Strategic Effects of Incomplete and Renegotiation-Proof Contracts

It is well known that non-renegotiable contracts with third parties may have an effect on the outcome of a strategic interaction and thus serve as a commitment device. We address this issue when contracts are renegotiable. More precisely, we analyze the equilibrium outcomes of twostage games with renegotiation-proof third-party contracts in relation to the equilibrium outcomes of the same game without contracts. We assume that one of the parties in the contractual relationship is unable to observe everything that happens in the game when played by the other party. This implies that contracts are incomplete and we show that such incompleteness restricts the set of equilibrium outcomes to a subset of Nash equilibrium outcomes of the game without contracts. Introducing renegotiation, in general, imposes further constraints and in some games implies that only subgame perfect equilibrium outcomes can be supported. However, there is a large class of games in which non-subgame perfect equilibriumoutcomes can also be supported, and hence, third-party contracts still have strategic implications even when they are renegotiable.Third-Party Contracts, Strategic Delegation, Incomplete Contracts, Renegotiation

On the Strategic Advantage of Negatively Interdependent Preferences

We study certain classes of supermodular and submodular games which are symmetric with respect to material payoffs but in which not all players seek to maximize their material payoffs. Specifically, a subset of players have negatively interdependent preferences and care not only about their own material payoffs but also about their payoffs relative to others. We identify sufficient conditions under which members of the latter group have a strategic advantage in the following sense: at all intragroup symmetric equilibria of the game, they earn strictly higher material payoffs than do players who seek to maximize their material payoffs. We show that these conditions are satisfied by a number of games of economic importance, and discuss the implications of these findings for the evolutionary theory of preference formation and the theory of Cournot competition.Interdependent Preferences, Submodular and Supermodular Games, Relative Profits, Cournot Oligopoly

Interdependent Preference Formation

A standard assumption in the economic approach to individual decision making is that people have independent preferences, that is, they care only about their absolute (material) payoffs. We study equilibria of the classic common pool resource extraction and public good games when some of the players have negatively interdependent preferences (in the sense that they care not only about their absolute payoffs but also about their relative payoffs) while the remainder have independent preferences. It is shown that at any equilibrium, those with interdependent preferences earn strictly higher absolute payoffs than do players with independent preferences. If the population composition evolves in accordance with any payoff monotonic evolutionary selection dynamics, then all players will have interdependent preferences in the long run. Similar (but weaker) results obtain for some other economically important classes of games in strategic form. The robustness of our findings with respect to other preference formation mechanisms such as myopic and rational socialization is also discussed.Interdependent Preferences, Evolution, Socialization.

Starting Small to Communicate

We analyze a repeated cheap-talk game in which the receiver is privately informed about the conflict of interest between herself and the sender and either the sender or the receiver controls the stakes involved in their relationship. We focus on payoff-dominant equilibria that satisfy a Markovian property and show that if the potential conflict of interest is large, then the stakes increase over time, i.e., “starting small” is the unique equilibrium arrangement. In each period, the receiver plays the sender’s ideal action with positive probability and the sender provides full in- formation as long as he has always observed his ideal actions in the past. We also show that as the potential conflict of interest increases, the extent to which the stakes are back-loaded increases, i.e., stakes are initially smaller but grow faster

Popular Support for Progressive Taxation in the Presence of Interdependent Preferences

Voting, progressive income taxation, interdependent preferences

Negatively Interdependent Preferences

Interdependent Preferences, relative income, status

The Strategic Advantage of Negatively Interdependent Preferences

We study certain classes of supermodular and submodular games which are symmetric with respect to material payoffs but in which not all players seek to maximize their material payoofs. Specially, a subset of players have negatively interdependent preferences and care not only about their own material payoffs but also about their payoffs relative to others. We identify sufficient conditions under which members of the latter group have a strategic advantage in the following sense: at all intragroup symmetric equilibria of the game, they earn strictly higher material payoffs than do players who seek to maximize their material payoffs.GAMES ; PROFIT ; OLIGOPOLIES

Interdependent Preference Formation.

A standard assumption in the economic approach to individual decision making is that people have independent preferences. We study equilibria of the classic common pool resource extraction and public good games when some of the players have negatively interdependent preferences while the remainder are payoff maximizers in the usual sense.ECONOMETRICS ; SOCIALIZATION ; EXTERNALITIES ; ECONOMIC EQUILIBRIUM

Testing the financial accelerator using nonlinear time series methods

SIGLEAvailable from Bibliothek des Instituts fuer Weltwirtschaft, ZBW, D-21400 Kiel W 111 (339) / FIZ - Fachinformationszzentrum Karlsruhe / TIB - Technische InformationsbibliothekDEGerman