In this note, we consider how to allocate property rights to scarce resources when agents have budget constraints. Each individual’s wealth level is often observable to the state, although the individual subjective valuation for the... more
In this note, we consider how to allocate property rights to scarce resources when agents have budget constraints. Each individual’s wealth level is often observable to the state, although the individual subjective valuation for the resource is hardly known to the state. Under this situation, we mainly compare the efficiency of allocations under two assignment mechanisms; (i) the random assignment with resale and (ii) priority assignment to the poorest with resale. We show that the latter is more efficient than the former. If the mass of goods to be allocated is large enough, the latter can achieve social optimum.
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We develop a model of cheap talk with two senders in the presence of network externalities, such that their utility functions are increasing in the network size. We first show that, if there is no noise in the private information received... more
We develop a model of cheap talk with two senders in the presence of network externalities, such that their utility functions are increasing in the network size. We first show that, if there is no noise in the private information received by each sender, the full information is revealed by the harshest cross-checking strategies, that is, strategies to punish the senders unless their messages exactly coincide. Then, we prove that, even with a small noise, cross-checking strategies cannot induce full revelation if the utility functions of senders are linear in the network size, whereas full revelation is possible if utility functions are strictly concave. Finally, we show that a CARA (constant absolute risk aversion) utility function of senders is the necessary and sufficient condition for the existence of a fully revealing equilibrium, which is supported by the cross-checking strategy with a positive confidence interval independent of each sender’s private information.
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This paper examines the effect of prioritization on competing CPs’ incentives to invest to improve their quality of service (QoS). We show that in the single-homing case, no CP makes a positive amount of investment under net neutrality... more
This paper examines the effect of prioritization on competing CPs’ incentives to invest to improve their quality of service (QoS). We show that in the single-homing case, no CP makes a positive amount of investment under net neutrality because the effect of reducing delay is shared by both CPs, while the prioritized CP does not invest to improve QoS in the M/M/1 queuing model in which the effect is shared by the unprioritized CP and both CPs invest for QoS in the bandwidth subdivision model in which the effect is not shared. In the multi-homing case, however, CPs invest for QoS even under net neutrality, because CPs do not virtually compete against each other.
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In an information society, people acquire information by forming a network or joining in associations. A set of associations is called a hypergraph. It is a generalization of a graph (or a network) in graph theory. While a link in a... more
In an information society, people acquire information by forming a network or joining in associations. A set of associations is called a hypergraph. It is a generalization of a graph (or a network) in graph theory. While a link in a network directly connects only a pair of nodes, an association in a hypergraph connects any number of nodes. While a link in a network can be formed by the joint decision of two players, an association in a hypergraph can be formed by the joint decision of any number of players more than one. Despite many advantages, forming a network has a disadvantage of exponentially increasing connection costs as the number of society members grow. Alternatively, founding associations has an advantage of saving the cost relevant to the size notwithstanding a high initial setup cost. Once it is established, all members who join in the association can share all the information among the members. In this paper, I examine the conditions for efficiency and stability of a network and a hypergraph, and compare the efficiency between a network and a hypergraph. The main difference is that the possibility of overconnectivity does not occur in a hypergraph, while it occurs in a network. The possibility of overconnectivity in network formation is due to the possible coordination failure. Since coordination by more than two people is allowed in a hypergraph, a hypergraph is never overconnected.
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In this article, we extend the model of Newman, H., and D. Wright. 1990. “Strict Liability in a Principal-Agent Model.” International Review of Law and Economics 10: 219–231 and strengthens their result that the strict liability can... more
In this article, we extend the model of Newman, H., and D. Wright. 1990. “Strict Liability in a Principal-Agent Model.” International Review of Law and Economics 10: 219–231 and strengthens their result that the strict liability can attain social optimum in a principal-agent relation to the situation in which the court appreciates any contractual terms regarding apportionment of damages between an employer and an employee under vicarious liability rule. Our model also generalizes and extends vicarious liability to the negligence-based liability rule.
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We formulate a pretrial negotiation problem as an infinite-horizon bargaining model with one-sided uncertainty and alternating offers, with the informed party having an outside option. The plaintiff has private information and also has an... more
We formulate a pretrial negotiation problem as an infinite-horizon bargaining model with one-sided uncertainty and alternating offers, with the informed party having an outside option. The plaintiff has private information and also has an outside option of "going to court." The defendant moves first. We show that there exists a unique sequential equilibrium. In equilibrium, when the defendant makes an offer, all the plaintiffs whose net recovery from litigation is greater (smaller) than the offer, reject it (accept it) and go to court next period. Hence, along the equilibrium path, the game lasts at most two periods. Copyright 1994 by Oxford University Press.
