理论论文

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.

We propose an extensive-form solution concept, with players who neglect information from hypothetical events but make inferences from observed events. Our concept modifies cursed equilibrium (Eyster and Rabin 2005) and allows that players can be cursed about endogenous information.

Abstract This article develops a New Keynesian model with sovereign default risk. Inflation is set by forward-looking firms, monetary policy is an interest rate rule, and the fiscal government borrows externally, long-term, with an option to default. In this framework, default risk creates inflation pressures through an expectations channel, and tight monetary policy disincentivizes fiscal overborrowing. The model sheds light on temporary inflation events in emerging-market data: short-lived spikes in inflation, spreads, and domestic policy rates. As spreads rise, firms increase their prices in expectation of higher future inflation and low consumption during default. Monetary policy tightens, which reduces inflation and helps bring spreads down by disciplining government borrowing. These monetary-fiscal interactions imply that delivering the flexible-prices allocation may not be optimal for monetary policy.

We consider a group of voters that needs to decide between two candidates. We propose a novel family of neutral and strategy-proof rules, which we call sequential unanimity rules. By demonstrating their formal equivalence to the M-winning coalition rules of Moulin (1983), we show that sequential unanimity rules are characterized by neutrality and strategy-proofness. We establish our results by developing algorithms that transform a given M-winning coalition rule into an equivalent sequential unanimity rule and vice versa. The analysis can be extended to accommodate the full preference domain in which voters may be indifferent between candidates.

We study the optimal auction design problem when bidders are ambiguity averse and follow the max-min expected utility model. Each bidder’s set of priors consists of beliefs that are close to the seller’s belief, where “closeness” is defined by a divergence. For a given allocation rule, we show that optimal transfers belong to a specific class of transfers, termed win-lose dependent transfers, in which bidders’ transfers upon winning and losing depend only on their own types but not on their opponents’ type reports. This result effectively reduces the infinite-dimensional problem of identifying an optimal transfer function into a two-dimensional problem of determining two constants-one for winning and another for losing. Solving this reduced problem, we show that among efficient mechanisms without transfers to losing bidders, the first-price auction is optimal, thereby outperforming other auction formats such as the second-price auction. We also discuss how the structure of the set of priors is related to the revenue ranking between the first- and second-price auctions.

ABSTRACT Green finance—including environmental, social, and governance investing and sustainable finance regulations—is widespread, but can it substitute for carbon pricing in fighting climate change? In a unified model, I show that (i) when carbon prices reflect the social cost of carbon, green finance should not be used; (ii) when carbon prices are too low, green finance can implement the social optimum if each firm's cost of capital can be set to its sustainable discount rate , which increases with the ratio of carbon emissions to firm value. I provide calibrations, analyze stranded assets, and present implementations through subsidies or preferential financing for green firms.

We consider a setting where each player of a normal-form game privately designs an information structure before playing the game. One of these designs is chosen at random to determine the distribution of the private messages that players receive. These messages allow players to correlate their actions; however, private information design implies a push from correlated to Nash equilibria. Indeed, the sequential equilibrium payoffs of the private information design extensive-form game are correlated equilibrium payoffs of the underlying normal-form game, but not all correlated equilibrium payoffs are sequential equilibrium payoffs. In generic 2-player games, the latter are specific convex combinations of two Nash equilibrium payoffs. In any 2-player game, imposing optimal beliefs from private information design allows us to obtain sufficient epistemic conditions for Nash equilibrium that require only knowledge of players' rationality.

ABSTRACT An investor receives utility bursts from realizing gains and losses at the individual stock level and dynamically allocates his mental budget between risky and risk‐free assets at the trading account level. Using savings, he reduces his stockholdings and is more willing to realize losses. Using leverage, he increases his stockholdings beyond his mental budget and is more reluctant to realize losses. While leverage strengthens the disposition effect, introducing leverage constraints mitigates it. Our model predicts that investors with stocks in deep losses sell them either immediately or after stocks rebound a little.

ABSTRACT We study the role of asset revaluation in the monetary transmission mechanism. We build an analytical heterogeneous‐agents model with two main ingredients: (i) rare disasters and (ii) heterogeneous beliefs. The model captures time‐varying risk premia and precautionary savings in a setting that nests the textbook New Keynesian model. The model generates large movements in asset prices after a monetary shock but these movements can be neutral on real variables. Real effects depend on the redistribution among agents with heterogeneous precautionary motives. In quantitative analysis, we find that this channel can account for a large fraction of the transmission to aggregate consumption.

Labor market polarization is among the most important features in recent decades of advanced country labor markets. Yet key spatial aspects of this phenomenon remain under-explored. We develop four key facts that document the universality of polarization across cities, a city-size difference in the shock magnitudes, a skew in the types of middle-paid jobs lost, and the role of polarization in the great urban divergence of skills. Existing theories cannot account for these facts. Hence we develop a parsimonious theoretical account that does so by integrating elements from the literatures on labor market polarization and systems of cities with heterogeneous labor in spatial equilibrium.

ABSTRACT We study aversion to model ambiguity and misspecification in dynamic portfolio choice. Risk‐averse investors (relative risk aversion γ > 1) fear return persistence, while risk‐tolerant investors (0 < γ < 1) fear mean reversion, when confronting model misspecification concerns of identically and independently distributed (IID) returns. The intuition is that risk‐averse investors, who want to hedge intertemporally, endogenously fear return persistence, which precludes hedging. A log investor is myopic and unaffected by model misspecification, therefore only worrying about model ambiguity. Our model can generate belief scarring, nonparticipation in equity markets, and extrapolative return expectations. Extending beyond IID returns, we study model misspecification for a mean‐reverting Sharpe ratio.