Convergence in the Finite Cournot Oligopoly with Social and Individual Learning

Convergence to the Nash equilibrium in a Cournot oligopoly is a question that recurrently arises as a subject of controversy in economics. The development of evolutionary game theory has provided an equilibrium concept more directly connected with adjustment dynamics, and the evolutionary stability of the equilibria of the Cournot game has been extensively studied in the literature. Several articles show that the Walrasian equilibrium is the stable ESS of the Cournot game. But no general result has been established for the difficult case of simultaneous heterogenous mutations.Authors propose specific selection dynamics to analyze this case. Vriend (2000) proposes using a genetic algorithm for studying learning dynamics in this game and obtains convergence to Cournot equilibrium with individual learning. The resulting convergence has been questioned by Arifovic and Maschek (2006). The aim of this article is to clarify this controversy: it analyzes the mechanisms that are behind these contradictory results and underlines the specific role of the spite effect. We show why social learning gives rise to the Walrasian equilibrium and why, in a general setup, individual learning can effectively yield convergence to the Cournot equilibrium. We also illustrate these general results by systematic computational experiments.Cournot oligopoly; Learning; Evolution; Selection; Evolutionary stability; Nash equilibrium; Genetic algorithms

Technological and Social Costs and Benefits of Patent Systems

"If we did not have a patent system, it would be irresponsible, on the basis of our present knowledge of its economic consequences, to recommend instituting one. But since we have had a patent system for a long time, it would be irresponsible, on the basis of our present knowledge, to recommend abolishing it." Machlup (1958) - cited by Hall (2002) The demand for a stronger patenting system has become in the recent period a major source of tension between the U.S. government and the E.U. The US demand is generally motivated by the conventional economic wisdom affirming that a strong patenting system yields convenient incentives for the private investment in Research and Development (R&D) and hence, for technical progress in Society. This rather mechanistic approach of technological dynamics and of the role of the patenting is mainly based on the neoclassical theory of technical progress that strongly focuses on the agents' incentives rather than on the dynamics of the existent technological systems. Other appreciations of the existing patenting systems have nevertheless continued to be quite critical (see Machlup (1958) and Penrose (1951)). These appreciations are generally based on approaches where the nature of the actual technologies plays a central role. Moreover, the first part of the opinion emitted by Machlup in the above excerpt becomes very urgent since the question of establishing a strong patenting system is actually scrutinized for some industries in Europe (like the software industry) and in some countries (like Russia and China). We should hence consider the social costs of the patenting system, as well as its advantages, in order to guide such decisions. More specifically, it is time to seriously consider and check the old and new criticism of this system. The shortcomings of the standard wisdom have more recently been pointed out by Merges & Nelson (1990) and Mazzoleni & Nelson (1998). We propose to reassess the theoretical social value of patenting through a model founded on the approach adopted by these more empirical and conceptual studies. We develop a simulation model based on the Nelson & Winter (1982), part V. This basic model is completed by a patent system that allows the protection of the innovations. We therefore use this model for evaluating the efficiency of this system under different technological conditions emphasized by Merges & Nelson (1990) and as a function of different dimensions of patents (mainly their length and their breadth). An econometric study of the results from Monte Carlo simulations is used to evaluate the determinants of the Social costs and benefits of patents. These social effects are mainly characterized at two levels: at the level of the efficiency of the technical progress in the industry, and at the level of the social surplus. The neoclassical approaches conclude to a positive effect on both dimensions. Evolutionary approaches point at the contingency of these results with respect to the technological particularities of the industries. For example, Merges & Nelson (1990) distinguishes four classes of technologies in which the role of patents can be strongly contrasted: discrete inventions, cumulative technologies, chemical technologies and sciencebased technologies. We propose to include the specificities of these classes in our analysis, through different calibrations of the technology space of our industry dynamics model. The results of the simulations will then allow us to check the effectiveness of the patenting system in different configurations and with different characteristics measuring its strength. References Hall, B. (2002), "Current issues and trends in the economics of patents", Lecture to the ESSID Summer School in Industrial Dynamics Hall, B. & Ham Ziedonis, R. M. (2001), The effects of strengthening patent rights on firms engaged in cumulative innovation: Insights from the semiconductor industry, in G. Libecap, ed., "Entrepreneurial Inputs and Outcomes: New Studies of Entrepreneurship in the United States", Vol. 13 of Advances in the Study of Entrepreneurship, Innovation, and Economic Growth, Elsevier Science, Amsterdam. Jaffe, A. B. (2000), "The u.s. patent system in transition: Policy innovation and the innovation process", Research Policy 29, 531–557. Machlup, F. (1958), "An economic review of the patent system", Study No. 15 of Commission on Judiciary, Sub comm. on Patents, Trademarks, and Copyrights, 85th Congress, 2d Session. Mazzoleni, R. & Nelson, R. R. (1998), "The benefits and costs of strong patent protection: A contribution to the current debate", Research Policy 27, 273–284. Merges, R. & Nelson, R. R. (1990), "On the complex economics of patent scope", Columbia Law Review 90, 839–916. Nelson, R. R. & Winter, S. (1982), An Evolutionary Theory of Economic Change, The Belknap Press of Harvard University, London. Penrose, E. (1951), The Economics of the International Patent System, John Hopkins University Press, BaltimorePatent system, social welfare, public policy, intellectual property rights, industrial dynamics