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The authors develop a model of cheap talk with multiple speakers in the presence of network externalities so that their utility functions are increasing in the network size. They first show that if there is no noise in private information... more
The authors develop a model of cheap talk with multiple speakers in the presence of network externalities so that their utility functions are increasing in the network size. They first show that if there is no noise in private information that each sender receives, the full information is revealed by the harshest cross-checking strategies, that is, strategies to punish the senders unless their messages exactly coincide. Then, the authors show that with even a small noise cross-checking strategies cannot induce full revelation if utility functions of senders are linear in the network size, while full revelation is possible if utility functions are strictly concave. They find a sufficient condition for the existence of a fully revealing equilibrium which is supported by the cross-checking strategy with a positive confidence interval independent of each sender's private information.
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In an influential paper, Choi and Kim (2010) established the invariance result that given a fixed network capacity, the average waiting times are identical regardless of net neutrality. In this paper, we argue that their result relies on... more
In an influential paper, Choi and Kim (2010) established the invariance result that given a fixed network capacity, the average waiting times are identical regardless of net neutrality. In this paper, we argue that their result relies on the assumption that the distribution for content requests per end user is the same regardless of net neutrality. However, if the distribution is determined by the underlying utility maximization problem of users, users expect the contents they request to be transmitted faster if the contents have priority, implying that the request rate for prioritized contents is higher than the request rate for unprioritized contents under net neutrality. If the content request rates per user differ across the two regimes (net neutrality vs. no net neutrality), the invariance result may not be valid. We also discuss social welfare and the investment incentive of the Internet service provider in an extended model with variable content request rates.
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This paper considers two alternative procedures for multi-issue bargaining, so-called sectoral approach (issue-by-issue bargaining) and single-undertaking (single package bargaining), and compares the outcomes under the alternative... more
This paper considers two alternative procedures for multi-issue bargaining, so-called sectoral approach (issue-by-issue bargaining) and single-undertaking (single package bargaining), and compares the outcomes under the alternative procedures. It is asserted that if early agreement in an issue is particularly important to a bargaining party so that it makes his overall delay costs too high, he may strictly prefer to bargain the issue separately rather than bargain both issues at once.
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The authors develop a model of cheap talk with multiple speakers in the presence of network externalities so that their utility functions are increasing in the network size. They first show that if there is no noise in private information... more
The authors develop a model of cheap talk with multiple speakers in the presence of network externalities so that their utility functions are increasing in the network size. They first show that if there is no noise in private information that each sender receives, the full information is revealed by the harshest cross-checking strategies, that is, strategies to punish the senders unless their messages exactly coincide. Then, the authors show that with even a small noise cross-checking strategies cannot induce full revelation if utility functions of senders are linear in the network size, while full revelation is possible if utility functions are strictly concave. They find a sufficient condition for the existence of a fully revealing equilibrium which is supported by the cross-checking strategy with a positive confidence interval independent of each sender's private information.
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... Tragedy of the Commons Revisited: Librarians, Publishers, Faculty and the Demise of a Public Resource. Philip M. Davis. ... Tragedy of the Commons. ...
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ork b, rea We investigate a dynamic model of network marketing in a small-world network structure from the agents in s. As the the one-layer are ed as free 0 the increases hat while at of r is died and
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We consider evolving networks on which players interact locally. In an evolutionary environment, players can increase their fitness either by changing their behavior or by changing their neighbors. We propose a static solution concept,... more
We consider evolving networks on which players interact locally. In an evolutionary environment, players can increase their fitness either by changing their behavior or by changing their neighbors. We propose a static solution concept, what we call Stable Network Configuration (SNC). Roughly speaking, it requires that no player in the population distribution will change his type by imitating his best-performing neighbor, nor change his neighbor by rewiring his links. We characterize the necessary and sufficient conditions for the symmetric SNC in a network formation situation associated with the Prisoner's Dilemma game. Unlike the result by Eshel et al. (1998) that was obtained in a fixed circular network, all altruists and all egoists fare equally well and all altruists have links with some or all egoists in the symmetric SNC.
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In this paper, the authors provide a rationale for why firms issue gift cards or vouchers. Mainly, issuing gift cards can be considered as a collusion-facilitating practice. A firm that issues gift cards can raise its price for several... more
In this paper, the authors provide a rationale for why firms issue gift cards or vouchers. Mainly, issuing gift cards can be considered as a collusion-facilitating practice. A firm that issues gift cards can raise its price for several reasons. First, the discounted price by the face value of the gift card makes demands less elastic so that the resulting price will be higher. Second, it has the lock-in effect which makes price competition even less severe. Third, once a firm has sold its gift cards, selling a product to card holders does not increase its revenue, but only increases its cost. So the firm has an incentive to raise the price. Interestingly, the authors argue that the lock-in effect is not essential to the collusion-facilitating effect of gift cards in the sense that collusive prices can be sustained even when the two firms mutually honor their own gift cards, so that no lock-in effect exists. This is mainly because firms can still raise prices for the total proportions...
