Cores of games with positive externalities

This paper introduces a core concept, called the γ-core, in the primitive framework of a strategic game. For a certain class of strategic games, it is a weaker concept than the strong Nash equilibrium, but in general stronger than the conventional α- and β- cores. We argue that the coalition formation process is an infinitely repeated game and show that the grand coalition forms if the γ-core is nonempty. This is a weaker sufficient condition than the previous such condition (Maskin (2003, Theorem 4)). As an application of this result, it is shown that the γ- core of an oligopolistic market is nonempty and thus the grand coalition forms.positive externalities, strategic game, core, repeated game, coalition formation

The Battle to Define Asia’s Intellectual Property Law: From TPP to RCEP

A battle is under way to decide the intellectual property law for half the world’s population. A trade agreement that hopes to create a free trade area even larger than that forged by Genghis Khan will define intellectual property rules across much of Asia and the Pacific. The sixteen countries negotiating the Regional Comprehensive Economic Partnership (RCEP) include China, India, Japan, and South Korea, and stretch to Australia and New Zealand. A review of a leaked draft reveals a struggle largely between India on one side and South Korea and Japan on the other over the intellectual property rules that will govern much of the world. The result of this struggle will affect not only access to innovation in the Asia-Pacific, but also across Africa and other parts of the world that depend on generic medicines from India, which has been called the “pharmacy to the developing world.” Surprisingly, the agreement that includes China as a pillar may result in stricter intellectual property rights than those mandated by the World Trade Organization’s Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). Perhaps even more surprisingly, such TRIPS-plus rights will be available in the RCEP states to the United States and European companies equally by somewhat recondite provisions in TRIPS. In sum, the RCEP draft erodes access to medicines and education across much of the world

Risk Aversion and Income Tax Enforcement

This paper characterizes optimal income tax and audit schemes in the presence of costly enforcement when the agent is risk averse and not necessarily risk neutral. It is shown that the results under risk-neutrality (Chander and Wilde (1998)) largely hold under risk aversion. We first show that in an optimal scheme the tax evasion decision of the agent is equivalent to risking his entire income against a possible gain in terms of lower tax payment. We then introduce a measure of aversion to such large risks. In contrast, the Arrow-Pratt coefficients of risk aversion measure aversion to small risks only. We show that the optimal tax function is non-decreasing and concave if the agent’s aversion to large risks, as defined in terms of our measure, is decreasing with income. The optimal audit function is non-increasing and the audits may be random or deterministic.expected utility, risk aversion, principal-agent, adverse selection

Catalyzing Privacy Law

The United States famously lacks a comprehensive federal data privacy law. In the past year, however, over half the states have proposed broad privacy bills or have established task forces to propose possible privacy legislation. Meanwhile, congressional committees are holding hearings on multiple privacy bills. What is catalyzing this legislative momentum? Some believe that Europe’s General Data Protection Regulation (GDPR), which came into force in 2018, is the driving factor. But with the California Consumer Privacy Act (CCPA) which took effect in January 2020, California has emerged as an alternate contender in the race to set the new standard for privacy.Our close comparison of the GDPR and California’s privacy law reveals that the California law is not GDPR-lite: it retains a fundamentally American approach to information privacy. Reviewing the literature on regulatory competition, we argue that California, not Brussels, is catalyzing privacy law across the United States. And what is happening is not a simple story of powerful state actors. It is more accurately characterized as the result of individual networked norm entrepreneurs, influenced and even empowered by data globalization. Our study helps explain the puzzle of why Europe’s data privacy approach failed to spur US legislation for over two decades. Finally, our study answers critical questions of practical interest to individuals—who will protect my privacy?—and to businesses—whose rules should I follow

The Gamma-Core and Coalition Formation

This paper reinterprets the gamma-core (Chander and Tulkens (1995, 1997)) and justifies it as well as its prediction that the efficient coalition structure is stable in terms of the coalition formation theory. It is assumed that coalitions can freely merge or break apart, are farsighted (that is, it is the final and not the immediate payoffs that matter to the coalitions) and a coalition may deviate if and only if it stands to gain from it. It is then shown that subsequent to a deviation by a coalition, the nonmembers will have incentives to break apart into singletons, as is assumed in the definition of the gamma-characteristic function, and that the grand coalition is the only stable coalition structure.strategic games, coalition formation, farsighted, core, characteristic function

Returns-Based Beliefs and The Prisoner's Dilemma

Economists have highlighted a number of game-theoretic contradictions and paradoxes i