No contract or unfair contract: What's better?

We investigate the welfare implications of unfair incentive contracts in comparison with interactions without contracts. Reciprocal people should cooperate conditionally in the latter situation but punish unfairness by non-cooperation. We confirm that some people do cooperate conditionally in a sequential prisoner's dilemma. Furthermore, some subjects do not cooperate if they face an unfair incentive contract in a similar context. However, there is no correlation between these two types of reciprocity. At an aggregate level, all contracts – no matter how fair they are – improve welfare even if agents are conditionally cooperative.     

GUILTY CONSCIENCE AND INCENTIVES WITH PERFORMANCE ASSESSMENT ERRORS

This study examines the effects of guilty conscience on incentive in the situation where an agent performance assessment has errors. There are two types of assessment error: undervaluation and overvaluation. In overvaluation, agents will not correct the assessment because their wages would then decrease. Although agents will want their undervaluation corrected, principals will not correct the error due to increased wage cost. Hence, correcting errors is complicated. However, this type of selfish behavior by agents and principals produces feelings of guilt, particularly when others trust them. In this situation, a high incentive is desirable for conscientious people with a strong sense of guilt or for nonconscientious people who do not feel guilt, but it is undesirable for intermediate‐type people who are conscientious only to a certain extent. (JEL D03, D82, J41)     

Reconsidering two-agent Nash implementation

In this paper, we reconsider the full characterization of two-agent Nash implementation provided in the celebrated papers by Moore and Repullo (Econometrica 58:1083–1099, 1990) and Dutta and Sen (Rev Econ Stud 58:121–128, 1991), since we are able to show that the characterizing conditions are not logically independent. We prove that an amended version of the conditions proposed in these papers is still necessary and sufficient for Nash implementability. Then, by using our necessary and sufficient condition, we show that Maskin’s impossibility result can be avoided under restrictions on the outcomes and the domain of preferences much weaker than those previously imposed by Moore and Repullo (Econometrica 58:1083–1099, 1990) and Dutta and Sen (Rev Econ Stud 58:121–128, 1991).     

Asymmetrically fair rules for an indivisible good problem with a budget constraint

We study a particular restitution problem where there is an indivisible good (land or property) over which two agents have rights: the dispossessed agent and the owner. A third party, possibly the government, seeks to resolve the situation by assigning rights to one and compensate the other. There is also a maximum amount of money available for the compensation. We characterize a family of asymmetrically fair rules that are immune to strategic behavior, guarantee minimal welfare levels for the agents, and satisfy the budget constraint.     

Characterizing the Nash bargaining solution without Pareto-Optimality

We consider the bargaining problems with a variable number of agents. Lensberg had previously characterized the Nash solution as the only solution to satisfy the following axioms: Pareto-Optimality, Symmetry, Scale Invariance, and Multilateral Stability. We show that the disagreement solution is the only additional solution to satisfy the restricted list of axioms obtained by dropping Pareto-Optimality.Support from NSF under grant 8511136 is gratefully acknowledged. Thanks are also due to H. Moulin for his comments at an early stage of this research.     

Efficiency and stability in a model of wireless communication networks

We introduce a model of (wireless communication) networks: a group of agents want to communicate with each other; an agent has his own position, chooses his costly communication range, and benefits from direct and indirect communications with other agents; any two agents can directly communicate if each agent is located within another agent’s communication range; they can indirectly communicate if each agent is connected to another agent through a sequence of direct communications. Although efficiency and stability are not compatible in a general context, we identify interesting subclasses of problems where an efficient and stable network exists: the uniform interval model, the uniform circle model, and the communication favorable domain. We also investigate the consequence of allowing agents to relocate their positions. For certain networks, relocation-proofness is equivalent to stability.     

Nash implementation via hyperfunctions

Hyperfunctions are social choice rules which assign sets of alternatives to preference profiles over sets. Therefore, they are more general objects compared to standard (social choice) correspondences. In fact, every correspondence can be expressed in terms of an equivalent hyperfunction. We give a partial characterization of Nash-implementable hyperfunctions and explore the conditions under which correspondences have Nash-implementable equivalent hyperfunctions. While the strength of these conditions depends on the axioms used to extend preferences over alternatives to sets, they are at most as strong as the conjunction of Maskin monotonicity with the no veto power condition. Thus, our approach expands the set of Nash-implementable social choice rules. In fact, social choice rules such as the majority rule and the top cycle are Nash-implementable through their equivalent hyperfunctions, while they are not Maskin-monotonic, and thus, not Nash-implementable in the standard framework.

