Social Games: Matching and the Play of Finitely Repeated Games

We examine a new class of games, which we call social games, where players not only choose strategies but also choose with whom they play. A group of players who are dissatisfied with the play of their current partners can join together and play a new equilibrium. This imposes new refinements on equilibrium play, where play depends on the relative populations of players in different roles, among other things. We also examine finite repetitions of games where players may choose to rematch in any period. Some equilibria of fixed-player repeated games cannot be sustained as equilibria in a repeated social game. Conversely, the set of repeated matching (or social) equilibria also includes some plays that are not part of any subgame perfect equilibrium of the corresponding fixed-player repeated games. We explore existence under different equilibrium definitions, as well as the relationship to renegotiation-proof equilibrium. It is possible for repeated matching equilibria to be completely distinct from renegotiation-proof equilibria, and even to be Pareto inefficient.Social games, Matching, Games, Repeated games, Renegotiation

Investment Under Uncertainty, Market Evolution and Coalition Spillovers in a Game Theoretic Perspective.

The rationality assumption has been the center of neo-classical economics for more than half a century now. In recent years much research has focussed on models of bounded rationality. In this thesis it is argued that both full and bounded rationality can be used for different kind of problems. In the first part full rationality is assumed to analyse technology adoption by firms in a duopolistic and uncertain environment. In the second part, boundedly rational models are developed to study the evolution of market structure in oligopolistic markets as well as price formation on (possibly) incomplete financial markets. The third part of the thesis presents an alternative to the framework of Transferable Utility games in cooperative game theory. The model introduced here explicitly takes into account the outside options that players often have in real-life situations if they choose not to participate in a coalition.

Optimal Transfers and Participation Decisions in International Environmental Agreements

The literature on international environmental agreements has recognized the role transfers play in encouraging participation in international environmental agreements (IEAs), but the few results achieved so far are overly specific and do not exploit the full potential of transfers for successful treaty-making. Therefore, in this paper, we develop a framework that enables us to study the role of transfers in a more systematic way. We propose a design for transfers using both internal and external financial resources and making “welfare optimal agreements” self-enforcing. To illustrate the relevance of our transfer scheme for actual treaty-making, we use a well-known integrated assessment model of climate change to show how appropriate transfers may be able to induce almost all countries into signing a self-enforcing climate treaty.Self-enforcing international environmental agreements, Climate policy, Transfers

Evolutionary cooperative games

This thesis proposes a new approach to deriving cooperative solution concepts from dynamic interactive learning models. For different classes of cooperative games, the procedures implement the core. Within the core, tendencies towards equity are revealed and equitable outcomes are favoured in the long run

Coalition Formation in Political Games

We study the formation of a ruling coalition in political environments. Each individual is endowed with a level of political power. The ruling coalition consists of a subset of the individuals in the society and decides the distribution of resources. A ruling coalition needs to contain enough powerful members to win against any alternative coalition that may challenge it, and it needs to be self-enforcing, in the sense that none of its subcoalitions should be able to secede and become the new ruling coalition. We first present an axiomatic approach that captures these notions and determines a (generically) unique ruling coalition. We then construct a simple dynamic game that encompasses these ideas and prove that the sequentially weakly dominant equilibria (and the Markovian trembling hand perfect equilibria) of this game coincide with the set of ruling coalitions of the axiomatic approach. We also show the equivalence of these notions to the core of a related non-transferable utility cooperative game. In all cases, the nature of the ruling coalition is determined by the power constraint, which requires that the ruling coalition be powerful enough, and by the enforcement constraint, which imposes that no subcoalition of the ruling coalition that commands a majority is self-enforcing. The key insight that emerges from this characterization is that the coalition is made self-enforcing precisely by the failure of its winning subcoalitions to be self-enforcing. This is most simply illustrated by the following simple finding: with simple majority rule, while three-person (or larger) coalitions can be self-enforcing, two-person coalitions are generically not self-enforcing. Therefore, the reasoning in this paper suggests that three-person juntas or councils should be more common than two-person ones. In addition, we provide conditions under which the grand coalition will be the ruling coalition and conditions under which the most powerful individuals will not be included in the ruling coalition. We also use this framework to discuss endogenous party formation.Coalition Formation, Collective Choice, Cooperative Game Theory, Political Economy,Self-Enforcing Coalitions, Stability

Social Network Capital, Economic Mobility and Poverty Traps

The paper explores the role social network capital might play in facilitating poor agents’ escape from poverty traps. We model and simulate endogenous network formation among households heterogeneously endowed with both traditional and social network capital who make investment and technology choices over time in the absence of financial markets and faced with multiple production technologies featuring different fixed costs and returns. We show that social network capital can serve as either a complement to or a substitute for productive assets in facilitating some poor households’ escape from poverty. However, the voluntary nature of costly social network formation also creates both involuntary and voluntary exclusionary mechanisms that impede some poor households’ exit from poverty. Through numerical simulation, we show that the ameliorative potential of social networks therefore depends fundamentally on broader socioeconomic conditions, including the underlying wealth distribution in the economy, that determine the feasibility of social interactions and the net intertemporal benefits of social network formation. In some settings, targeted public transfers to the poor can crowd-in private resources by inducing new social links that the poor can exploit to escape from poverty.