Durable‐Goods Monopoly with Privately Known Impatience: A Theoretical and Experimental Study

We analyze a durable‐goods monopoly selling a single unit of a good to a buyer whose value of the good is private information. The discount factors of the buyer and the seller may differ and are also privately known. We derive the closed‐form solution of a two‐period game and compare it to the behavior observed in experiments. The data are to a large extent consistent with the predictions.     

Volunteering and the strategic value of ignorance

Private provision of public goods often takes place as a war of attrition: individuals wait until someone else volunteers and provides the good. After a certain time period, however, one individual may be randomly selected. If the individuals are uncertain about their cost of provision, but can find out about this cost ahead of the volunteering game, a strategic value is attached to the information, and individuals may prefer not to learn their cost of provision. If the time horizon is sufficiently short, in equilibrium only one individual may acquire information about his cost. For a long time horizon, acquiring information is strictly dominant. The time limit is an important instrument in influencing the efficiency of the volunteering game.     

A voluntary participation game through a unit-by-unit cost share mechanism of a non-excludable public good

The strategic analysis of voluntary participation in the public good provision has shown two distinct results. First, when the provision of public goods is binary, there are Nash equilibria supporting efficient allocations, and these are Strong Nash equilibria of the game. On the other hand, a model of a continuous public good (Saijo–Yamato, J Econ Theory 84:227–242, 1999) showed that the participation of all agents is not an equilibrium in many situations. This article considers the provision of a discrete and multi-unit public good, and examines a unit-by-unit participation game. Namely, people are asked to participate in each unit of public good provision, and those who chose to participate share the marginal cost of public good. In this game of public good provision, there are subgame-perfect equilibria that are Pareto efficient. We also use the refinement concepts to eliminate inefficient subgame-perfect equilibria and also to characterize the efficient subgame-perfect equilibria.     

INFORMATION VALUE UNDER DEMAND UNCERTAINTY AND ENDOGENOUS MARKET LEADERSHIP

In an oligopoly model with firms choosing to produce in one of two periods, we identify the circumstance under which a firm's having early information regarding stochastic demand results in market leadership. High demand volatility leads to Stackelberg competition with the information‐advantaged firm leading. In the N‐firm case an equilibrium with multiple leaders and multiple followers emerges endogenously. In a duopoly information acquisition game we identify conditions that determine whether neither, one, or both firms will pay to acquire early information and note that one firm's obtaining early information may generate a positive externality benefitting its competitor. Both symmetric and asymmetric outcomes are possible and Stackelberg market leadership may occur in equilibrium, but only when firms have different costs of information. Our finding that an information advantage may convey leadership which then affects the value of information to the players applies to other settings exhibiting first‐mover advantage such as certain public good provision games. (JEL C72, D82, L13)     

Asset Markets and Equilibrium Selection in Public Goods Games with Provision Points: An Experimental Study

We report experimental results on the effects that auctioning the right to play a public goods game with a provision point may have on equilibrium selection and individual behavior. Auctioning off such a right among a larger population of players strikingly enhances public good provision. Once public good provision is obtained, the auction price at the preliminary stage increases to its upper limit, dissipating all players' gains associated with the provision of the public good. Individual deviations from the equilibrium strategy are neither able to force lower market prices nor to affect provision of the public good in subsequent periods. (JEL C72 , C92 , H41 )     

Game theory and global environmental policy

Economists interpret global environmental quality to be a pure public good. Each country should contribute to its provision. However, this is hard to achieve because each government is tempted to take a free ride on the other governments’ efforts. Not only has this dilemma been analysed with game theoretical methods but game theory has also been used to think about how to make amends. This paper reviews the game theoretical discussion on how international policy frameworks may be designed to improve the chances for international cooperation. It is also shown that the evaluation of alternative environmental policy instruments deviates from the standard environmental economics model if applied to the international arena. For the benefit of an interdisciplinary readership, the evolution of the debate on global environmental policy is related to the recent history of economic thought. This history is taken to be materialised in the writings of economics’ Nobel Prize laureates.     

NON‐MONETARY INCENTIVES AND OPPORTUNISTIC BEHAVIOR: EVIDENCE FROM A LABORATORY PUBLIC GOOD GAME

This study reports data from a laboratory experiment that investigates the incentive effect of three distinct social communication schemes on free‐riding behavior. We use performance‐based approval and disapproval ratings and a linear public good game to address the above issues. The treatments vary in terms of subjects' opportunities to anonymously assign (1) only the approval ratings to other group members, (2) only the disapproval ratings to other group members, and (3) either the approval or the disapproval ratings to other group members (but not both to the same group member), after they play a standard linear public good game. Despite the Nash prediction of zero individual contribution in all three treatments, the data show that the disapproval points generate significantly higher contribution than the approval points. The treatment in which subjects could communicate either the approval or the disapproval points produces the highest level of contribution. We discuss the implications that these findings may have for efficient design of organizations. (JEL D03, H41, C72, C92)     

Expectation formation in step-level public good games

This article focuses on the process of expectation formation. Specifically, the question is addressed whether individuals think strategically when they form beliefs about other players'behavior. Most belief learning models assume that people abstract from strategic considerations. Using an incentive-compatible mechanism, experimental data are obtained on subjects'expectations in a step-level public good game and in a game against nature. Beliefs in the interactive games develop in the same way as in the game against nature, providing evidence that strategic considerations do not play a role. The evidence is consistent with predictions derived from the naive Bayesian model.     

