war peace and the size of countries this paper studies the relationship between international con ict and the size distribution of countries in a model in which both peaceful bargaining and non peaceful confrontations are possible we show how the size distribution of countries depends on the likelihood bene ts and costs of con ict and war we also study the role of international law and show how better de ned international property rights may lead to country breakup and more numerous local con icts

when does communication improve coordination we study costless pre play communication of intentions among inexperienced players using the level k model of strategic thinking to describe players beliefs we fully characterize the effects of preplay communication in symmetric 2 2 games one way communication weakly increases coordination on nash equilibrium outcomes although average payoffs sometimes decrease two way communication further improves payoffs in some games but is detrimental in others moving beyond the class of symmetric 2 2 games we find that communication facilitates coordination in common interest games with positive spillovers and strategic complementarities but there are also games in which any type of communication hampers coordination jel c72 d83

communication structure and coalition proofness experimental evidence abstract the paper analyzes the role of the structure of communication i e who is talking with whom in a coordination game we run an experiment in a three player game with pareto ranked equilibria where a pair of players has a profitable joint deviation from the pareto superior equilibrium we show that specific communication structures lead to different coalition proof equilibria in this game results match the theoretical predictions subjects communicate and play the pareto superior equilibrium when communication is public when pairs of players exchange messages privately subjects play the pareto inferior equilibrium even in these latter cases however players beliefs and choices tend to react to messages despite the fact that these are not credible

a theory of disagreement in repeated games with bargaining this paper proposes a new approach to equilibrium selection in repeated games with transfers supposing that in each period the players bargain over how to play although the bargaining phase is cheap talk following a generalized alternating offer protocol sharp predictions arise from three axioms two axioms allow the players to meaningfully discuss whether to deviate from their plan the third embodies a theory of disagreement that play under disagreement should not vary with the manner in which bargaining broke down equilibria that satisfy these axioms exist for all discount factors and are simple to construct all equilibria generate the same welfare optimal play under agreement generally requires suboptimal play under disagreement whether patient players attain efficiency depends on both the stage game and the bargaining protocol the theory extends naturally to games with imperfect public monitoring and heterogeneous discount factors and yields new insights into classic relational contracting questions

pre play research in a model of bank runs se estudia un modelo de corrida bancaria en el que los depositantes no llegaron a un consenso sobre la accion a elegir pero pueden informarse acerca de las intenciones de los otros jugadores la propiedad de equilibrio indeterminado reaparece en el juego con adquisicion de informacion en el escenario bajo analisis el equilibrio con niveles positivos de adquisicion de informacion resulta en mayores probabilidades de quiebra del banco la correlacion en las senales aumenta el espacio de parametros para el cual existen equilibrios con niveles positivos de adquisicion de informacion y mayor probabilidad de quiebra del banco

delay and cycles when the profitability of investment depends on the general level of economic activity entrepreneurs have an incentive to delay investments during a recession endogenous delay thus prolongs the recovery from a recession and heightens the effect of the boom this paper describes a dynamic model that exhibits both delay and cycles and develops methods for analysing the role of delay in propogating business cycles a number of interesting characteristics of the cycle are revealed first the effect of delay is asymmetric it lengthens the recovery but not the downturn second delay can increase the amplitude and typically reduces the frequency of the cycle third it can reduce the average level of activity but it achieves this effect by prolonging the recession rather than by reducing the amplitude of the cycle the welfare effects of delay are ambiguous however

adjusting to changes in health implications for cost effectiveness analysis this article introduces a model in which individuals incur adjustment costs associated with adaptations made following changes in their health with adjustment costs patients preferences for health states depend on their initial health in such a way that improvements have lower values than corresponding deteriorations improvement and deterioration must therefore be treated asymmetrically in cea the inclusion of adjustment costs also has other consequences it produces a more stringent cea criterion and may affect the relative rankings of interventions in addition when health is multi dimensional and adjustment costs are incorporated we show that a consensus on even ordinal rankings of health states becomes impossible

communication computability and common interest games abstract this paper provides a theory of equilibrium selection for one shot two player finite action strategic form common interest games a single round of costless unlimited preplay communication is allowed players are restricted to using strategies that are computable in the sense of church s thesis the equilibrium notion used involves perturbations that are themselves computable the only equilibrium payoff vector that survives these strategic restrictions and the computable perturbations is the unique pareto efficient one journal of economic literature classification numbers c72 c79

is there a hold up problem most literature on the hold up problem starts from the assumption that ex post bargaining outcomes are insensitive to prior investment costs we argue that this approach is unsatisfactory if the bargaining procedure is relatively symmetric it typically admits multiple perfect equilibria some of which give the investor a high enough payofi to sustain e cient investment even if the bargaining procedure is asymmetric and rigged against the investor there may be investment if agents are driven by moral concerns or if communication creates commitment laboratory experiments indicate that communication is necessary and su cient for agents to coordinate on e cient outcomes when the bargaining game is symmetric when the bargaining game is rigged against the investor the hold up problem is mitigated but not eliminated by moral behavior communication is quite credible and we flnd that promises are more believable than threats

on entry exit and coordination with mixed strategies abstract a dynamic entry and exit game is studied where following dixit and shapiro 1986 the economics of strategic planning lexington books pp 63 79 firms play symmetric mixed strategies coordination among entrants improves and creates a tendency for the value of incumbency to increase as the number of incumbent firms increases up to the point of excess capacity this feature implies that when considering mixed strategies the relevant payoffs are not monotonic as the probability of entry increases expected profit for a given firm conditional on entry increases over some initial range it is shown that the payoffs have an interesting dynamic structure which allows the complete characterization of the equilibrium

