On Cheating and Whistle-Blowing

We study the role of whistle-blowing in the following inspection game. Two agents who compete for a valuable prize can either behave legally or illegally. After the competition, a controller investigates the agents' behavior. This control game has a unique equilibrium in mixed strategies. We then add a whistle-blowing stage, where the controller asks the loser to blow the whistle. This extended game has a unique perfect Bayesian equilibrium in which only a cheating loser accuses the winner of cheating and the controller tests the winner if and only if the winner is accused of cheating. Whistle-blowing reduces the frequencies of cheating, is less costly in terms of test frequencies, and leads to a strict Pareto-improvement if punishments for cheating are sufficiently large.Principal-two-Agents; Inspection Games; Asymmetric Information; Signalling

The evolution of cheating in asymmetric contests

"Consider a society where all agents initially play ""fair"" and one agent invents a ""cheating"" strategy such as doping in sports. Whichnfactors determine the success of the new cheating strategy? In order to study this question we consider an evolutionary game with local information. Three factors determine the imitation dynamics of thenmodel: the location and the type of the innovator, the distribution of types, and the information available to the agents. In particular wenfind that the economy is more likely to end up in a state where all agents cheat if the innovator is of low type or when the agents arenmaximally segregated.

Competition between market-making Intermediaries

Abstract We introduce capacity constrained competition between market-making intermediaries in a model in which agents can choose between trading with intermediaries, joining a search market or remaining inactive. Recently, market-making by a monopolistic intermediary has been analyzed by Keywords: Market-making, capacity constrained competition, market microstructure. JEL-Classification: C72, D41, D43, L13. * Economics Department, University of Bern, Vereinsweg 23, CH-3012 Bern Email: [email protected] This is a preliminary version of chapter 2 of my PhDthesis. I want to thank Ernst Baltensperger, Esther Brügger, Alain Egli, Thomas Gehrig, Christian Ghiligno, Armin Hartmann, Roland Hodler, Michael Manz, Gerd Mühlheusser JeanCharles Rochet, Yves Schneider and Manuel Wälti for valuable comments and discussions. Any remaining errors are mine

Learning, public good provision, and the information trap

We consider an economy where decision maker(s) do not know the true production function for a public good. By using Bayes rule they can learn from experience. We show that the economy may learn the truth, but that it may also converge to an inefficient policy where no further inference is possible so that the economy is stuck in an information trap. We also show that our results are robust with respect to experimentation

On Cheating and Whistle-Blowing

We study the role of whistleblowing in the following inspection game. Two agents who compete for a prize can either behave legally or illegally. After the competition, a controller investigates the agents’ behavior. This inspection game has a unique (Bayesian) equilibrium in mixed strategies. We then add a whistleblowing stage, where the controller asks the loser to blow the whistle. This extended game has a unique perfect Bayesian equilibrium in which only a cheating loser accuses the winner of cheating and the controller tests the winner if and only if the winner is accused of cheating. Whistleblowing reduces the frequencies of cheating, is less costly in terms of test frequencies, and leads to a strict Pareto-improvement if punishments for cheating are suffciently large.Whistleblowing, leniency, inspection games, signalling

Heterogeneity, Local Information, and Global Interaction

"Consider a society where all agents initially play fair"" and one agentninvents a cheating"" strategy such as doping in sports. Which factorsndetermine the success of the new cheating strategy? In order to studynthis question we consider an evolutionary game with heterogenous agentsnwho can either play fair or cheat. We model heterogeneity by assumingnthat the players are either high or low types. Three factors determinenthe imitation dynamics of the model: the location and the type of theninnovator, the distribution of types, and the information available to thenagents. In particular we *nd that the economy is more likely to end up inna state where all agents cheat if the innovator is of low type or when thenagents are maximally segregated.

On Cheating and Whistle-Blowing

We study the role of whistleblowing in the following inspection game. Two agents who compete for a prize can either behave legally or illegally. After the competition, a controller investigates the agents’ behavior. This inspection game has a unique (Bayesian) equilibrium in mixed strategies. We then add a whistleblowing stage, where the controller asks the loser to blow the whistle. This extended game has a unique perfect Bayesian equilibrium in which only a cheating loser accuses the winner of cheating and the controller tests the winner if and only if the winner is accused of cheating. Whistleblowing reduces the frequencies of cheating, is less costly in terms of test frequencies, and leads to a strict Pareto-improvement if punishments for cheating are suffciently large