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Equivalence of Nash implementability and robust implementability with incomplete information

This paper is concerned with the design of robust mechanisms which are applicable to a wide class of possible information structures of agents. We examine a society consisting of several groups such that (i) there are at least three agents in each group; and (ii) each agent knows the preferences of the agents in his group but has incomplete information about the preferences of the agents outside his group. We show that for a large class of information structures, a social choice set (SCS) is implementable for each possible information structure if and only if it is Nash implementable. In other words, the class of robustly implementable SCS's is identical to the class of implementable SCS's in the complete information setting.This paper is a substantially revised version of a chapter of my dissertation submitted to the University of Rochester (Yamato [25]). I thank Professor William Thomson for his invaluable advice and suggestions. Detailed comments and suggestions of an anonymous referee were very helpful for further revision of the paper. I also acknowledge comments from Professors Randall Calvert, Luis Corchon, Glenn MacDonald, Eric Maskin, Lionel McKenzie, Ryo-Ichi Nagahisa, Koji Okuguchi, Ignacio Ortuño-Ortin, Tatsuyoshi Saijo, Ken-Ichi Shimomura, Tomas Sjöström, Yoshikatsu Tatamitani, and seminar participants at Harvard University, the 1992 Meeting of Kobe Summer Seminar in Economics of Organization and Game Theory, Tokyo Metropolitan University, and Toyama University. This work was supported in part by the Ministry of Education in Japan, the Nomura Foundation for the Social Sciences, and the Tokyo Center for Economic Research.     

Two-sided market situations with existing contracts

The main aim of this paper is to study two-sided market situations where there are existing contracts which are exogenously given. These existing contracts could come from a previous competitive period or from any other circumstances. In any case, all these existing contracts provide an initial feasible solution for the two-sided market situation, perhaps non optimal in the sense the agents do not obtain jointly the maximum profit that they could get by cooperation. Therefore, the agents could be interested in improving their results through cooperation but taking into account the existing bilateral contracts. Thus, taking as starting point what each agent has got with the existing contracts, they have to distribute among themselves the extra amount that they could get by cooperation. For this kind of cooperative situation we propose different models and prove some results about the nonemptiness of the core and its relationship with the Owen set.     

Nash implementation of Lindahl allocations

We define a class of Nash based mechanisms that implement Lindahl allocations in standard public good economies. As those that first proved Nash implementation of Lindahl allocations, defined by Hurwicz (1979) and Walker (1981), the mechanisms provided here are continuous, feasible, and independent of agents' characteristics. In economies with two agents (e.g., bilateral monopolies, duopolies, principal-agent models), our mechanisms are also applicable, in contrast to the well-behaved mechanisms in the literature, and they satisfy favourable stability properties.     

Nash Implementation with Lottery Mechanisms

Consider the problem of exact Nash Implementation of social choice correspondences. Define a lottery mechanism as a mechanism in which the planner can randomize on alternatives out of equilibrium while pure alternatives are always chosen in equilibrium. When preferences over alternatives are strict, we show that Maskin monotonicity (Maskin in Rev Econ stud 66: 23–38, 1999) is both necessary and sufficient for a social choice correspondence to be Nash implementable. We discuss how to relax the assumption of strict preferences. Next, we examine social choice correspondences with private components. Finally, we apply our method to the issue of voluntary implementation (Jackon and Palfrey in J Econ Theory 98: 1–25, 2001).I thank Toyo Sakai for his comments on a previous draft. I also thank two anonymous referees and an editor of this journal for helpful comments that improved this paper. A previous version circulated as “A note on Maskin monotonicity”. After the results presented here were obtained, I became aware of a new unpublished paper by Benoit and Ok (2004). The result of Theorem 2 and the discussion that follows is partially similar to their Theorem 1.     

Cooperative production under diminishing marginal returns: interpreting fixed-path methods

Fixed-path methods (FPMs) were introduced to manage situations where several individuals jointly operate a single technology (see Math Soc Sci 44:145–154 (2002)). In the production context, they consist in allocating marginal increments of output according to a proportions vector which changes along an arbitrary path. While very appealing from an incentives viewpoint under diminishing marginal returns, the asymmetry of these methods lacks solid economic interpretation. We provide such an interpretation by considering a situation where the technology to be shared results from the aggregation of private production processes. We propose a group-strategyproof mechanism under which no single agent wishes to secede from the partnership: the inverse marginal product proportions mechanism. It is the only FPM satisfying autarkic individual rationality; its path is uniquely determined by the technological contributions of the agents.     

Distributive justice and the Nash bargaining solution

Suppes-Sen dominance or SS-proofness (SSP) is a commonly accepted criterion of impartiality in distributive justice. Mariotti (Review of Economic Studies, 66, 733–741, 1999) characterized the Nash bargaining solution using Nash’s (Econometrica, 18, 155–162, 1950) scale invariance (SI) axiom and SSP. In this article, we introduce equity dominance (E-dominance). Using the intersection of SS-dominance and E-dominance requirements, we obtain a weaker version of SSP (WSSP). In addition, we consider α ? SSP, where α measures the degree of minimum acceptable inequity aversion; α ? SSP is weaker than weak Pareto optimality (WPO) when α = 1. We then show that it is still possible to characterize the Nash solution using WSSP and SI only or using α -SSP, SI, and individual rationality (IR) only for any \({\alpha \in [0,1)}\). Using the union of SS-dominance and E-dominance requirements, we obtain a stronger version of SSP (SSSP). It turns out that there is no bargaining solution that satisfies SSSP and SI, but the Egalitarian solution turns out to be the unique solution satisfying SSSP.     

