Strategic Technology Adoptation Taking into Account Future Technological Improvements: A Real Options Approach

This paper studies a dynamic duopoly in which firms compete in the adoption of new technologies. The innovation process is exogenous to the firms. Both firms have the possibility to adopt a current technology or to wait for a better technology that arrives at an unknown point of time in the future. At the moment that a firm invests it enters a new market with a profit flow that follows a stochastic Brownian motion process. Results turn out to largely depend on the probability that a new technology arrives in the immediate future. If this probability is low, firms only take the current technology into account, which results in the usual preemption game. Increasing this probability gradually changes the outcome from a preemption game where both firms adopt the current technology, to a preemption game where the follower will adopt the new technology. Increasing the probability of arrival of the new technology further, turns the preemption game into a war of attrition where the follower adopting the new technology is better of than the leader. Finally, when the probability of arrival of a new technology is really large, both firms will adopt the new technology.Technological uncertainty;Adoption;Preemption;War of attrition;Real options

Structural Adjustment and Endogenous Worker Recall Probabilities

In this paper we investigate the incentives of unemployed workers to wait for a recall when recall probabilities are endogenously determined by the waiting decisions of others. Because of a positive externality that arises when workers seek new employment, an excessive number of workers choose to wait for a recall, and structural adjustment is slow. We also find that a small reduction in the unemployment benefits, or introducing a small cash bonus for workers that get a new job, may have no e.ect on unemployment in some cases, while eradicating significant levels of unemployment in other cases. Our analysis suggests that the government may face a Samaritan’s Dilemma if it can influence the recall probability of workers, and that multiple equilibria may exist in a game involving both workers and an unemployment-averse government. Furthermore, we explore a link to the war of attrition literature, showing that the Bulow and Klemperer (1999) ”one too many”-result may not hold if there is uncertainty concerning when the game ends.structural adjustment,unemployment, recalls, search, war of attrition.

Structural adjustment and endogenous worker recall probabilities

In this paper we investigate the incentives of unemployed workers to wait for a recall when recall probabilities are endogenously determined by the waiting decisions of others. Because of a positive externality that arise when workers seek new employment, an excessive number of workers choose to wait for a recall, and structural adjustment is slow. We also find that a small reduction in the unemployment benefits, or introducing a small cash bonus for workers that get a new job, may have no effect on unemployment in some cases, while eradicating significant levels of unemployment in other cases. Our analysis suggests that the government my face a Samaritan’s Dilemma if it can influence the recall probability of workers, and that multiple equilibria may exist in a game involving both workers and an unemployment-averse government. Furthermore, we explore a link to the war of attrition literature, showing that the Bulow and Klemperer (1999) ”one too many”-result may not hold if there is uncertainty concerning when the game ends.Structural adjustment; unemployment; recalls; search; war of attrition.

War of attrition with implicit time cost

In the game-theoretic model war of attrition, players are subject to an explicit cost proportional to the duration of contests. We construct a model where the time cost is not explicitly given, but instead depends implicitly on the strategies of the whole population. We identify and analyse the underlying mechanisms responsible for the implicit time cost. Each player participates in a series of games, where those prepared to wait longer win with higher certainty but play less frequently. The model is characterised by the ratio of the winner's score to the loser's score, in a single game. The fitness of a player is determined by the accumulated score from the games played during a generation. We derive the stationary distribution of strategies under the replicator dynamics. When the score ratio is high, we find that the stationary distribution is unstable, with respect to both evolutionary and dynamical stability, and the dynamics converge to a limit cycle. When the ratio is low, the dynamics converge to the stationary distribution. For an intermediate interval of the ratio, the distribution is dynamically but not evolutionarily stable. Finally, the implications of our results for previous models based on the war of attrition are discussed.Comment: Accepted for publication in Journal of Theoretical Biolog