Towards an understanding of tradeoffs between regional wealth, tightness of a common environmental constraint and the sharing rules

Consider a country with two regions that have developed differently so that their current levels of energy efficiency differ. Each region's production involves the emission of pollutants, on which a regulator might impose restrictions. The restrictions can be related to pollution standards that the regulator perceives as binding the whole country (e.g., imposed by international agreements like the Kyoto Protocol). We observe that the pollution standards define a common constraint Upon the joint strategy space of the regions. We propose a game theoretic model with a coupled constraints equilibrium as a solution to the regulator's problem of avoiding excessive pollution. The regulator can direct the regions to implement the solution by using a political pressure, or compel them to employ it by using the coupled constraints' Lagrange multipliers as taxation coefficients. We specify a stylised model of the Belgian regions of Flanders and Wallonia that face a joint constraint, for which the regulator wants to develop a sharing rule. We analytically and numerically analyse the equilibrium regional production levels as a function of the pollution standards and of the sharing rules. We thus provide the regulator with an array of equilibria that he (or she) can select for implementation. For the computational results, we use NIRA, which is a piece of software designed to min-maximise the associated Nikaido-Isoda function.

Towards an understanding of tradeoffs between regional wealth, tightness of a common environmental constraint and the sharing rules

Consider a country with two regions that have developed differently so that their current levels of energy efficiency differ. Each region's production involves the emission of pollutants, on which a regulator might impose restrictions. The restrictions can be related to pollution standards that the regulator perceives as binding the whole country (e.g., enforced by international agreements like the Kyoto Protocol). We observe that the pollution standards define a common constraint upon the joint strategy space of the regions. We propose a game theoretic model with a coupled constraints equilibrium as a solution to the regulator's problem of avoiding excessive pollution. The regulator can direct the regions to implement the solution by using a political pressure, or compel them to employ it by using the coupled constraints' Lagrange multipliers as taxation coefficients. We specify a stylised model that possesses those characteristics, of the Belgian regions of Flanders and Wallonia. We analytically and numerically analyse the equilibrium regional production levels as a function of the pollution standards and of the sharing rules for the satisfaction of the constraint. For the computational results, we use NIRA, which is a piece of software designed to min-maximise the associated Nikaido-Isoda function.coupled constraints, generalised Nash equilibrium, Nikaido-Isoda function, regional economics, environmental regulations.