transaction costs communication and spatial coordination in payment for ecosystem services schemes agricultural producer participation and spatial coordination of land use decisions are key components for enhancing the effective delivery of ecosystem services from private land however inducing participation in payment for ecosystem services schemes for coordinating land management choices is challenging from a policy design perspective owing to transaction costs associated with participation this paper employs a laboratory experiment to investigate the impact of such costs on participation and land use in the context of an agglomeration bonus ab scheme the ab creates a coordination game with multiple nash equilibria related to alternative spatially coordinated land use patterns the experiment varies transaction costs between two levels high and low which affects the risks and payoffs of coordinating on the different equilibria additionally an option to communicate is implemented between neighbors arranged on a local network to facilitate spatial coordination results indicate a significant difference in participation and performance under high and low transaction costs with lower uptake and performance when transaction costs are high these effects are however impacted by transaction costs faced in the past communication improves both ab participation rates and performance with the effect being greater for participants facing high transaction costs

promises and endogenous reneging costs we present a novel theoretical mechanism that explains the capacity for non enforceable communication about future actions to improve efficiency we explore a two player partnership game where before choosing a level of effort to exert on a joint project each player makes a cheap talk promise to their partner about their own future effort we allow agents to incur a psychological cost of reneging on their promises we demonstrate a strong tendency for evolutionary processes to select agents who incur intermediate costs of reneging and show that these intermediate costs induce second best optimal outcomes

management of transnational commons coordination publicness and treaty formation this paper focuses on the formation of treaties to manage transnational commons when efforts must be coordinated among a minimal sized group so as to make cooperation worthwhile by focusing on mixed strategy equilibria we are con cerned with instances where the intentions of others are uncertain the number of required participants the pattern of payoffs transaction costs and the underlying technology of public supply aggregation are key factors behind the achievement of coordina tion we apply our analysis to explain the outcome of negotiations on stratospheric ozone depletion global warming acid rain and tropical deforesta tion jel q20 d70

non parametric estimation of econometric functionals in this paper we have reviewed and explored the non parametric density estimation approach for analysing various econometric functionals the applications of density estimation have been emphasized in the specification estimation and testing problems arising in econometrics some limitations of the non parametric approach are also examined and potential future areas of applied and theoretical research have been indicated

efficiency equality and labeling an experimental investigation of focal points in explicit bargaining we investigate schelling s hypothesis that payoff irrelevant labels cues can influence the outcomes of bargaining games with communication in our experimental games players negotiate over the division of a surplus by claiming valuable objects that have payoff irrelevant spatial locations negotiation occurs in continuous time constrained by a deadline in some games spatial cues are opposed to principles of equality or efficiency we find a strong tendency for players to agree on efficient and minimally unequal payoff divisions even if spatial cues suggest otherwise but if there are two such divisions cues are often used to select between them inducing distributional effects jel c78 d63 d83 in the strategy of conflict thomas c schelling 1960 pp 53 67 74 proposes the hypothesis that the outcomes of bargaining problems can be systematically influenced by incidental details or as they would now be called properties of framing or labeling these labeling properties or cues have no direct relationship to payoffs and are not represented in standard game theoretic models but they nevertheless provide a means by which players can coordinate their expectations although much of his theoretical analysis and all of his informal experiments are concerned with simultaneous move games without communication schelling claims that this hypothesis applies to explicit bargaining with full communication and enforcement he acknowledges that communication provides mechanisms for coordination that are not present in his simple experiments but still argues that framing properties can remain significant in explicit bargaining most subsequent bargaining theory has not used this idea but if real world bargaining is substantially affected by payoff irrelevant cues a satisfactory theory of bargaining needs to take account

a theory of focal points the paper presents a theoretical framework that distinguishes between the strategic structure of a game the existential game and the way the players describe the game to themselves each player works with a private description of the game in which strategies are identified by labels labels are generated by a stochastic labeling procedure each player chooses a decision rule which for each possible private description picks one of the available strategy labels a criterion of collective rationality is applied to choices among decision rules the implications of collective rationality are explored for a range of games with different labeling procedures copyright 1995 by royal economic society

alternating announcements cheap talk abstract we model alternating announcements cheap talk while discussing the efficiency consequences of explicitly allowing the no agreement outcome of the game with communication to vary with players cheap talk announcements our results give further consistency to the argument that a cheap talk extension does not necessarily imply efficiency in the play of the original game moreover we characterize the extent of such inefficiency and show it to be similar to that obtained by rabin rabin m 1994 journal of economic theory 63 370 391 despite the strategic incentives driving our results differing from rabin s we also show that efficiency is obtained when the history of alternating announcements is ignored when an agreement is not reached

fertility decline as a coordination problem abstract the so called diffusion of innovation approach is often used in explanations of historical and contemporary fertility declines we investigate this issue by developing a new theoretical analysis which combines economic and sociological reasoning particular attention is devoted to the role of social networks for the selection of equilibria in situations when fertility decline constitutes a coordination problem we show that the effect of networks depends on the particular interaction among individuals and on the prevailing socioeconomic conditions information networks can only speed up a fertility transition that would also take place in the absence of social interaction while coordination networks can facilitate demographic change in societies that would otherwise be caught in a malthusian situation

choosing the competition and patent licensing this article examines licensing as a means of choosing the competitors which a patentee monopolist will face in the period after the patent expires the queue of entrants consists of two firms which differ in their relative strengths as competitors for example by size or level of marginal cost by structuring the industry to be composed of weak competitors the incumbent is able to prolong its dominant position in the industry after the patent expires examples are presented in which the evidence suggests that choosing the competition was an important motivation of the licensor s behavior

the relationship between childhood obesity and food insecurity a nonparametric analysis childhood obesity and food insecurity are major public health concerns in the united states and other developed countries research on the relationship between the two has provided mixed results across a variety of data sets and empirical methods common throughout this research however is the use of parametric frameworks for empirical analyses this study moves beyond parametric methods by examining the relationship between childhood obesity and food insecurity among low income children with nonparametric regression techniques we examine data from the child development supplement cds of the panel study of income dynamics psid a nationally representative data set from the us consistent with recent work our parametric analyses indicate that there is no statistically significant relationship between childhood obesity and food insecurity in contrast our nonparametric results indicate that the probability of being obese varies markedly with the level of food insecurity being experienced by the chi

