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Abstract:
An economy with a finite number of agents and a finite number of states is considered. An exogenous institutional rule prescribes which moves from one state to another are feasible to each coalition. At each time, an agent is called to act with some exogenous probability, and he chooses a coalition, a feasible new state to move the economy to, and side payments between the agents in the coalition. The setup can be applied to various dynamic processes of social and economic interactions such as legislative bargaining, coalition formation, or exchange economies. Whenever agents are unable to write long-term contracts, but are otherwise unconstrained both in their ability to write arbitrary spot contracts and in their ability to collude, there can be long-run inefficiencies (with cycles or inefficient steady states). However, when agents are sufficiently patient, the initial state from which the process starts plays no role in the long run. Moreover, when there exists an efficient state that is free of negative externalities (in the sense that a move away from that state does not hurt the agents whose consent is not required for the move), the system must converge to this efficient state in the long run. It is thus more important to design institutions guaranteeing the existence of an efficient negative externality-free state than to implement a fine initialization of the process.

Abstract:
This Paper considers the efficiency and convergence properties of dynamic processes of social and economic interactions, such as exchange economies, multilateral negotiations, merger and divestiture transactions, or legislative bargaining. The key general feature of the economy is that agents can implement any move from one state to another as long as a pre-specified subset of agents approve. By means of examples, we show that inefficiencies may occur even in the long run. Persistent inefficiencies take the form of cycles between states or of convergence to an inefficient state. When agents are sufficiently patient, we show very generally that the initial state from which the process starts plays no role in the long-run properties of equilibria. Also, when there exists an efficient state that is externality free (in the sense that a move away from that state does not hurt the agents whose consent is not required for the move), then the system must converge to this efficient state in the long-run. Conversely, long-run efficiency can only be attained in a robust way if there exists an efficient externality-free state. It is thus more important to design transitions guaranteeing the existence of an efficient externality-free state rather than to implement a fine initialization of the process.

Dynamic games, multilateral interactions, externalities, efficiency

Abstract:
An economy with a finite number of agents and a finite number of states is considered. An exogenous institutional rule prescribes what moves from one state to another are feasible to each coalition. At each time an agent is called to act with some exogenous probability, and he chooses a coalition, a feasible new state to move the economy to, and side-payments between the agents in the coalition. The setup can be applied to various dynamic processes of social and economic interactions such as legislative bargaining, coalition formation or exchange economies. Whenever agents are unable to write long-term contracts, but agents are otherwise unconstrained both in their ability to write arbitrary spot contracts and in their ability to collude, there can be long-run inefficiencies (with cycles or inefficient steady states). However, when agents are sufficiently patient, the initial state from which the process starts plays no role in the long-run. Moreover, when there exists an efficient state that is negative-externality-free (in the sense that a move away from that state does not hurt the agents whose consent is not required for the move), then the system must converge to this efficient state in the long-run. It is thus more important to design institutions guaranteeing the existence of an efficient-negative-externality-free state than to implement a fine initialization of the process.

Dynamic games, externalities, efficiency, convergence, contracts

Abstract:
This paper identifies a source of gradualism in bargaining and contribution games. In the bargaining games we examine, each party can opt out at any time, and the outside option outcome is assumed to depend on the offers made in the negotiation phase. Specifically, we assume that (1) making a concession in the negotiation phase increases the other party's outside option pay-off and (2) the outside option outcome induces an efficiency loss as compared with a negotiated agreement. The main finding is that the mere presence of such history-dependent outside options forces equilibrium concessions in the negotiation phase to be gradual, and the degree of gradualism is characterized. The model also applies to contribution games in which the outside option may be interpreted as the option to implement a partial project using the total contributions made so far.

Abstract:
This paper identifies a source of gradualism in bargaining and contribution games. In the bargaining games we examine, each party can opt out at any time, and the outside option outcome is assumed to depend on the offers made in the negotiation phase. Specifically, we assume that (1) making a concession in the negotiation phase increases the other party's outside option pay-off and (2) the outside option outcome induces an efficiency loss as compared with a negotiated agreement. The main finding is that the mere presence of such history-dependent outside options forces equilibrium concessions in the negotiation phase to be gradual, and the degree of gradualism is characterized. The model also applies to contribution games in which the outside option may be interpreted as the option to implement a partial project using the total contributions made so far.

Abstract:
This paper identifies a source of gradualism in bargaining and contribution games. In the bargaining games we examine, each party can opt out at any time, and the outside option outcome is assumed to depend on the offers made in the negotiation phase. Specifically, we assume that (1) making a concession in the negotiation phase increases the other party's outside option pay-off and (2) the outside option outcome induces an efficiency loss as compared with a negotiated agreement. The main finding is that the mere presence of such history-dependent outside options forces equilibrium concessions in the negotiation phase to be gradual, and the degree of gradualism is characterized. The model also applies to contribution games in which the outside option may be interpreted as the option to implement a partial project using the total contributions made so far.

Abstract:
Europe has taken the global lead in the issuance of third generation (3G) licences for mobile telecommunications according to the UMTS/IMT-2000 family of standards. We survey the recent European UMTS licence auctions and compare their outcomes with the predictions of a simple auction model that emphasises future market structure as a main determinant of valuations for licenses. Since the main goal of most spectrum allocation procedures is economic efficiency, and since consumers (who are affected by the ensuing market structure) do not participate at the auction stage, good designs must alleviate the asymmetry among incumbents and potential entrants by actively encouraging entry.