Convergence in the Finite Cournot Oligopoly with Social and Individual Learning

Convergence to the Nash equilibrium in a Cournot oligopoly is a question that recurrently arises as a subject of controversy in economics. The development of evolutionary game theory has provided an equilibrium concept more directly connected with adjustment dynamics, and the evolutionary stability of the equilibria of the Cournot game has been extensively studied in the literature. Several articles show that the Walrasian equilibrium is the stable ESS of the Cournot game. But no general result has been established for the difficult case of simultaneous heterogenous mutations.Authors propose specific selection dynamics to analyze this case. Vriend (2000) proposes using a genetic algorithm for studying learning dynamics in this game and obtains convergence to Cournot equilibrium with individual learning. The resulting convergence has been questioned by Arifovic and Maschek (2006). The aim of this article is to clarify this controversy: it analyzes the mechanisms that are behind these contradictory results and underlines the specific role of the spite effect. We show why social learning gives rise to the Walrasian equilibrium and why, in a general setup, individual learning can effectively yield convergence to the Cournot equilibrium. We also illustrate these general results by systematic computational experiments

The Index of Economic Freedom: Methodological matters

Composite indicators (CIs) are essential in public debates and policies so the social demand for synthetic tools is constantly increasing. They are also subject to criticism (see Saisana and Saltelli 2010; Klugman et al., 2011) due to lack of a gold standard in their construction. The Index of Economic Freedom (IEF) is one of these tools subject to criticism because it suffers from methodological matters. The IEF lacks statistical validity because two of its components are strongly and negatively correlated with the others. Both components are causing significant variations in 95 percent of countries ranked. This paper deals with these issues by using Principal Components Analysis (PCA) and Benefit Of the Doubt (BOD) methods to generate component and country specific weights in computing the scores. The PCA and BOD analyses provide consistent results that differ dramatically with the baseline ones (results using equal weights). Given stable results provided by the PCA and BOD analysis, the IEF would receive broad legitimacy basing the calculation of its scores on endogenous weighting models

Firm's Network versus Board Members' Network: Who to Appoint?

A crucial question at the center of corporate governance theories and of the literature on social networks alike is the sense of empower of prestige, or influence on the actors of a social network. This paper approaches the possibility of measuring this influence by detecting key individuals who support network dynamics. By means of a study conducted on a sample of CAC 40 directors, it will be shown that the most influential elements are not necessarily the best placed at the beginning. Contrary to all expectations, a dynamics of influence is based on criteria of indispensability to the network that will be presented as an example

Convergence in the finite Cournot oligopoly with social and individual learning

Convergence to the Nash equilibrium in a Cournot oligopoly is a question that recurrently arises as a subject of controversy in economics. The development of evolutionary game theory has provided an equilibrium concept more directly connected with adjustment dynamics, and the evolutionary stability of the equilibria of the Cournot game has been extensively studied in the literature. Sev- eral articles show that the Walrasian equilibrium is the stable ESS of the Cournot game. But no general result has been established for the difficult case of simultaneous heterogenous mutations. Authors propose specific selection dynamics to analyze this case. Vriend (2000) proposes using a genetic algorithm for studying learning dynamics in this game and obtains convergence to Cournot equilibrium with individual learning. The resulting convergence has been questioned by Arifovic and Maschek (2006). The aim of this article is to clarify this controversy. It analyzes the mechanisms that are behind these contradictory results and underlines the specific role of the spite effect. We show why social learning gives rise to the Walrasian equilibrium and why, in a general setup, individual learning can effectively yield convergence to the Cournot equilibrium. We also illustrate these general results by systematic computational experiments

Monetary policy as a source of uncertainty

This paper proposes a model in which control variations induce an increase in the uncertainty of the system. The aim of our paper is to provide a stochastic theoretical model that can be used to explain under which uncertainty conditions monetary policy rules should be less or more aggressive, or, simply, applied or not.