Bug-Fixing and Code-Writing: The Private Provision of Open Source Software

Open source software (OSS) is a public good. A self-interested individual would consider providing such software, if the benefits he gained from having it justified the cost of programming. Nevertheless each agent is tempted to free ride and wait for others to develop the software instead. This problem is modelled as a war of attrition with complete information, job signaling, repeated contribution to the public good and uncertainty in programming. The resulting game does not feature any delay: software will be provided swiftly, by young, low-cost individuals who gain considerably by signaling their programming skills; the startup (and collapse) of an OSS project displays bandwagon dynamics.open source software, war of attrition, public goods

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.war of attrition, volunteering, discrete public goods, asymmetric information, information acquisition

Stakeholders in Bilateral Conflict

The resolution of a conflict often has an impact which extends beyond the remits of the parties directly involved in the confrontation (e.g. labour negotiations in sectors of public interest, where a strike would impact on the public at large). Once this is recognised, models addressing negotiations in such situations ought to account for the role and interests of the stakeholder - a third party whose stake is linked to the original negotiations. In this paper we address the strategic role of stakeholders in bilateral confrontations that take the form of a war of attrition; we assume that the bilateral confrontation runs concurrently with the parties interaction with the stakeholder, that chooses strategically her timing to intervene and take action to promote agreement. We show that under complete information the interplay of different interests in this tripartite timing game results in delayed outcomes. We also explore the role of incomplete information and show that asymmetries of information do not necessarily translate in increased inefficiency.stakeholders, bargaining, war of attrition

Volunteering a Public Service: An Experimental Investigation

In some public goods environments it may be advantageous for heterogeneous groups to be coordinated by a single individual. This “volunteer” will bear private costs for acting as the leader while enabling each member of the group to achieve maximum potential gains. This environment is modeled as a War of Attrition game in which everyone can wait for someone else to volunteer. Since these games generally have multiple Nash equilibria but a unique subgameperfect equilibrium, we tested experimentally the predictive power of the subgame-perfection criterion. Our data contradict that subjects saw the subgame-perfect strategy combination as the obvious way to play the game. An alternative behavioral hypothesis – that subjects were unable to predict accurately how their opponents would play and tried to maximize their expected payoff – is proposed. This hypothesis fits the observed data generally well.

Gambling in Contests

This paper presents a strategic model of risk-taking behavior in contests. Formally, we analyze an n-player winner-take-all contest in which each player decides when to stop a privately observed Brownian Motion with drift. A player whose process reaches zero has to stop. The player with the highest stopping point wins. Contrary to the explicit cost for a higher stopping time in a war of attrition, here, higher stopping times are riskier, because players can go bankrupt. We derive a closed-form solution of the unique Nash equilibrium outcome of the game. In equilibrium, the trade-off between risk and reward causes a non-monotonicity: highest expected losses occur if the process decreases only slightly in expectation

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. -- Die private Bereitstellung öffentlicher Güter ähnelt häufig einem Zermürbungskrieg: Die Beteiligten warten, bis sich jemand anderes freiwillig meldet und das öffentliche Gut bereitstellt. Nach einer gewissen Zeitperiode des Wartens kann jedoch ein Beteiligter zufällig dazu bestimmt werden, die Bereitstellung zu übernehmen. Wenn die Beteiligten ihre Bereitstellungskosten nicht genau kennen, sich aber vor dem Bereitstellungsspiel Information über ihre Kosten beschaffen können, dann kommt dieser Information ein strategischer Wert zu; die Beteiligten könnten es vorziehen, ihre Bereitstellungskosten nicht genau zu kennen. Wenn der Zeithorizont des Bereitstellungsspiels hinreichend kurz ist, entscheidet sich im Gleichgewicht lediglich ein Beteiligter, Information zu akquirieren. Bei einem längeren Zeithorizont ist es eine strikt dominante Strategie, sich Information zu beschaffen. Der Zeithorizont stellt ein wichtiges Instrument zur Beeinflussung der Effizienz des Bereitstellungsspiels dar.War of attrition,volunteering,discrete public goods,asymmetric information,information acquisition