Licence auctions, market entry, UMTS

Abstract:
This paper considers an intertemporal decision problem in which the agent has limited foresight. It offers an interpretation of why people may smoke when they are young - and arguably have a short horizon of foresight - and refrain from smoking when they get older - and their foresight is better.

Abstract:
This Paper deals with collective decision making within a group of independent jurisdictions. The right to choose the public policy is delegated from the central authority of one of the jurisdictions through a bidding procedure among the group members. We identify the following trade-off: Competition among jurisdictions yields higher transfers to the government, but the outcome tends to be less efficient than what it is when jurisdictions negotiate prior to the decision-making process. We extend and illustrate the model by means of a public good game involving several heterogeneous jurisdictions.

Jurisdictions, confederation, auction, spillovers, public good

Abstract:
We analyze the interplay between license auctions and market structure in a model with several incumbents and several potential entrants. The focus is on the competitiveness induced by the number of auctioned licenses. Under plausible conditions, we show that auctioning more licenses need not result in a more competitive final outcome, contrary to what common sense suggests. This is due to the nature of competition among incumbents, which sometimes exhibits free-riding. We illustrate some results with examples drawn from the recent European license-auctions for third generation (3G) mobile telephony.
We analyze the interplay between license auctions and market structure in a model with several incumbents and several potential entrants. The focus is on the competitiveness induced by the number of auctioned licenses. Under plausible conditions, we show that auctioning more licenses need not result in a more competitive final outcome, contrary to what common sense suggests. This is due to the nature of competition among incumbents, which sometimes exhibits free-riding. We illustrate some results with examples drawn from the recent European license-auctions for third generation (3G) mobile telephony.

Abstract:
We study multi-object auctions where agents have private and additive valuations for heterogeneous objects. We focus on the revenue properties of a class of dominant strategy mechanisms where a weight is assigned to each partition of objects. The weights influence the probability with which partitions are chosen in the mechanism. This class contains efficient auctions, pure bundling auctions, mixed bundling auctions, auctions with reserve prices and auctions with pre-packaged bundles. For any number of objects and bidders, both the pure bundling auction and separate, efficient auctions for the single objects are revenue-inferior to an auction that involves mixed bundling.

Auction, mixed bundling, revenue maximization

Abstract:
We study the effects of allocative and informational externalities in (multi-object) auctions and related mechanisms. Such externalities naturally arise in models that embed auctions in larger economic contexts. In particular, they appear when there is downstream interaction among bidders after the auction has closed. The endogeneity of valuations is the main driving force behind many new, specific phenomena with allocative externalities: even in complete information settings, traditional auction formats need not be efficient, and they may give rise to multiple equilibria and strategic non-participation. But, in the absence of informational externalities, welfare maximization can be achieved by Vickrey-Clarke-Groves mechanisms. Welfare-maximizing Bayes-Nash implementation is, however, impossible in multi-object settings with informational externalities, unless the allocation problem is separable across objects (e.g. there are no allocative externalities nor complementarities) or signals are one-dimensional. Moreover, implementation of any choice function via ex-post equilibrium is generically impossible with informational externalities and multidimensional types.

Auctions, externalities, interdependent values

Abstract:
This short paper shows that in an affiliated value setting one more bidder at the auction stage need not induce a higher expected welfare in either ascending price or second price auctions. We highlight the roles of asymmetries between bidders and of the multidimensional character of the private information in deriving this result.

auctions, affiliated value, asymmetries, competition, efficiency

Abstract:
We study an auction whose outcome influences the future interaction among agents. The impact of that interaction on agent i is assumed to be a function of all agents' types (which are private information at the time of the auction). Explicit illustrations treat auctions of patents and takeover contests. We derive equilibria for second-price, sealed-bid auctions in which the seller sometimes keeps the object, and we point out the various effects caused by positive and negative impacts. We also study the effect of reserve prices and entry fees on the seller's revenue and on welfare.

Abstract:
The rules under which jurisdictions (nations, provinces) can deny immigration or expel residents are generally governed by a constitution, but there do not exist either positive or normative analyses to suggest what types of exclusion rules are best. We stylize this problem by suggesting four constitutional rules of admission: free mobility, admission by majority vote, admission by unanimous consent, admission by a demand threshold for public goods. In a simple model we characterize the equilibria that result from these rules, and provide a positive theory for which constitutional rule will be chosen.

Abstract:
In standard auctions, collusion among buyers eliminates bidding competition despite informational asymmetries. Collusion can, however, be imperfect when the situation involves "externalities" among buyers, that is, when a buyer is worse off if one rival wins the good rather than if nobody gets it. For intermediate values of the externality and under various objective functions, the seller finds it optimal to design an auction that leads, in equilibrium, to a collusive outcome that is ex post inefficient for the group of buyers; an ex ante incentive-efficient collusion mechanism for the buyers is characterized in this situation.

Abstract:
We study a model that involves identity-dependent, asymmetric negative external effects. Willingness to pay, which can be computed only in equilibrium, will reflect, besides private valuations, also preemptive incentives stemming from the desire to minimize the negative externalities. We find that the best strategy of some agents is simply not to participate in the market, although they cannot in this way avoid the negative external effects. An illustration is made for the acquisition of patents in oligopolistic markets. Finally, we show that even when we allow full communication and side payments between agents, all coalitional agreements are unstable.