lobbying and asymmetric information informational lobbying the use by interest groups of their alleged expertise or private information on matters of importance for policymakers in an attempt to persuade them to implement particular policies is often regarded as an important means of influence this paper analyzes this phenomenon in a game setting on the one hand the interest group is assumed to have private information which is relevant to the policymaker whilst on the other hand the policymaker is assumed to be fully aware of the strategic incentives of the interest group to mis report or conceal its private information

decentralization duplication and delay we argue that although decentralization has advantages in finding low cost solutions these advantages are accompanied by coordination problems which lead to delay or duplication of effort or both consequently decentralization is desirable when there is little urgency or a great deal of private information but it is strictly undesirable in urgent problems when private information is less important we also examine the effect of large numbers and find that coordination problems disappear in the limit if distributions are common knowledge

the time trade off a note on the effect of lifetime reallocation of consumption and discounting this paper considers the extent to which responses to time trade off tto questions can provide unbiased estimates of ratios of individual marginal rates of substitution mrs of wealth for risk of various health state impairments relative to the corresponding mrs for risk of death it is shown that if there is reallocation of lifetime consumption and or discounting of future utilities then a tto response that is not adjusted for these effects will unambiguously overestimate the ratios of individual mrs while the effect of reallocation is likely to be very small discounting can lead to significant overestimation the magnitude of which depends in part upon the severity of the health state impairment

on nonlinear dynamics the case of the pork cycle new methods for analyzing nonlinear dynamic processes are used to evaluate the hogcorn price ratio the results present evidence of nonlinear dynamics in the pork cycle moreover while garch processes account for some of the nonlinearities the pork cycle is apparently characterized by more complex dynamic forms the empirical analysis provides some evidence of the presence of chaos in the pork cycle the results also indicate that the dynamic process generating the pork cycle is nonlinear and cannot be adequately characterized by a small number of state variables

rationalizable strategic behavior the notion of equilibrium proposed by nash 19 has come to play a dominant role in economic applications of noncooperative games while analyses of nash equilibria have unquestionably contributed to our understanding of economic behavior it would be unreasonably optimistic to maintain that nash solved the problem of noncooperative strategic choice there is a small literature beginning with ellsberg 6 and a much larger oral tradition which argues that nash behavior is neither a necessary consequence of rationality nor a reasonable empirical proposition in this paper i take the view that although there may be various reasons why an agent might select a nash strategy the notion of an equilibrium has little intrinsic appeal within a strategic context when an agent reaches a decision in ignorance of the strategies adopted by other players rationality consists of making a choice which is justifiable by an internally consistent system of beliefs rather than one which is optimal post hoc this point of view is not original indeed most serious justifications of the nash hypothesis embrace such an approach arguing that agents will expect the game to yield a nash outcome and consequently will choose their equilibrium strategies nevertheless when we think in terms of maximizing utility subject to expectations rather than realizations it becomes clear that the nash hypothesis far from being a consequence of rationality arises from certain restrictions on agents expectations which may or may not be plausible depending upon the game being played we are then quite naturally led to ask are there any restrictions of individuals expectations and hence choices which are required by rationality alone rather than by subjective plausibility this paper is concerned with defining justifying characterizing and refining a criterion for rational strategic choice which i label rationalizability

economic methodology in a nutshell he literature on economic methodology is concerned mainly with questions of theory confirmation or disconfirmation or empirical theory choice the central question is usually how one can tell whether a particular bit of economics is good science economists would like methodologists to provide the algorithm for doing good economic science and they want the algorithm to vindicate their own practice and to reveal the foolishness of those who do economics differently for example milton friedman 1953 tells economists that good theories are those that provide correct and useful predictions while paul samuelson 1947 1963 tells economists to formulate theories with operational concepts that are ideally logically equivalent to their descriptive consequences in my view not only are these and most other specific views on theory appraisal mistaken but the concern with problems of empirical appraisal is exaggerated for there are also interesting methodological questions to consider both normative and descriptive concerning the structure strategy goals and heuristics of various economic theories for example few writers on economic methodology recognize that the activities of formulating economic models and investigating their implications are a sort of conceptual exploration instead most mistakenly regard these activities as offering empirical hypotheses and assess them in terms of some philosophical model of confirmation or falsification as a tendentious survey of standard methodological literature this essay will however share its preoccupation with the empirical appraisal of theory microeconomic theory in particular i shall in particular discuss four approaches to praising or damning microeconomic theory that have dominated methodological discussions

migration and the evolution of conventions we study an evolutionary model where agents are locally matched to play a symmetric coordination game opportunities to adjust strategy and location arrive asynchronously and infrequently and cannot be coordinated our results on the short run co existence of different conventions and long run efficiency depend upon a condition on off equilibrium payoffs introduced by aumann in a pure coordination game efficient and inefficient conventions may co exist at different locations in the short run and inefficient conventions are stochastically stable in a stag hunt game there is neither short run coexistence nor long run inefficiency

does history matter only when it matters little the case of city industry location when will an industry subject to agglomeration economies move from an old high cost site to a new low cost site it is argued that history in the form of sunk costs resulting from the operation of many firms at a site creates a first mover disadvantage that can prevent relocation it is demonstrated that developers of industrial parks can partly overcome this inertia through discriminatory pricing of land over time and empirical evidence is provided that they actually engage in such behavior it is also shown that other aspects of developer land sale strategy can be a source of information on the nature of interfirm externalities

communication coordination and nash equilibrium i note a methodological problem in studying the role of pre play communication in ensuring equilibrium to deal with this problem i define a solution concept for the extended game in which talk is followed by play that is intermediate between nash equilibrium and rationalizability in some games our solution concept implies a nash outcome while in others it does not