SIMULTANEOUS DECISION‐MAKING IN COMPETITIVE AND COOPERATIVE ENVIRONMENTS

We experimentally investigate simultaneous decision‐making in two contrasting environments: one that encourages competition (lottery contest) and one that encourages cooperation (public good game). We find that simultaneous participation in the public good game affects behavior in the contest, decreasing sub‐optimal overbidding. Contributions to the public good are not affected by participation in the contest. The direction of behavioral spillover is explained by differences in strategic uncertainty and path‐dependence across games. Our design allows us to compare preferences for cooperation and competition. We find that in early periods, there is a negative correlation between decisions in competitive and in cooperative environments. (JEL C72, C91)     

THEORY AND EXPERIMENTS ON SPATIAL COMPETITION

We present theoretical and experimental results on spatial competition between two firms. Firms choose locations simultaneously along a line representing a linear market. Identical consumers with non-increasing demand functions are uniformly distributed along this line. We solve for symmetric equilibrium payoffs in an infinitely repeated game for the case of linear demand and an arbitrary discount factor. The set of equilibriums found includes both competitive and collusive payoffs. In laboratory experiments in which the final period was unknown to the players in advance, we observed both competitive and collusive outcomes. Non-binding communication led to collusion.     

Outcome valence and externality valence framing in public good dilemmas

The aim of this paper is to examine how framing influences people’ s cooperation behavior in social dilemmas. In Experiment 1 we investigated the influence of outcome valence (positive vs. negative outcome) and externality valence (positive vs. negative externality) framing on players’ willingness to cooperate in a repeated public good game. We found a significant interaction effect on first-round cooperation, indicating larger cooperation rates when there is a negative outcome valence and a positive externality on others. Furthermore, this effect remained largely stable when comparing cooperation over all rounds, resulting in 45–63% increased cooperation compared to the other conditions. In Experiment 2 we replicated the effect in an applied vignette study, lending support for the generalizability of this framing effect. Taken together, these findings suggest that public goods provisions may be increased substantially by framing the situation’s outcome valence as negative rather than positive.     

On the probability of breakdown in participation games

In this paper I analyze a participation game i.e. a public good game where contributions to the public good are binary (people either participate or not participate). Although variants of this game have been studied extensively, most previous work takes the benefit of provision of the public good to be independent of the number of players that contribute and show that the probability of breakdown, i.e. the probability that no one participates, is increasing in group size. Here this assumption is dropped. I show when the probability of breakdown is decreasing in group size and also present sufficient conditions under which the probability of breakdown is increasing in group size. Moreover I show that for large groups this probability is non-negligible in the limit and that the expected number of participants is less than one. Two economic examples, concerning R&D and debt overhang, are discussed. The proof of Proposition 5 owes much to the useful comments and suggestions of Bert Schoonbeek. The author would like to thank Peter Kooreman, Linda Toolsema, Marco Haan, Allard van der Made, José-Luis Moraga-González, Florian Wagener, Maurice Koster, an anonymous referee and the associate editor for helpful comments and discussions. Financial support by the Netherlands Organization for Scientific Research (NWO) is gratefully acknowledged.     

Cross-national gender differences in behavior in a threshold public goods game: Japan versus Canada

To investigate the effects of gender and national culture on economic behavior, we compare all-male and all-female groups from Japan and Canada in the context of a threshold public goods game with a strong free-riding equilibrium and many socially efficient threshold equilibria. Females and Canadians exhibit higher levels of conformity when compared with males and Japanese, respectively. However, such symmetric group behavior translates into significantly tighter equilibrium convergence only for Canadian females. Canadians, particularly Canadian females, are more successful at providing the public good than Japanese. The results suggest that the prevalence of different notions of self-construal may affect behavior.     

INCOMPLETE INFORMATION STRENGTHENS THE EFFECTIVENESS OF SOCIAL APPROVAL

We present a theoretical model of a public good game in which the expression of social approval induces pro‐social behavior. Using a laboratory experiment with earned heterogeneous endowments, we test our model. The main hypothesis is that the expression of social approval increases cooperative behavior even if reputation building is impossible. We vary the information available and investigate how this affects the expression of social approval and individual contributions. The expression of social approval significantly increases contributions. However, the increase is smaller if additional information is provided, suggesting that social approval is more effective if subjects receive a noisy signal about others' contributions. (JEL C72, C91, D71, D83)     

