Bargaining for power and information : an experimental and theoretical analysis of the interaction between institutions, externalities and adverse selection

Bargaining is the building block of many economic interactions, ranging from bilateral to multilateral encounters and from situations in which the actors are individuals to negotiations between firms or countries. In all these settings, economists have been intrigued for a long time by the fact that some projects, trades or agreements are not realized even though they are mutually beneficial. On the one hand, this has been explained by incomplete information. A firm may not be willing to offer a wage that is acceptable to a qualified worker, because it knows that there are also unqualified workers and cannot distinguish between the two types. This phenomenon is known as adverse selection. On the other hand, it has been argued that even with complete information, the presence of externalities may impede efficient outcomes. To see this, consider the example of climate change. If a subset of countries agrees to curb emissions, non-participant regions benefit from the signatories’ efforts without incurring costs. These free riding opportunities give rise to incentives to strategically improve ones bargaining power that work against the formation of a global agreement. This thesis is concerned with extending our understanding of both factors, adverse selection and externalities. The findings are based on empirical evidence from original laboratory experiments as well as game theoretic modeling. On a very general note, it is demonstrated that the institutions through which agents interact matter to a large extent. Insights are provided about which institutions we should expect to perform better than others, at least in terms of aggregate welfare. Chapters 1 and 2 focus on the problem of adverse selection. Effective operation of markets and other institutions often depends on good information transmission properties. In terms of the example introduced above, a firm is only willing to offer high wages if it receives enough positive signals about the worker’s quality during the application and wage bargaining process. In Chapter 1, it will be shown that repeated interaction coupled with time costs facilitates information transmission. By making the wage bargaining process costly for the worker, the firm is able to obtain more accurate information about the worker’s type. The cost could be pure time cost from delaying agreement or cost of effort arising from a multi-step interviewing process. In Chapter 2, I abstract from time cost and show that communication can play a similar role. The simple fact that a worker states to be of high quality may be informative. In Chapter 3, the focus is on a different source of inefficiency. Agents strive for bargaining power and thus may be motivated by incentives that are at odds with the socially efficient outcome. I have already mentioned the example of climate change. Other examples are coalitions within committees that are formed to secure voting power to block outcomes or groups that commit to different technological standards although a single standard would be optimal (e.g. the format war between HD and BlueRay). It will be shown that such inefficiencies are directly linked to the presence of externalities and a certain degree of irreversibility in actions. I now discuss the three articles in more detail. In Chapter 1, Olivier Bochet and I study a simple bilateral bargaining institution that eliminates trade failures arising from incomplete information. In this setting, a buyer makes offers to a seller in order to acquire a good. Whenever an offer is rejected by the seller, the buyer may submit a further offer. Bargaining is costly, because both parties suffer a (small) time cost after any rejection. The difficulties arise, because the good can be of low or high quality and the quality of the good is only known to the seller. Indeed, without the possibility to make repeated offers, it is too risky for the buyer to offer prices that allow for trade of high quality goods. When allowing for repeated offers, however, at equilibrium both types of goods trade with probability one. We provide an experimental test of these predictions. Buyers gather information about sellers using specific price offers and rates of trade are high, much as the model’s qualitative predictions. We also observe a persistent over-delay before trade occurs, and this mitigates efficiency substantially. Possible channels for over-delay are identified in the form of two behavioral assumptions missing from the standard model, loss aversion (buyers) and haggling (sellers), which reconcile the data with the theoretical predictions. Chapter 2 also studies adverse selection, but interaction between buyers and sellers now takes place within a market rather than isolated pairs. Remarkably, in a market it suffices to let agents communicate in a very simple manner to mitigate trade failures. The key insight is that better informed agents (sellers) are willing to truthfully reveal their private information, because by doing so they are able to reduce search frictions and attract more buyers. Behavior observed in the experimental sessions closely follows the theoretical predictions. As a consequence, costless and non-binding communication (cheap talk) significantly raises rates of trade and welfare. Previous experiments have documented that cheap talk alleviates inefficiencies due to asymmetric information. These findings are explained by pro-social preferences and lie aversion. I use appropriate control treatments to show that such consideration play only a minor role in our market. Instead, the experiment highlights the ability to organize markets as a new channel through which communication can facilitate trade in the presence of private information. In Chapter 3, I theoretically explore coalition formation via multilateral bargaining under complete information. The environment studied is extremely rich in the sense that the model allows for all kinds of externalities. This is achieved by using so-called partition functions, which pin down a coalitional worth for each possible coalition in each possible coalition structure. It is found that although binding agreements can be written, efficiency is not guaranteed, because the negotiation process is inherently non-cooperative. The prospects of cooperation are shown to crucially depend on i) the degree to which players can renegotiate and gradually build up agreements and ii) the absence of a certain type of externalities that can loosely be described as incentives to free ride. Moreover, the willingness to concede bargaining power is identified as a novel reason for gradualism. Another key contribution of the study is that it identifies a strong connection between the Core, one of the most important concepts in cooperative game theory, and the set of environments for which efficiency is attained even without renegotiation.