contracts and externalities how things fall apart a single principal interacts with several agents offering them contracts the crucial assumption of this paper is that the outside option payoffs of the agents depend positively on how many uncontracted or free agents there are we study how such a principal unwelcome though he may be approaches the problem of contract provision to agents when coordination failure among the latter group is explicitly ruled out two variants are considered when the principal cannot re approach agents there is a unique equilibrium in which contract provision is split up into two phases in phase 1 simultaneousoffers at good though varying terms are made to a number of agents in phase 2 offers must be made sequentially and their values are discontinuously lower they are close to the very lowest of all the outside options when the principal can repeatedly approach the same agent there is a multiplicity of equilibria in some of these the agents have the power to force delay they can hold off the principal s overtures temporarily but they must succumb in finite time in both models despite beingable to coordinate their actions agents cannot resist an invasion by the principal and hold to their best payoff it is in this sense that things eventually fall apart

naked exclusion an experimental study of contracts with externalities this paper reports the results of an experiment designed to assess the ability of an incumbent seller to profitably foreclose a market with exclusive contracts we use the strategic environment described by rasmusen ramseyer and wiley 1991 and segal and whinston 2000 where entry is unprofitable when sufficiently many downstream buyers sign exclusive contracts with the incumbent when discrimination is impossible the game resembles a stag hunt coordination game in which the buyers payoffs are endogenously chosen by the incumbent seller exclusion occurs when the buyers fail to coordinate on their preferred equilibrium two way non binding pre play communication among the buyers lowers the power of exclusive contracts and induces more generous contract terms from the seller when discrimination and communication are possible the exclusion rate rises divide and conquer strategies are observed more frequently when buyers can communicate with each other exclusion rates are significantly higher when the buyers payoffs are endogenously chosen rather than exogenously given finally secret offers are shown to decrease the incumbent s power to profitably exclude

rationalizable strategic behavior and the problem of perfection this paper explores the fundamental problem of what can be inferred about the outcome of a noncooperative game from the rationality of the players and from the information they possess the answer is summarized in a solution concept called rationalizability strategy profiles that are rationalizable are not always nash equilibria conversely the information in an extensive form game often allows certain unreasonable nash equilibria to be excluded from the set of rationalizable profiles a stronger form of rationalizability is appropriate if players are known to be not merely rational but also cautious what constitutes rational behavior in a noncooperative strategic situation this paper explores the issue in the context of a wide class of finite noncooperative games in extensive form the traditional answer relies heavily upon the idea of nash equilibrium nash 17 the position developed here however is that as a criterion for judging a profile of strategies to be reasonable choices for players in a game the nash equilibrium property is neither necessary nor sufficient some nash equilibria are intuitively unreasonable and not all reasonable strategy profiles are nash equilibria the fact that a nash equilibrium can be intuitively unattractive is well known the equilibrium may be imperfect introduced into the literature by selten 20 the idea of imperfect equilibria has prompted game theorists to search for a narrower definition of equilibrium while this research some of which will be discussed here has been extremely instructive it remains inconclusive theorists often agree about what should happen in particular games but to capture this intuition in a general solution concept has proved to be very difficult if this paper is successful it should make some progress in that direction the other side of the coin has received less scrutiny can all non nash profiles really be excluded on logical grounds i believe not the standard justifications for considering only nash profiles are circular in nature or make gratuitous assumptions about players decision criteria or beliefs the following discussion of these points is extremely brief due to space constraints more detailed arguments may be found in pearce 18

advertising content when brand choice is a signal this article gives a formal rationale for image advertising and branding of homogeneous products that are consumed in public the idea is that consumers can use brand choice to coordinate behavior and send meaningful social signals the article distinguishes between variety signals and quality signals and analyzes the competitive implications copyright 1990 by the university of chicago

promises and conventions an approach to pre play agreements abstract i analyze how informal agreements can be sustained by moral emotions with regard to a large class of two player games specifically i assume that people feel guilty if they breach an agreement and that the guilt increases according to the degree of the harm inflicted on the other a central insight is that it is easier to sustain efficient informal agreements if actions are strategic complements than if they are strategic substitutes i complement this general insight by studying two specific cases where negotiators face uncertainty about the breach of the agreement i show that while the optimal agreement in a game with strategic substitutes must compromise on surplus maximization and efficiency the optimal agreement in a game with sufficiently strong strategic complements tends to maximize both the surplus and the probability of compliance especially if the game is symmetric

simultaneously determined time varying hedge ratios in the soybean complex time varying hedge ratios are derived which account for the dynamic characteristics of prices in the soybean complex a multivariate generalized autogressive heteroskedastic mgarch model along with other conditional models is used to specify the relevant covariance matrix while the time varying representations of the variance matrix are statistically appropriateex anteand ex posthedging effectiveness indicate that they provide minimal gain to hedging in terms of mean return and reduction in variance over a constant conditional procedure whether similar findings arise from other applications of garch models to optimal hedging is a question for further research

action characteristics as predictors of competitive responses a central question in competitive dynamics is whether a competitive response can be predicted this study links various characteristics of actions with the total number and the time lag of competitors responses the hypothesized relationships were tested with a sample of competitive moves among u s airlines the results suggested that responses are influenced by the characteristics of the actions that evoked them specifically the total number of competitors affected by an action and the importance to these competitors of the markets under attack by the action increase the number of competitive responses strategic as opposed to tactical actions or actions which require substantial implementation efforts reduce the number and delay the timing of rivals counteractions finally contrary to prediction competitors who have a high stake in the markets under attack by a competitive move react slowly