The Game of Contacts: Estimating the Social Visibility of Groups

Estimating the sizes of hard-to-count populations is a challenging and important problem that occurs frequently in social science, public health, and public policy. This problem is particularly pressing in HIV/AIDS research because estimates of the sizes of the most at-risk populations-illicit drug users, men who have sex with men, and sex workers-are needed for designing, evaluating, and funding programs to curb the spread of the disease. A promising new approach in this area is the network scale-up method, which uses information about the personal networks of respondents to make population size estimates. However, if the target population has low social visibility, as is likely to be the case in HIV/AIDS research, scale-up estimates will be too low. In this paper we develop a game-like activity that we call the game of contacts in order to estimate the social visibility of groups, and report results from a study of heavy drug users in Curitiba, Brazil (n = 294). The game produced estimates of social visibility that were consistent with qualitative expectations but of surprising magnitude. Further, a number of checks suggest that the data are high-quality. While motivated by the specific problem of population size estimation, our method could be used by researchers more broadly and adds to long-standing efforts to combine the richness of social network analysis with the power and scale of sample surveys.     

Subjective discount rates among Israeli Arabs and Israeli Jews

In this study, we compare the subjective discount rate for Israeli Jews and Arabs. All the subjects were bank customers, who were asked to bid and ask prices for delayed fixed amounts and for lotteries. The two populations live in the same country under the same laws. Nevertheless, according to the literature, Israeli Arabs seem to be a discriminated minority, who exhibit traits of a traditional collectivist culture, while Israeli Jews are a majority, who exhibit traits of an individualistic culture. As a discriminated minority, Israeli Arab may suffer from lower trust and as a result, according to the “trust” hypothesis, exhibit higher subjective discount rates and higher risk aversion. On the other hand, according to the “cushion” hypothesis, a collectivist society such as Israeli Arabs, provides a safety net for the individual and as a result, he will exhibit lower subjective discount rates and lower risk-aversion. The experimental findings show that the subjective discount rate and risk aversion of Israeli Arabs are significantly higher than that of Israeli Jews. Moreover, higher percent of Israeli Jews are at the low range of the discount rates (below 10%) and lower percent of Israeli Jews are at the high range of discount rate (above 20%) compared to Israeli Arabs. This is consistent with the “trust” hypothesis. For Israeli Jews, the discount rates are closer to the bank interest rate, while Israeli Arabs rates are much higher particularly for receipt. The dispersion of the distribution of discount rate is much larger for Arabs than for Jews.     

ACQUISITION AND DISSEMINATION OF INFORMATION IN IMPERFECTLY COMPETITIVE MARKETS

In imperfectly competitive markets, incentives for the acquisition and dissemination of information by prices is significantly affected by strategic considerations. Since prices reveal information, firms possessing market power may choose to set prices which are either biased or not adjusted to all available information so as to distort their information content. Even when information is costlessly available strategic considerations may lead firms to remain uninformed. These results are illustrated in a simple Stackelberg model with price-setting firms where the pricing game is preceded by an information acquisition game.     

Who Wants a Deliberative Public Sphere?1

Democratic theorists and social scientists suggest that a deliberative public sphere would be good for democracy by maximizing emancipatory possibilities and providing broad legitimacy to political decision making. But do ordinary Americans actually want a deliberative public sphere? I examine this question in the context of four contentious “religion and science” debates. Through a multidimensional evaluation exercise with 62 ordinary respondents, I find that evaluation of public representatives in these debates tends to favor open‐mindedness and ongoing debate. Further, respondents explicitly discount elected representatives who participate in public debate precisely because they are seen as violating deliberative norms through their affiliation with electoral politics. Respondents want a deliberative public sphere. However, this desire reflects an understanding of the public sphere and institutional politics as disconnected arenas with incompatible rules and objectives, raising multiple questions for democratic theory and for political sociology.     

Subject-specific performance information can worsen the tragedy of the commons: Experimental evidence

The main aim of this article is to investigate the behavioral consequences of the provision of subject-specific information in the group effort levels chosen by players in an experimental CPR game. We examine two basic treatments, one with incomplete information and the other with complete information. In the former, subjects are informed only about their own individual payoffs and the aggregate extraction effort level of the group, and in the latter they are also informed about the individual effort levels and payoffs of each subject. Given this setting, the basic question we attempt to answer is: Will the provision of subject-specific performance information (i.e. individual’s effort levels and payoffs) improve or worsen the tragedy of the commons (i.e. an exploitation effort level greater than the socially optimum level)? In order to motivate our hypotheses and explain our experimental results at the individual level, we make use of the theory of learning in games, which goes beyond standard non-cooperative game theory, allowing us to explore the three basic benchmarks in the commons context: Nash equilibrium, Pareto efficient, and open access outcomes. We use several learning and imitation theoretical models that are based on contrasting assumptions about the level of rationality and the information available to subjects, namely: best response, imitate the average, mix of best response and imitate the average, imitate the best and follow the exemplary learning rules. Finally, in order to econometrically test the hypotheses formulated from the theoretical predictions we use a random-effects model to assess the explanatory power of the different selected behavioral learning and imitation rules.