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This paper considers two alternative procedures for multi-issue bargaining, so-called sectoral approach (issue-by-issue bargaining) and single-undertaking (single package bargaining), and compares the outcomes under the alternative... more
This paper considers two alternative procedures for multi-issue bargaining, so-called sectoral approach (issue-by-issue bargaining) and single-undertaking (single package bargaining), and compares the outcomes under the alternative procedures. It is asserted that if early agreement in an issue is particularly important to a bargaining party so that it makes his overall delay costs too high, he may strictly prefer to bargain the issue separately rather than bargain both issues at once.
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In this paper, I consider the regulation standard as a policy variable and investigate the efiect of its choice when the law enforcement is costly and imperfect. If the enforcement probability depends only on the monitoring expenditures,... more
In this paper, I consider the regulation standard as a policy variable and investigate the efiect of its choice when the law enforcement is costly and imperfect. If the enforcement probability depends only on the monitoring expenditures, the violation rate remains the same for any quantity regulation stricter than the marginal regulation. If the enforcement probability depends on the violation rate as well as the expenditures, I obtain an even more surprising result that the violation rate and the tra‐c volume can be both decreased as the regulation gets less strict. Intuitively, a less strict regulation makes the detection probability higher because the regulatory authority only needs to regulate less vehicles, which makes drivers less likely to violate the regulation.
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In this paper, we argue that there is strategic complementarity in criminal behavior. Strategic complementarity arises because the apprehension probability that affects the crime rate depends on the crime rate itself. The natural... more
In this paper, we argue that there is strategic complementarity in criminal behavior. Strategic complementarity arises because the apprehension probability that affects the crime rate depends on the crime rate itself. The natural consequence is the possible multiplicity of the equilibrium crime rate. The actual crime rate is realized by the self-fulfilling nature of the crime rate. Our analysis provides an economic rationalization of the broken window theory as the result of strategic complementarity and self-fulfilling crime rates. Regardless of how effective polices prescribed by the broken window theory are (e.g. removing graffiti, reducing trash in the street, and repairing broken windows), our model demonstrates the theory’s important contribution of introducing to the economics of crime the idea of belief-based deterrence. We also show that the equilibrium crime rate is stable whenever the broken window policy targets the lowest among multiple equilibrium crime rates.
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type="main"> Norms that restrict choice sets or impose otherwise harsh requirements would seem to act as barriers to group formation by raising the costs of adherence to potential and continuing members. Contrary to that... more
type="main"> Norms that restrict choice sets or impose otherwise harsh requirements would seem to act as barriers to group formation by raising the costs of adherence to potential and continuing members. Contrary to that intuition, one observes a broad range of group norms in the real world that impose large costs on group members. Iannaccone provides a rationale for harsh norms as a mechanism to reduce free-riding in supplying a club good. This paper proposes a new rationalization for harsh group norms as a mechanism under which harsh norms serve to screen out disloyal members, providing what is essentially a technology for measuring loyalty in environments where group leaders cannot reliably measure group members' loyalty. The model demonstrates that loyalty can be signalled through acts that are seemingly irrelevant to the group's core objectives and identity.
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We develop the hypothesis that an individual can get some value of information, even if they do not use the information for his subsequent decision, contrary to the expected utility theory. Curiosity is associated with the direct utility... more
We develop the hypothesis that an individual can get some value of information, even if they do not use the information for his subsequent decision, contrary to the expected utility theory. Curiosity is associated with the direct utility from information and is defined formally by using the concept of entropy. We can measure an agent's curiosity level by the maximum amount of money that he is willing to pay in order to obtain the information thereby reducing the entropy. We test the hypothesis from lab experiments and obtain the empirical evidence that people are actually willing to pay a positive amount of money to obtain payoff-irrelevant information. Also, the comparison of the coefficients of variation for our curiosity measure and the IPI curiosity measure which is widely used in psychology suggests that our measure is more informative.
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In this paper, we consider dynamic games with noisy signals in which due to noises in observations any signal is possible in equilibrium. We argue that in the games with noisy signals, the consistency condition of beliefs required by the... more
In this paper, we consider dynamic games with noisy signals in which due to noises in observations any signal is possible in equilibrium. We argue that in the games with noisy signals, the consistency condition of beliefs required by the perfect Bayesian equilibrium (PBE) or sequential equilibrium (SE) is too strong to comprehend some reasonable outcomes, and accordingly propose alternative solution concepts which we will call -perfect Bayesian equilibrium ( -PBE) and limit perfect Bayesian equilibrium (limit PBE). The two equilibrium concepts rely on a weaker consistency condition that requires beliefs to be updated by Bayes’ law only if the likelihood of the signal given the equilibrium strategy was played exceeds > 0. Our concepts are consistent with empirical observations that show higher deviations from Bayes’ law for rare events. We show that under a mild condition, both of -PBE and limit PBE recover the first mover advantage that disappears with even a slight noise in obse...