market games as social dilemmas abstract in an experimental exchange market based on shapley and shubik 1977 two types of players with different preferences and endowments independently submit quantities of the goods they wish to exchange in this context although the nash equilibria of the game involve zero or minimum trade we obtain intense trade close to levels that maximize social welfare going a step forward we implement communication within pairs of traders from the same horizontal and opposite vertical sides of the market overall we find that horizontal communication tends to reduce bids whereas vertical communication has no effect

announcement entry and preemption when consumers have switching costs i study the incentives of innovating firms to announce their entry in markets in which consumers incur a cost of switching from one product to another announcing entry can prevent the lock in of potential demand before the launch of the new product at the same time however the incumbent firm learns about the impending entry and has the opportunity to cut prices and preempt the market in equilibrium entrants do not always announce and i show that this behavior maximizes ex ante total welfare by contrast consumers might be better off with a ban on announcements when the entrant s claims are not verifiable vaporware announcements arise in equilibrium and i demonstrate that they can be beneficial for consumers

asymmetric equilibria in symmetric games with many players abstract we show that in symmetric games with many players an asymmetric pure strategy equilibrium can be thought of as the approximate outcome of the play of a specific symmetric mixed strategy equilibrium

managing price risks using and local polynomial kernel forecasts this study contributes to understanding price risk management through hedging strategies in a forecasting context a relatively new forecasting method nonparametric local polynomial kernel lpk is used to forecast prices and to generate ex ante hedge ratios the selective multiproduct hedge based on the lpk price and hedge ratio forecasts is in general found to be better than continuous hedging no hedging and alternative forecasting procedures selective multivariate hedging using the lpk is found to improve hog producer s expected returns the findings indicate that combining hedging with forecasts especially when using the lpk procedure can improve price risk management

when does coordination require centralization this paper compares centralized and decentralized coordination when manag ers are privately informed and communicate strategically we consider a multi divisional organization in which decisions must be adapted to local conditions but also coordinated with each other information about local conditions is dispersed and held by self interested division managers who communicate via cheap talk the only available formal mechanism is the allocation of decision rights we show that a higher need for coordination improves horizontal com

language meaning and games a model of communication coordination and evolution language is a powerful coordination device we generalize the cheap talk approach to pre play communication by way of introducing a meaning cor respondence between messages and actions and by postulating two axioms met by natural languages players have a lexicographic preference second to material payoffs against deviating from the meaning correspondence under two sided communication in generic and symmetric n 3 n coordination games a nash equilibrium component in such a lexicographic communication game is evolutionarily stable if and only if it results in the unique pareto efficient out come of the underlying game we extend the analysis to one sided communica tion in arbitrary finite two player games jel c72 c73 z 3

burning money and pseudo first mover advantages an experimental study on forward induction abstract the mere potential for one player to burn money prior to play has been shown in theory to be an effective device to select this player s most preferred outcome e g in the battle of the sexes game j econ theory 48 1989 476 j econ theory 57 1992 36 in this study we assess the behavioral relevance of this theoretical claim it is shown that its validity depends on whether the game is played in extensive or normal form in extensive form games first movers benefit substantially from having the opportunity to burn money in advance the effect is much weaker in the normal form game however in two control treatments first movers who can select between two related games gain an advantage although standard forward induction arguments do not have any bite these results suggest that we need to make further theoretical advances to understand the role of physical timing and first mover advantages in games

theory and experiments on spatial competition we present theoretical and experimental results on spatial competition between two firms firms choose locations simultaneously along a line representing a linear market identical consumers with non increasing demand functions are uniformly distributed along this line we solve for symmetric equilibrium payoffs in an infinitely repeated game for the case of linear demand and an arbitrary discount factor the set of equilibriums found includes both competitive and collusive payoffs in laboratory experiments in which the final period was unknown to the players in advance we observed both competitive and collusive outcomes non binding communication led to collusion

payoff inequity reduces the effectiveness of correlated equilibrium recommendations we examine theoretically and experimentally how individuals willingness to follow third party recommendations in 2 2 games is affected by payoff asymmetry we consider six versions of battle of the sexes recommendations imply monetary payoffs that are equal ex ante but unequal ex post so although following recommendations constitutes a nash equilibrium under standard preferences sufficiently inequity averse players can rationally disobey a recommendation that would lead to a very unfavourable payoff distribution as long as the cost of doing so is not too large our theoretical model incorporates inequity aversion along with level k reasoning our main experimental result is consistent with the model as either payoff asymmetry increases or the cost of disobeying an unfavourable recommendation decreases subjects are more likely to disobey recommendations

leadership beliefs and coordination an explorative discussion although recent economics contributions represent important strides forward in the understanding of leadership behavior the cognitive and symbolic dimensions of the phenomenon have attracted virtually no interests from economists and game theorists i argue that an understanding of these dimensions may be founded on coordination games particularly to the extent that these illustrate interactive belief formation in this context leadership is defined as the taking of actions that coordinate the complementary actions of many people through the creation of belief conditions that at least substitute for common knowledge and where these actions characteristically consists of some act of communication directed at those being led the concept of common knowledge or its approximation by means of notions of common belief is argued to be particularly important to understanding leadership thus leaders may establish common knowledge conditions and assist the coordination of strategies in this way or make decisions in situations where coordination problems persist in spite of common knowledge acknowledgments

an examination of the necessary and sufjicient conditions for market eflciency the case of hogs the pricing efficiency of the live hog futures market is examined utilizing both necessary and sufficient conditions out of sample forecasts from an econometric model an arima model and a composite forecasting model are compared with the forward prices of the futures market within a mean squared error framework at least one model and frequently all of them forecast more accurately than the futures market a necessary condition for market efficiency the sufficient condition is assessed using simulated market trading strategies based o n the most accurate model forecasts results suggest that informational inefficiencies exist in the live hog futures market

evolutionary stability in unanimity games with cheap talk abstract this paper studies a class of games of perfectly coinciding interests with a preplay communication stage added if messages are costless cheap talk there are inefficient nash equilibria even under communication however i show that only strategies that induce efficient outcomes are evolutionary stable

