T-Space Community: An open-access journal in economic theoryAn open-access journal in economic theoryhttp://hdl.handle.net/1807/47762014-03-24T07:34:09Z2014-03-24T07:34:09ZA theory of regular Markov perfect equilibria in dynamic stochastic games: genericity, stability, and purificationUlrich Doraszelski; Department of Economics, Harvard UniversityJuan Escobar; Department of Industrial Engineering, University of Chilehttp://hdl.handle.net/1807/271962012-11-01T07:59:47Z2010-09-22T00:00:00ZTitle: A theory of regular Markov perfect equilibria in dynamic stochastic games: genericity, stability, and purification
Authors: Ulrich Doraszelski; Department of Economics, Harvard University; Juan Escobar; Department of Industrial Engineering, University of Chile
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This paper studies generic properties of Markov perfect equilibria in dynamic stochastic games. We show that almost all dynamic stochastic games have a finite number of locally isolated Markov perfect equilibria. These equilibria are essential and strongly stable. Moreover, they all admit purification. To establish these results, we introduce a notion of regularity for dynamic stochastic games and exploit a simple connection between normal form and dynamic stochastic games.2010-09-22T00:00:00ZSymmetry of evidence without evidence of symmetryLarry G. Epstein; Department of Economics, Boston UniversityKyoungwon Seo; Department of Managerial Economics and Decision Sciences, Northwestern Universityhttp://hdl.handle.net/1807/271952012-11-01T07:59:16Z2010-09-22T00:00:00ZTitle: Symmetry of evidence without evidence of symmetry
Authors: Larry G. Epstein; Department of Economics, Boston University; Kyoungwon Seo; Department of Managerial Economics and Decision Sciences, Northwestern University
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The de Finetti Theorem is a cornerstone of the Bayesian approach. Bernardo (1996) writes that its "message is very clear: if a sequence of observations is judged to be exchangeable, then any subset of them must be regarded as a random sample from some model, and there exists a prior distribution on the parameter of such model, hence requiring a Bayesian approach." We argue that while exchangeability, interpreted as symmetry of evidence, is a weak assumption, when combined with subjective expected utility theory, it implies also complete confidence that experiments are identical. When evidence is sparse, and there is little evidence of symmetry, this implication of de Finetti's hypotheses is not intuitive. This motivates our adoption of multiple-priors utility as the benchmark model of preference. We provide two alternative generalizations of the de Finetti Theorem for this framework. A model of updating is also provided.2010-09-22T00:00:00ZSupermodular mechanism designLaurent A. Mathevet; Department of Economics, University of Texas, Austinhttp://hdl.handle.net/1807/271942012-11-01T07:58:45Z2010-09-22T00:00:00ZTitle: Supermodular mechanism design
Authors: Laurent A. Mathevet; Department of Economics, University of Texas, Austin
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This paper introduces a mechanism design approach that allows dealing with the multiple equilibrium problem, using mechanisms that are robust to bounded rationality. This approach is a tool for constructing supermodular mechanisms, i.e. mechanisms that induce games with strategic complementarities. In quasilinear environments, I prove that if a social choice function can be implemented by a mechanism that generates bounded strategic substitutes - as opposed to strategic complementarities - then this mechanism can be converted into a supermodular mechanism that implements the social choice function. If the social choice function also satisfies some efficiency criterion, then it admits a supermodular mechanism that balances the budget. Building on these results, I address the multiple equilibrium problem. I provide sufficient conditions for a social choice function to be implementable with a supermodular mechanism whose equilibria are contained in the smallest interval among all supermodular mechanisms. This is followed by conditions for supermodular implementability in unique equilibrium. Finally, I provide a revelation principle for supermodular implementation in environments with general preferences.2010-09-22T00:00:00ZDynamic monopoly with relational incentivesAlexander Wolitzky; Department of Economics, Massachusetts Institute of Technologyhttp://hdl.handle.net/1807/271932012-11-01T07:57:43Z2010-09-22T00:00:00ZTitle: Dynamic monopoly with relational incentives
Authors: Alexander Wolitzky; Department of Economics, Massachusetts Institute of Technology
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This paper studies the price-setting problem of a monopoly that in each time period has the option of failing to deliver its good after receiving payment. The monopoly may be induced to deliver the good if consumers expect that the monopoly will not deliver in the future if it does not deliver today. If the good is non-durable and consumers are anonymous, the monopoly's optimal strategy is to set price equal to the static monopoly price each period if the discount factor is high enough, and otherwise to set the lowest price at which it can credibly promise to deliver the good. If the good is durable, we derive an intuitive lower bound on the monopoly's optimal profit for any discount factor and show that it converges to the optimal static monopoly profit as the discount factor converges to one, in contrast to the Coase conjecture. We also show that rationing the good is never optimal for the monopoly if there is an efficient resale market and that the best equilibrium in which the monopoly always delivers involves a strictly decreasing price path that asymptotes to a level weakly above the ratio of the monopoly's marginal cost to the discount factor.2010-09-22T00:00:00Z