Competition and cooperation in markets. The experimental case of a winner-take-all setting

The aim of this experiment is twofold. First of all, we want to investigate whether a winner-take-all scenario where subjects with homogeneous skills meet more than once stimulates subjects’ cooperation. Secondly, we want to compare agents’ tendency to cooperate in settings with different levels of competition. We ran three treatments. The first one reproduces the classical public good game. The second environment represents a perfect competition market, while in the third treatment we consider a winner-take-all market. The most relevant result we obtain is that while perfect competition forces players to be efficient and to behave as they were self-interested, a winner-take-all market induces strategic cooperation.     

Welfare-domination under preference-replacement: A survey and open questions

The objective of this paper is to describe various applications of a requirement of solidarity pertaining to situations in which the preferences of some of the agents may change. It says that the welfares of all agents whose preferences are fixed should be affected in the same direction: they should all weakly gain, or they should all weakly lose. We show how this condition, which we name “welfare-domination under preference-replacement”, can help in evaluating allocation rules. We discuss it in several contexts: private good allocation in classical economies, public good decision, binary choice with quasi-linear preferences, economies with indivisible goods, economies with single-peaked preferences, both in the private good case and in the public good case, and economies with time. For some of these models the implications of the property are well understood. For others, we state a number of open problems. Received: 2 January 1997/Accepted: 26 February 1998     

Game forms for Nash implementation of general social choice correspondences

Several game forms are given for Nash implementing general social choice correspondences (SCC's) which satisfy Maskin's conditions of monotonicity and No Veto Power. The game forms have smaller strategy spaces than those used in previously studied mechanisms: the strategy for an individual consists of an alternative, two subsets (of alternatives), and a player number. For certain types of economic and political SCC's, including -majority rule, the Walrasian, and Lindahl correspondence, the strategy space reduces to an alternative and a vector, where the number of components of the vector is at most twice the dimension of the alternative space.This paper was inspired by Tatsuyoshi Saijo's dissertation. I am greatly indebted to Kim Border, Leo Hurwicz, and Tatsuyoshi Saijo for some very helpful discussions. I acknowledge support of NSF grant No. SES 8208184.     

Goal-oriented agents in a market

We consider a market where “standard” risk-neutral agents coexist with “goal-oriented” agents who, in addition to the expected income, seek a high-enough monetary payoff (the “trigger”) to fulfill a goal. We analyze a two-sided one-to-one matching model where the matching between principals and agents and incentive contracts are endogenous. In any equilibrium contract, goal-oriented agents are matched with the principals with best projects and receive the trigger with positive probability. Moreover, goal and monetary incentives are complementary: goal-oriented agents receive stronger monetary incentives. Finally, we discuss policy interventions in relevant environments.     

The communication of anger and disappointment helps to establish cooperation through indirect reciprocity

Indirect reciprocity is cooperation through reputation: third parties cooperate with those known to cooperate and defect against those known to defect. Defection, then, can have the unjust motive of greed or the just motive of retaliation. To establish cooperation, observers should distinguish both motives for defection and respond more cooperatively to the latter. We propose that the expression of emotions may facilitate this inferential process. Indeed, in two laboratory studies participants inferred that defection out of anger or disappointment was a just response to a defector and they responded more cooperatively than when no emotion was communicated. Moreover, participants inferred that defectors who evoked disappointment instead of anger had a relatively positive reputation. We conclude that emotions help establish cooperation through indirect reciprocity.     

The division problem with voluntary participation

The division problem consists of allocating a given amount of a homogeneous and perfectly divisible good among a group of agents with single-peaked preferences on the set of their potential shares. A rule proposes a vector of shares for each division problem. The literature has implicitly assumed that agents will find acceptable any share they are assigned to. In this article we consider the division problem when agents’ participation is voluntary. Each agent has an idiosyncratic interval of acceptable shares where his preferences are single-peaked. A rule has to propose to each agent either to not participate or an acceptable share because otherwise he would opt out and this would require to reassign some of the remaining agents’ shares. We study a subclass of efficient and consistent rules and characterize extensions of the uniform rule that deal explicitly with agents’ voluntary participation.     

Nash bargaining theory when the number of alternatives can be finite

Nash (1950) considered a domain of convex bargaining problems. We analyse domains including, or even consisting of, finite problems and provide various characterisations of the Nash Bargaining Solution (NBS). In particular, we extend Kaneko's (1980) results. Received: 12 July 1996 / Accepted: 6 February 1997