vector autoregression forecasting models recent developments applied to the u s hog market bayesian estimation and the exclusion of variables are two basic approaches to the improvement of vector autoregression forecasting models this study presents a method which combines and extends several techniques within the exclusion of variables approach several quarterly hog market models are estimated and out of sample forecasts from 1977 through 1984 are evaluated the results suggest the proposed method compares favorably to other exclusion of variables techniques as well as to the more sophisticated bayesian approaches the univariate autoregressive moving average arma model has been quite successful in time series forecasting the main problem with this type of model is its failure to consider information about other potentially important variables vector autoregression var models represent one approach toward incorporating this information however researchers have typically found that unrestricted var models do not forecast well e g nerlove grether and carvalho kling and bessler perhaps because they are overparameterized the resulting variability associated with the parameter estimates contributes to the lack of precision in the forecasts attempts to overcome this degrees offreedom problem fall into two broad categories the exclusion of explanatory variables tiao and box hsiao 1979 caines keng and sethi and bayesian estimation of the parameters doan and litterman litterman the latter approach is difficult to implement newbold asks how the priors are generated bessler and hopkins suggest a random walk prior may be consistent with an efficient market hypothesis while this may be useful for price series considerable expertise in the modeling procedure is generally required as is detailed knowledge of the series of interest this article suggests a new technique for building var forecasting models using the exclusion of variables approach for comparative purposes other recently proposed var modeling strategies are discussed applications are then made to the live u s hog market

pricing information goods a strategic analysis of the selling and pay per use mechanisms we analyze two pricing mechanisms for information goods these mechanisms are selling where up front payment allows unrestricted use and pay per use where payments are tailored to use we analytically model a market where consumers differ in use frequency and where use on a pay per use basis invokes a psychological cost associated with the well known ticking meter effect we demonstrate that pay per use yields higher profits in a monopoly provided the associated psychological cost is low in a duopoly one firm uses selling and the other uses pay per use here in contrast to the monopoly selling yields higher profits than pay per use we demonstrate that surprisingly the profits of both duopolists can increase as the psychological cost associated with pay per use increases next we show that uncertainty in consumer use frequency does not affect pay per use in a monopoly but lowers profits from selling in a duopoly both the seller and the pay per use provider obtain lower profits when use frequency is uncertain we also analyze how pricing mechanism performance is affected if the firms cannot commit to prices if the pay per use provider offers a two part tariff and if consumers are risk averse

the effect of endogenous timing on coordination under asymmetric information an experimental study abstract this paper investigates the role of endogenous timing of decisions on coordination under asymmetric information in the equilibrium of a global coordination game where players choose the timing of their decision a player who has sufficiently high beliefs about the state of the economy undertakes an investment without delay this decision potentially triggers an investment by the other player whose beliefs would have led to inaction otherwise endogenous timing has two distinct effects on coordination a learning effect early decisions reveal information and a complementarity effect early decisions eliminate strategic uncertainty for late movers the experiments that we conduct to test these theoretical results show that the learning effect of timing has more impact on the subjects behavior than the complementarity effect we also observe that subjects welfare improves significantly under endogenous timing

life cycle preferences over consumption and health when is cost effectiveness analysis equivalent to cost benefit analysis this paper studies life cycle preferences over consumption and health status we show that cost effectiveness analysis is consistent with cost benefit analysis if the lifetime utility function is additive over time multiplicative in the utility of consumption and the utility of health status and if the utility of consumption is constant over time we derive the conditions under which the lifetime utility function takes this form both under expected utility theory and under rank dependent utility theory which is currently the most important nonexpected utility theory if cost effectiveness analysis is consistent with cost benefit analysis it is possible to derive tractable expressions for the willingness to pay for quality adjusted life years qalys the willingness to pay for qalys depends on wealth remaining life expectancy health status and the possibilities for intertemporal substitution of consumption

a dynamic model of bertrand competition with entry abstract this paper analyzes a simple repeated game of simultaneous entry and pricing we report a surprising property of the symmetric equilibrium solution if the number of potential competitors is increased above two the market breaks down with higher probability and the competitive outcome becomes less likely more potential competition lowers welfare another bertrand paradox the model can also be applied to auctions to explore whether a revenue maximizing auctioneer should restrict the number of bidders if bidder participation is costly

cheap talk coordination and entry we show how costless nonbinding nonverifiable communication cheap talk can achieve partial coordination among potential entrants into a natural monopoly industry where the payoffs are qualitatively like the battle of the sexes the analysis would apply equally in other economic situations with such payoffs for example bargaining under complete information or choosing compatibility standards while cheap talk helps achieve asymmetric coordination in a symmetric mixed strategy equilibrium it cannot achieve complete coordination if the game involves even a small amount of conflict

forecasting and hedging an illustration of risk reduction in the hog industry hog producers and first handlers can reduce the risk of unfavorable price fluctuations by combining the information from forecasting models with a selective hedging strategy six quarterly price forecasting approaches econometric arima expert naive and two composites were evaluated over the 1976 82 period using a simple yet pragmatic hedging decision rule the results indicate that relatively modest improvements in prices received by producers or paid by first handlers relative to cash marketing were possible statistically significant reductions in short term risk exposure were achieved by both groups through most of the approaches evaluated

