A Note on the Impossibility of a Satisfactory Concept of Stability for Coalition Formation Games

In this note we show that no solution to coalition formation games can satisfy a set of axioms that we propose as reasonable. Our result points out that "solutions" to the coalition formation cannot be interpreted as predictions of what would be ìresting pointsî for a game in the way stable coalition structures are usually interpreted.Hedonic Game, Coalition Formation, Stability

Providing Public Goods Without Strong Sanctioning Institutions

This paper proposes a simple mechanism aimed to establish positive contributions to public goods in the absence of powerful institutions to sanction free-riders. The idea of the mechanism is to require players to commit to the public good by paying a deposit prior to the contribution stage. If all players commit in this way, those players who do not contribute their share to the public good forfeit their deposit. If there is no universal commitment, all deposits are refunded and the standard game is played. Given deposits are sufficiently high, prior commitment and full ex post contributions are part of a strict subgame perfect Nash equilibrium for the resulting game. As the mechanism obviates the need for any ex post prosecution of free-riders, it is particularly suited for situations where players do not submit to a common authority as in the case of international agreements

Providing Public Goods Without Strong Sanctioning Institutions

This paper proposes a simple mechanism aimed to establish positive contributions to public goods in the absence of powerful institutions to sanction free-riders. The idea of the mechanism is to require players to commit to the public good by paying a deposit prior to the contribution stage. If all players commit in this way, those players who do not contribute their share to the public good forfeit their deposit. If there is no universal commitment, all deposits are refunded and the standard game is played. Given deposits are sufficiently high, prior commitment and full ex post contributions are part of a strict subgame perfect Nash equilibrium for the resulting game. As the mechanism obviates the need for any ex post prosecution of free-riders, it is particularly suited for situations where players do not submit to a common authority as in the case of international agreements.public goods; cooperation; institutions; Climate-Change Treaties

Reference functions and solutions to bargaining problems with and without claims

Following an idea due to Thomson (Journal of Economic Theory, 1981, 25: 431-441) we examine the role of reference functions in the axiomatic approach to the solution of bargaining problems with and without claims. A reference function is a means of summarizing essential features of a bargaining problem. Axioms like Independence of Irrelevant Alternatives and Monotonicity are then reformulated with respect to this reference function. Under some weak conditions on the reference function we obtain characterizations of different parametrized classes of solutions. We present several examples of reference functions and thereby recover many well-known solutions to bargaining problems with and without claim

Minimum Participation Rules for the Provision of Public Goods

This paper considers the endogenous formation of an institution to provide a public good. If the institution governs only its members, players have an incentive to free ride on the institution formation of others and the social dilemma is simply shifted to a higher level. Addressing this second-order social dilemma, we study the effectiveness of three different minimum participation requirements: 1. full participation / unanimity rule; 2. partial participation; 3. unanimity first and in case of failure partial participation. While unanimity is most effective once established, one might suspect that a weaker minimum participation rule is preferable in practice as it might facilitate the formation of the institution. The data of our laboratory experiment do not support this latter view, though. In fact, weakening the participation requirement does not increase the number of implemented institutions. Thus, we conclude that the most effective participation requirement is the unanimity rule which leaves no room for free riding on either level of the social dilemma.public goods, coalition formation, endogenous institutions

Evolutionary choice of markets

We consider an economy where a finite set of agents can trade on one of two asset markets. Due to endogenous participation the markets may differ in the liquidity they provide. Traders have idiosyncratic preferences for the markets, e.g.due to differential time preferences for maturity dates of futures contracts. For a broad range of parameters we find that no trade, trade on both markets (individualization) as well as trade on one market only (standardization) is supported by a Nash equilibrium. By contrast, whenever the number of traders becomes large, the evolutionary process selects a unique stochastically stable state which corresponds to the equilibrium with two active markets and coincides with the welfare maximizing market structur

Sequential voting and agenda manipulation

We study the possibilities for agenda manipulation under strategic voting for two prominent sequential voting procedures: the amendment procedure and the successive procedure. We show that a well known result for tournaments, namely that the successive procedure is (weakly) more manipulable than the amendment procedure at any given preference profile, extends to arbitrary majority quotas. Moreover, our characterizations of the attainable outcomes for arbitrary quotas allow us to compare the possibilities for manipulation across different quotas. It turns out that the simple majority quota maximizes the domain of preference profiles for which neither procedure is manipulable, but at the same time neither the simple majority quota nor any other quota uniformly minimizes the scope of manipulation once this becomes possible. Hence, quite surprisingly, simple majority voting is not necessarily the optimal choice of a society that is concerned about agenda manipulation

Dynamic General Equilibrium and T-Period Fund Separation

In a dynamic general equilibrium model, we derive conditions for a mutual fund separation property by which the savings decision is separated from the asset allocation decision. With logarithmic utility functions, this separation holds for any heterogeneity in discount factors, while the generalization to constant relative risk aversion holds only for homogeneous discount factors but allows for any heterogeneity in endowments. The logarithmic case provides a general equilibrium foundation for the growth-optimal portfolio literature. Both cases yield equilibrium asset pricing formulas that allow for investor heterogeneity, in which the return process is endogenous and asset prices are determined by expected discounted relative dividends. Our results have simple asset pricing implications for the time series as well as the cross section of relative asset prices. It is found that on data from the Dow Jones Industrial Average, a risk aversion smaller than in the logarithmic case fits bes

Eliciting Discount Functions when Baseline Consumption changes over Time

Many empirical studies on intertemporal choice report preference reversals in the sense that a preference between a small reward to be received soon and a larger reward to be received later reverses as both rewards are equally delayed. Such preference reversals are commonly interpreted as contradicting constant discounting. We show that this interpretation is correct only if baseline consumption to which the outcomes are added, remains constant over time. The difficulty with measuring discounting when baseline consumption changes over time, is that delaying an outcome has two simultaneous effects: (1) due to the change in baseline consumption, it changes the increase in utility from receiving the outcome, and (2) it changes the discount factor applied to this increase in utility. In order to draw conclusions about discounting one needs to disentangle these two effects which seems impossible at first sight (Noor, 2009). Yet, in this paper we propose a way to disentangle the two effects

Weighted Temporal Utility

__Abstract__ We propose a novel utility representation for preferences over risky timed outcomes. The weighted temporal utility model generalizes many well known utility functions for intertemporal decision making under risk. A decision maker with a weighted temporal utility function can have time consistent yet non-stationary preferences or stationary yet time inconsistent preferences. Thus, our model can explain the empirical evidence in Halevy (2012) which is at odds with standard models of intertemporal choice that assume non-linear time perception to be the sole driver of non-stationary and time-inconsistent behavior. We also propose a non-parametric approach to elicit a weighted temporal utility function