Learning with bounded memory.

The paper studies infinite repetition of finite strategic form games. Players use a learning behavior and face bounds on their cognitive capacities. We show that for any given beliefprobability over the set of possible outcomes where players have no experience. games can be payoff classified and there always exists a stationary state in the space of action profiles. In particular, if the belief-probability assumes all possible outcomes without experience to be equally likely, in one class of Prisoners' Dilemmas where the average defecting payoff is higher than the cooperative payoff and the average cooperative payoff is lower than the defecting payoff, play converges in the long run to the static Nash equilibrium while in the other class of Prisoners' Dilemmas where the reserve holds, play converges to cooperation. Results are applied to a large class of 2 x 2 games.Cognitive complexity; Bounded logistic quantal response learning; Long run outcomes;

Public-private Partnerships in Micro-finance: Should NGO Involvement be Restricted?

This paper examines public-private partnerships in micro-finance, whereby NGOs can help in channelizing credit to the poor, both in borrower selection, as well as in project implementation. We argue that a distortion may arise out of the fact that the private partner, i.e. the NGO, is a motivated agent. We find that whenever the project is neither too productive, nor too unproductive, reducing such distortion requires unbundling borrower selection and project implementation, with the NGO being involved in borrower selection only.Public-private partnerships; micro-finance; motivated agent; NGO

Endogenous selection of aspiring and rational rules in coordination games

The paper studies an evolutionary model where players from a given population are randomly matched in pairs each period to play a co- ordination game. At each instant, a player can choose to adopt one of the two possible behavior rules, called the rational rule and the as- piring rule, and then take actions prescribed by the chosen rule. The choice between the two rules depends upon their relative performance in the immediate past. We show that there are two stable long run outcomes where either the rational rule becomes extinct and all play- ers in the population achieve full eciency, or that both the behavior rules co-exist and there is only a partial use of ecient strategies in the population. These ndings support the use of the aspiration driven behavior in several existing studies and also help us take a comparative evolutionary look at the two rules in retrospect.Co-evolution, Aspirations, Best-response, Random matching, Coordination games

Endogenous Selection of Aspiring and Rational rules in Coordination Games

The paper studies an evolutionary model where players from a given population are randomly matched in pairs each period to play a co-ordination game. At each instant, a player can choose to adopt one of the two possible behavior rules, called the rational rule and the aspiring rule, and then take actions prescribed by the chosen rule. The choice between the two rules depends upon their relative performance in the immediate past. We show that there are two stable long run outcomes where either the rational rule becomes extinct and all players in the population achieve full eciency, or that both the behavior rules co-exist and there is only a partial use of ecient strategies in the population. These ndings support the use of the aspiration driven behavior in several existing studies and also help us take a comparative evolutionary look at the two rules in retrospect.

Aggregate Uncertainty in the Citizen-Candidate Model Yields Extremist Parties

We extend the 'citizen candidate' model of party formation to allow for aggregate uncertainty over the distribution of preferenecs in order to address free entry in some earlier research on electoral competition with aggregate uncertainty with a fixed number of parties. We discuss and characterize the equilibrium set in this framework and show that two-party equilibria have 'extremist' parties, i.e., the party winning under a left-wing (right-wing) distribution is to the left (right) of the median of that distribution.

Electoral Competition in 2-Dimensional Ideology Space with Unidimensional Commitment

We study a model of political competition between two candidates with two orthogonal issues, where candidates are office motivated and committed to a particular position in one of the dimensions, while having the freedom to slect (credibly) any position on the other dimension. We analyse two settings: a homogeneous one, where both candidates are committed to the same dimension and a heterogeneous one, where each candidate is committed to a different dimension. We characterise and give necessary and sufficient conditions for existence of convergent and divergent Nash equilibria for distributions with a non-empty and an empty core. We identify a special point on the ideology space whcih we call a strict median, existence of which is strictly related to existence of divergent Nash equilibria. A central conclusion of our anlysis is that for divergent equilibria, strong extremism (or differentiation) seems to be an important equlibrium feature.

Fiscal Decentralization and Development: How Crucial is Local Politics?

Does fiscal decentralization in a politically decentralized less developed country help strengthen democratic institutions at the grass root level? And is the impact of such decentralization on local politics important in determining local development? Our study on Indonesia suggests that fiscal decentralization enhanced free and fair local elections, though the incidence of elite capture, and the consequent breakdown of local democracy, was also present in significant proportions. Fiscal decentralization promoted development mostly in communities which transited out from elite capture to embrace free and fair elections. This was followed by communities that experienced the emergence of elite capture. Communities that continued to remain under either elite capture or free and fair elections did the worst. These findings suggest that while the emergence of elite capture exists, it may not necessarily be the most harmful. Instead, and surprisingly so, stability of local polity hurts development the most.local politics, less developed nation, decentralization

Undercut-proof Subgame Perfect Equilibrium of a Pricing Game

Two firms selling a homogenous product to two types of buyers are involved in a sequential pricing game with zero costs. The pricing strategy available involves a fixed price and a royalty. It is shown that there exists a unique subgame perfect equilibrium with positive profits to both firms if and only if buyers differ significantly in their willingness to pay. In particular, the incumbent sets a positive royalty and sells to the low demand buyer while the entrant only charges a fixed price and sells to the high demand buyer, resulting in an undercut-proof subgame perfect equilibrium.Sequential Pricing; Fixed Price; Royalty; Undercut-proof Subgame Perfect Equilibrium Situation