vaporware suddenware and trueware new product preannouncements under market uncertainty a firm may want to preannounce its plans to develop a new product in order to stimulate future demand but given that such communications can affect rivals incentives to develop the same new product a firm may decide to preannounce untruthfully in order to deter competitors we examine an incumbent s preannouncement strategy when there is uncertainty regarding the commercial viability of a new product opportunity and a threat of rival entry each firm has a private assessment of the market potential for the new product two competitive incentives arise for the incumbent in terms of discouraging rival entry it can use preemptive communication or it can remain silent and instill a pessimistic market potential outlook we find that an incumbent prefers to follow a vaporware strategy i e declares plans to pursue a new product opportunity even when it may have no development intentions when its market forecasting capabilities are weak and the demand side benefits from preannouncing are small by contrast when the incumbent has strong market forecasting capabilities and the demand side benefits are small the incumbent adopts a suddenware strategy i e remains silent about its new product plans even when it actually plans to develop the new product finally when its market forecasting capabilities are strong and the demand side benefits are large the incumbent prefers to engage in a trueware strategy i e truthfully preannounces development plans we show that an interplay between competition related and demand related considerations is what allows trueware to emerge as an equilibrium in the absence of any ex post cost to engaging in vaporware in an extension we let the incumbent s actual development plans leak out and allow the entrant to wait and learn those plans prior to setting a research and development level we identify conditions for the entrant to postpone development despite the risk of being late to market as well as conditions for the entrant to commence development immediately despite not knowing the incumbent s plans based on the observed preannouncement strategy

an evolutionary approach to pre play communication we add a round of pre play communication to a finite two player game played by a population of players pre play communication is cheap talk in the sense that it does not directly enter the payoffs the paper characterizes the set of strategies that are stable with respect to a stochastic dynamic adaptive process periodically players have an opportunity to change their strategy with a strategy that is more successful against the current population any strategy that weakly improves upon the current poorest performer in the population enters with positive probability when there is no conflict of interest between the players only the efficient outcome is stable with respect to these dynamics for general games the set of stable payoffs is typically large every efficient payoff recurs infinitely often

talk is cheap although friedrich a von hayek leonid hurwicz and others stressed how the price system communicates private information on preferences technology and endowments our main means of communication is surely words but it is unclear whether mere words can be trusted absent outside sanctions for lying such as perjury law or a valuable reputation for honesty talk is cheap the perspective of the standard theory of signaling seems to suggest that cheap talk should be uninformative but this is misleading cheap talk can sometimes convey information and affect real payoffrelevant actions yet cheap talk s power is limited for example even given an unlimited chance to talk rational people may not reach an equilibrium or may not escape a bad one a growing literature in game theory political science and economics which i cannot survey here studies what cheap talk can and cannot do here i merely sketch some themes

unmediated communication in repeated games with imperfect monitoring we show that any correlated equilibrium payoff of two player repeated games with imperfect monitoring and without discounting can be reached as the nash equilibrium payoff of the game extended by a universal mechanism of unmediated communication this result holds regardless the particular concept of equlibrium involved upper lower banach or uniform equlibrium the communication mechanism is built up by using commutative one way functions these functions are designed with the help of cryptographic tools

accounting for future costs in medical cost effectiveness analysis most medical cost effectiveness analyses include future costs only for related illnesses but this approach is controversial this paper demonstrates that cost effectiveness analysis is consistent with lifetime utility maximization only if it includes all future medical and non medical expenditures estimates of the magnitude of these future costs suggest that they may substantially alter both the absolute and relative cost effectiveness of medical interventions particularly when an intervention increases length of life more than quality of life in older populations current methods overstate the cost effectiveness of interventions which extend life compared to interventions which improve the quality of life

economic evaluation of health care programmes is cea better than cba it has been noted earlier that during the same period that the contingent valuation cv method evolved and became the most commonly used method of valuing environmental projects the development in health economics was instead been towards cost effectiveness analysis cea recently there has been a growing interest in the use of cea where qalys quality adjusted life years are used as a measure of effectiveness as the method of evaluation for environmental projects the purpose of this paper is to answer the question is cea a superior method to cba both theoretically and empirically to provide information to decision makers for use in decisions on resource allocation in health the paper deals with the following topics the underlying theoretical foundation for cea is cea free of income distribution considerations is qaly a superior measure to wtp the usefulness of incremental ce ratio icer to determine resource allocation the paper concludes that there is neither theoretical nor practical support for the claim about the superiority of cea

cheap talk can matter in bargaining this paper describes an intuitive way in which cheap talk can matter in a twostage bargaining game in which talk may be followed by serious negotiation the intuition that all buyers would claim to have low reservation prices is incorrect in our model instead if good faith participation is endogenously determined then the parties can use talk to trade off bargaining position against the probability of continued negotiation our cheap talk equilibrium features bargaining behavior that could not be equilibrium behavior in the absence of talk

coalition proof equilibrium we characterize the agreements that the players of a noncooperative game may reach when they can communicate prior to play but they cannot reach binding agreements a coalition proof equilibrium is a correlated strategy from which no coalition has an improving and self enforcing deviation we show that any correlated strategy whose support is contained in the set of actions that survive the iterated elimination of strictly dominated strategies and weakly pareto dominates every other correlated strategy whose support is contained in that set is a coalition proof equilibrium consequently the unique equilibrium of a dominance solvable game is coalition proof journal of economic literature classification

one sided patience with one sided communication does not justify stackelberg equilibrium abstract the theory of games with complete information in which a single patient longrun player faces a succession of short run opponents cannot plausibly be used to justify the stackelberg solution concept because if that player can select which subgame perfect equilibrium is to be played then she can presumably also change her selection consequently while she can choose among one shot nash outcomes she cannot achieve the stackelberg outcome

communication between rational agents abstract conventional game theoretic solution concepts never guarantee meaningful communication in cheap talk games i define a solution concept which does guarantee communication in some games i assume full rationality without imposing equilibrium conditions but add a natural behavioral assumption about how agents use language agents have a propensity to speak the truth and to believe others speak the truth but use the game s strategic incentives to check whether such behavior and beliefs are rational i also define and prove the existence of an equilibrium version of the concept and present examples where its predictions seem more natural than farrell s neologism proof equilibrium

