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GAME THEORY & BARGAINING THEORY eJOURNAL"Complementary Institutions and Economic Development: A Demonstration Experiment"
ANDREW SPECTOR KLOOSTERMAN, New York University (NYU) This paper considers the problem of why societies develop differently, a question most recently articulated by Acemoglu and Robinson (2012). We follow North (1990) in defining institutions as the "rules of the game in society." The question then becomes why do different societies develop different societal rules? To investigate this we examine a specific type of dynamic game (called an "Institutional Game"). Finally, we examine these ideas using what Charles Plott calls a "Demonstration Experiment", an experiment whose purpose is simply to demonstrate that the phenomena we are discussing could occur both in the laboratory and in the real world.
SURYAPRAKASH MISRA, NALSAR University of Law Rational economic agents always engage in maximizing their payoffs. The endeavor in this paper is to show that when the parties involved in the bargaining process (game) have similar discount factors and when the number of periods of the game tends to infinity or very large, then the surplus is approximately split in the proportion of 50:50. This analysis is helpful in relating efficiencies of countries to the level of human capital present in them. "A Bargaining Theory of Trade Invoicing and Pricing"
LINDA S. GOLDBERG, Federal Reserve Bank of New York, National Bureau of Economic Research (NBER)
We develop a theoretical model of international trade pricing in which individual exporters and importers bargain over the transaction price and exposure to exchange rate fluctuations. We find that the choice of price and invoicing currency reflects the full market structure, including the extent of fragmentation and the degree of heterogeneity across importers and across exporters. Our study shows that a party has a higher effective bargaining weight when it is large or more risk tolerant. A higher effective bargaining weight of importers relative to exporters in turn translates into lower import prices and greater exchange rate pass-through into import prices. We show the range of price and invoicing outcomes that arise under alternative market structures. Such structures matter not only for the outcome of specific exporter-importer transactions, but also for aggregate variables such as the average price, the average choice of invoicing currency, and the correlation between invoicing currency and the size of trade transactions "Change in Risk and Bargaining Game"
HAILIN SUN, Toulouse School of Economics This paper studies the comparative statics regarding changes in risk on Nash's solution to bargaining games with stochastic outcome and disagreement points. When absolute risk tolerance is linear with constant slope, the Nash's solution to bargaining with risky outcomes and risky disagreement points can be viewed as division of divisible certainty equivalent between two risk-averse agents. We show that whether a deterioration of a bargainer's risky prospect is advantageous to his opponent often depends on whether preference displays decreasing absolute risk aversion (DARA). Specifically, for perfectly correlated risky prospects, DARA Ã la Arrow-Pratt works to the concavity of the joint certainty equivalent with respect to a bargainer's initial wealth or size of risky exposure; for independent risky prospects, DARA Ã la Ross vulnerates his risk bearing under Rothschild-Stiglitz increase in risk taking the form of adding an independent noise, both leading to the bargainer's increased propensity for risk aversion as well as the joint size of the pie. These results illuminate how individual risky prospect as well as risk preference influence the cooperating partners' income shares and thus the market equilibrum of marriage formation. We also show that this result is robust under Rubinstein's non-cooperative bargaining game. "Mechanism Design in M&A Auctions"
STEVEN J. BRAMS, New York University (NYU) - Wilf Family Department of Politics The recent controversy over “Don’t Ask, Don’t Waive� standstills in M&A practice highlights the need to apply mechanism design to change-of-control transactions. In this Essay, we propose a novel two-stage auction procedure that induces honest bidding among participants while potentially yielding a higher sale price than an open ascending, a sealed-bid first price, or a Vickrey second-price auction. Our procedure balances deal certainty with value maximization through the Nobel Prize-winning principle of incentive compatibility, making participation in the M&A auction and honest disclosure of reservation prices in the parties’ interests rather than relying solely on heavy-handed ex-post enforcement. Moreover, the social benefits of our two-stage auction mechanism - greater transparency regarding the distribution of bids, avoidance of the winner’s curse, certainty in the M&A auction environment, and fairness to buyers and sellers - justify reduced judicial scrutiny of transactions utilizing the procedure under Revlon and Chancellor Strine’s recent dicta in Ancestry.com.
BRIAN R. L. COULTER, University of Oxford - Saïd Business School The ongoing investigations into LIBOR have highlighted that the current benchmarks are subject to manipulation by banks both for profiting from derivative exposures and for hiding credit risk from the market. In this paper, we propose a mechanism that gets banks to reveal their borrowing costs truthfully and at no cost to the administrator. The mechanism has two basic elements. First, a reporting bank can be challenged by actual transactions if they occurred. Second, if no transactions are produced, a whistleblower bank can contest that the actual borrowing cost was different. A third bank may verify or invalidate the whistleblower's claim by stating its willingness to lend at the lower of the contested and reported rates. We demonstrate that the mechanism is collusion-proof in the model as written, and discuss reasons why it may be difficult to collude in an infinitely repeated version of the model. | ||||||||
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About this eJournal
This eJournal distributes working and accepted paper abstracts of empirical and theoretical papers on game theory, defined as the study of the strategic interaction among rational agents in competitive and cooperative environments, and bargaining theory, defined as a situation in which two or more players have a common interest to co-operate, but have conflicting interests over exactly how to co-operate. The topics in this eJournal include all of the subjects in Section C7 of the JEL classification system.
Distribution ServicesIf your organization is interested in increasing readership for its research by starting a Research Paper Series, or sponsoring a Subject Matter eJournal, please email: RPS@SSRN.com Distributed byDirectorsERN SUBJECT MATTER EJOURNALS MICHAEL C. JENSEN Please contact us at the above addresses with your comments, questions or suggestions for ERN-Sub.
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