Governance of Digital Game Environments and Cultural Diversity : Transdisciplinary Enquiries

Digital game environments are of increasing economic, social and cultural value. As their influence on diverse facets of life grows, states have felt compelled to intervene and secure some public interests. Yet, the contours of a comprehensive governance model are far from recognisable and governments are grappling with the complexity and fluidity of online games and virtual worlds as private spaces and as experimentation fields for creativity and innovation. This book contributes to a more comprehensive and fine-grained understanding of digital game environments, which is a precondition for addressing any of the pressing governance questions posed. Particular attention is given to the concept and policy objective of cultural diversity, which also offers a unique entry point into the discussion of the appropriate legal regulation of digital games. Governance of Digital Game Environments and Cultural Diversity will be of interest to researchers of media law, internet law and governance, cultural studies, anthropology and sociology. As the book addresses a highly topical theme, it will attract the attention of policymakers at national, regional and international levels and will also serve as a great resource tool for scholars in new media and, in particular, digital games and virtual worlds.

Governance of Digital Game Environments and Cultural Diversity : Transdisciplinary Enquiries. Preface

Digital game environments are of increasing economic, social and cultural value. As their influence on diverse facets of life grows, states have felt compelled to intervene and secure some public interests. Yet, the contours of a comprehensive governance model are far from recognisable and governments are grappling with the complexity and fluidity of online games and virtual worlds as private spaces and as experimentation fields for creativity and innovation. This book contributes to a more comprehensive and fine-grained understanding of digital game environments, which is a precondition for addressing any of the pressing governance questions posed. Particular attention is given to the concept and policy objective of cultural diversity, which also offers a unique entry point into the discussion of the appropriate legal regulation of digital games. Governance of Digital Game Environments and Cultural Diversity will be of interest to researchers of media law, internet law and governance, cultural studies, anthropology and sociology. As the book addresses a highly topical theme, it will attract the attention of policymakers at national, regional and international levels and will also serve as a great resource tool for scholars in new media and, in particular, digital games and virtual worlds.

A new model construction by making a detour via intuitionistic theories II: Interpretability lower bound of Feferman's explicit mathematics T0

We partially solve a long-standing problem in the proof theory of explicit mathematics or the proof theory in general. Namely, we give a lower bound of Feferman’s system T0 of explicit mathematics (but only when formulated on classical logic) with a concrete interpretat ion of the subsystem Σ12-AC+ (BI) of second order arithmetic inside T0. Whereas a lower bound proof in the sense of proof-theoretic reducibility or of ordinalanalysis was already given in 80s, the lower bound in the sense of interpretability we give here is new. We apply the new interpretation method developed by the author and Zumbrunnen (2015), which can be seen as the third kind of model construction method for classical theories, after Cohen’s forcing and Krivine’s classical realizability. It gives us an interpretation between classical theories, by composing interpretations between intuitionistic theories.

Livelihood and Community Development: LforS learning and simulation game

Up to 15 people can participate in the game, which is supervised by a moderator. Households consisting of 1-5 people discuss options for diversification of household strategies. Aim of the game: By devising appropriate strategies, households seek to stand up to various types of events while improving their economic and social situation and, at the same time, taking account of ecological conditions. The annual General Community Meeting (GCM) provides an opportunity for households to create a general set-up at the local level that is more or less favourable to the strategies they are pursuing. The development of a community investment strategy, to be implemented by the GCM, and successful coordination between households will allow players to optimise their investments at the household level. The household who owns the most assets at the end of the game wins. Players participate very actively, as the game stimulates lively and interesting discussions. They find themselves confronted with different types of decision-making related to the reality of their daily lives. They explore different ways to model their own household strategies and discuss risks and opportunities. Reflections on the course of the game continually refer to the real-life situations of the participants.