costly communication and learning from failure in organizational coordination abstract this paper investigates the coordination failure that arises from combining two small pre existing groups and focuses on the reaction of group members to this change in environment in an experiment small groups were first able to establish a coordination history in a repeated minimum effort game in the second phase two groups with different histories were combined into a larger group unlike most of the previous literature subjects could endogenously choose to communicate in the newly formed group for a small fee while communication proved to be necessary for preventing coordination failure in the newly formed group only every second subject was willing to implement communication particularly subjects from groups with a less efficient coordination experience in the first phase were more likely to realize the potential of coordination failure in the new group and were thus more likely to decide for communication the results may be useful for understanding how groups coordinate in changing environments as they are common in economic contexts

qalys standard gambles and the expected budget constraint this paper shows that when quality adjustment factors for use in constructing qaly indices are established through answers to standard gamble questions or similar methods the assumptions that are made by respondents about the financial consequences of changing probabilities of illness and death are critically important for the use of qalys in cost utility analysis cua it qualifies meltzer s journal of health economics 16 1997 33 result that the cost per quality adjusted life year qaly for life saving medical interventions should include the future consumption of those who would otherwise not have survived by showing that its validity depends on how the qaly index has been established the paper also shows that contrary to a widely held notion allocation of a fixed health care budget through cua does not generally result in a second best efficient allocation another finding is that failure to specify carefully what respondents to standard gamble questions are supposed to assume about the financial consequences of ill health may result in a bias against providing care to older individuals

signaling future actions and the potential for sacrifice we consider extensions of games where some players have the option of signaling future actions by incurring costs the main result is that in a class of games if one player can incur costs then forwards induction selects her most preferred outcome surprisingly the player does not have to incur any costs to achieve this the option alone suffices however when all players can incur costs one player s attempt to signal a future action is vulnerable to a counter signal by the opponent this vulnerability to counter signaling distinguishes signaling future actions from signaling types

partisanship as information intuitively we associate different political parties with different types of policy in contrast this paper shows that in the absence of differential costs of membership among parties that is if party membership ischeap talk party labels cannot perfectly signal the ideologies of candidates however under certain conditions parties can signal candidate types imperfectly the paper therefore also provides an example of how costless communication can be effective in games of partial conflict

new directions for modelling strategic behavior game theoretic models of communication coordination and cooperation in economic relationships author s crawford vp abstract in this paper i discuss the state of progress in applications of game theory in economics and try to identify possible future developments that are likely to yield further progress to keep the topic manageable i focus on a canonical economic problem that is inherently game theoretic that of fostering efficient coordination and cooperation in relationships with particular attention to the role of communication i begin with an overview of noncooperative game theory s principal model of behavior nash equilibrium i next discuss the alternative thinking and learning rationales for how real world actors might reach equilibrium decisions i then review how nash equilibrium has been used to model coordination communication and cooperation in relationships and discuss possible developments

modeling the forms of international cooperation distribution versus information the problems of distribution and information impede international cooperation they arise when actors select how they will cooperate an exploration of the interaction between these problems using a limited information model of cooperation leads to six conclusions first leadership solutions to coordination problems always exist but leadership here is very different from hegemonic provision of public goods second actors can cooperate in the face of anarchy even without a shadow of the future third diffuse reciprocal strategies arise naturally in coordination problems fourth norms and institutions are intertwined within successful cooperation fifth the form of cooperation on an issue varies with the relative importance of distribution and information finally and most important distributional and informational problems interfere with each other arrangements to cooperate can successfully address one but not both of these problems

co ordination spillovers and cheap talk abstract we analyze the role of cheap talk in two player games with one sided incomplete information we identify conditions under which 1 players can fully communicate and coordinate on efficient nash equilibria of the underlying complete information game and 2 players cannot communicate so cheap talk does not alter the equilibrium set of the bayesian game we present examples that illustrate several issues that arise when there is two sided incomplete information journal of economic literature classification numbers c72 d82

can the government talk cheap communication announcements and cheap talk a great deal of attention has recently been focused on communication in economic contexts while some models of credible announcements have been based on reputational forces or penalties imposed by third parties as in sobel 21 and cothren 4 several recent papers have addressed the possibility of communication through cheap talk that is talk in situations with no explicit penalties for deception perhaps the most prominent application of cheap talk in the literature is the recent model of federal reserve announcements by stein 22 this paper will show that cheap talk equilibria of the sort modeled by stein and others often depend in a fundamental way on implausible discontinuities in public responses to government announcements that is cheap talk equilibria are frequently only possible if certain infinitesimally small changes in government announcements are capable of causing large discontinuous changes in public expectations and behavior intuitively if public expectations are a continuous function of government announcements then the government can fine tune these expectations the government will therefore often be tempted to deviate from the cheap talk equilibrium announcements in order to manipulate expectations this causes the equilibrium to unravel discontinuous public reactions sometimes prevent these equilibria from unraveling because they convert continuous choice problems which allow manipulative fine tuning into discrete choice problems where such fine tuning is impossible these discontinuities are implausible however and this may often rule out cheap talk as a realistic model of governmental policy announcements 2

communication and superior cooperation in two player normal form games abstract in many games players may be able to cooperate for their collective benefit without jeopardizing individual rationality however attaining such superior cooperation requires that players conform to a specific axiom of behavior in this paper i demonstrate that pre play communication also stimulates superior cooperation

lying for strategic advantage rational and boundedly rational misrepresentation of intentions starting from hendricks and mcafee s 2000 example of the allies decision to feint at calais and attack at normandy on d day this paper models misrepresentation of intentions to competitors or enemies allowing for the possibility of bounded strategic rationality and rational players responses to it yields a sensible account of lying via costless noiseless messages in many cases the model has generically unique pure strategy sequential equilibria in which rational players exploit boundedly rational players but are not themselves fooled in others the model has generically essentially unique mixed strategy sequential equilibria in which rational players strategies protect all players from exploitation