) of participants and axiomatize contest success functions that arise when performance is composed of both effort and a random element, and when winners are those whose performance exceeds a cutoff determined by the designer’s budget constraint. Any such Random Performance Function (RPF) satisfies a Co-monotonicity property, which implies that opponents’ effort distributions can be unambiguously ranked based on how competitive they are. We prove that Co-monotonicity, along with standard continuity and monotonicity properties, in fact characterize the class of RPFs. We also describe necessary and sufficient conditions for the noise term to have an additive structure. “The idea of a continuum of traders may seem outlandish to the reader. Actually, it is no stranger than a continuum of prices or of strategies or a continuum of ‘particles’ in fluid mechanics... It should be emphasized that our consideration of a continuum of traders is not merely a mathematical exercise; it is the expression of an economic idea.” In: Markets with a continuum of traders, Robert J. Aumann, Econometrica 1964

We report on the topological structure of logit quantal response equilibria for asymmetric, two-player, two-choice games in normal form, via catastrophe theory. We present three main outcomes: first, a novel, smooth potential function for the underlying dynamics, relative to which logit equilibria arise as stationary points comprising a parameterised hyper-surface; secondly, a proof that all catastrophes within this manifold are of order at most three, i.e. “folds and cusps”; thirdly, discovery of a new topological phenomenon, the “pleated loop”, corresponding to a pair of opposed pitchfork bifurcations. This we exhibit for games, such as Prisoner's Dilemma, that have a unique Nash equilibrium, with multiple logit equilibria for finite precision parameters. These results extend work at the intersection of stochastic decision theory and catastrophe theory with economic games. Their application to the problem of bifurcations in the tracing procedure for logit solutions, proposed by McKelvey and Palfrey, is discussed throughout.

We experimentally study pork barrel politics in repeated two-candidate majoritarian elections with costly voting. Candidates form distinct supporter groups by favoring some voters in budget spending and ignoring others. Relative to compulsory voting, voluntary voting induces on average larger, more narrowly targeted favors and therefore more inequality among otherwise identical voters. Against our prediction, candidate participants tend to cultivate policy polarization by repeatedly favoring their exclusive supporters and avoiding those of the opponent. With compulsory voting, they tolerate some additional policy overlap for a separate subset of voters. Relating to theory, actual levels and patterns of voluntary turnout are well captured by quantal response equilibrium (QRE) for a noise parameter estimate external to our experiment. Importantly, and surprisingly, for reasonable assumption we find unique QRE solutions for our polity games, which include the policymaking stage and each of the many possible elections that can emerge from that stage.

This paper introduces a refinement of Nash equilibrium (NE) to determine the relevance of weakly dominated NE in games. We adapt Harsanyi (1973)'s concept of “approachability,” originally based on games with randomly disturbed payoffs, and extend it to a broader family that encompasses the most widely used equilibrium models of imperfectly rational behavior. We identify a singular NE refinement, approximate payoff monotone equilibrium (APME), that coincides with the set of NE that are approachable by regular quantal response equilibria as well as control cost models. We advocate for APME based on its 1) foundation in models that rationalize empirically observed behavior; 2) ability to discriminate between equilibria without automatically discarding weakly dominated behavior; and 3) computational simplicity in applications where the structure of NE is known. We illustrate the value of APME in three applications in which empirical studies suggest that weakly dominated NE are relevant.