We consider a general optimal stopping problem with discounting for autoregressive processes. Our strategy for a solution is as follows: First we give elementary conditions to ensure that an optimal stopping time is of threshold type. Then the resulting one-dimensional problem of finding the optimal threshold is to be solved. To this end we find the joint distribution of the threshold-time and the overshoot if the upward innovations have a phasetype distribution. Using the continuous pasting principle this leads to explicit solutions.

We prove that every compactly generated non-transferable utility (NTU) game can be generated by a coalition production economy. In our induced coalition production economy, the set of Walrasian payoff vectors coincides with the inner core of the balanced cover of the original game. This equivalence depends heavily on our representation. We exemplify that in other representations, this equivalence need not hold.

In an interaction game (Morris, 1997) players are involved in a series of interactions. Each player must play the same action in an interaction. An interaction game is of the partnership type if each player has the same reward function per interaction. The payoff function of an agent is the sum of utilities of interactions. Adding idiosyncratic preferences to the payoff function, randomly distributed in the population, broadens the class of games and leads to the study of Bayesian population games (Ely and Sandholm, 2005). We study an interaction game where the interaction structure is endogenous and co-evolves with the actions of the players. Assuming exponential transition rates we present closed form solutions for the stationary distribution of the whole process, characterize the interaction structure as an inhomogeneous random graph, and provide an expression for the marginal distribution over action profiles. Stochastic stability in the small noise and the large population limit is considered and we provide an selection result for the argmax set of the potential function of the game.

Within a partial equilibrium framework we analyze a market with heterogeneous agents. Investors differ not only in their beliefs but also in their attitude towards ambiguity. In equilibrium preferences prevent ambiguity averse investors from shortselling. As a result of this reluctance to sell the security short, optimists on the market can bid the price up and cause overpricing.

We consider solution concepts for cooperative games and their relationship to competitive equilibria of markets that represent a totally balanced NTU game. Here we investigate the relationship between subsets of the inner core for NTU market games and competitive payoff vectors of certain markets linked the NTU market game. We extend the results of Qin(93) to a large class of compact subsets of the inner core: Given an NTU market game we construct a market depending on a given compact subset of the inner core. This market represents the game and further has the given set as the set of payoffs of competitive equilibria. This provides an extension of the results about NTU market games analogously to the results in the TU case.

We take the general perspective on a capital accumulation game with open loop strategies, as they have been formalized by Back and Paulsen (2009). With such strategies, the optimization problems of the individual players are of the monotone follower type. We adapt available methods to characterize optimal policies and discuss the economics of the instantaneous investment decisions. We obtain consistency in equilibrium by proving that with common assumptions from the oligopoly literature on instantaneous revenue, equilibrium determination is equivalent to solving a single monotone follower problem. In the unique open loop equilibrium, only the currently smallest firms invest. This result is valid for arbitrary initial capital levels and general stochastic shock processes, which may be non-Markovian and include jumps. We explicitly solve an example, the specification of Grenadier (2002) with a Lévy process.

This paper demonstrates how the ability of backward integration and the asymmetry in the bargaining power may give better procurement conditions to downstream buyers, who then compete in the sales market. Competition is described by a four-stage non-cooperative game. Bargaining results in the asymmetric Nash bargaining solution. It is shown how the asymmetry in bargaining weights leads to asymmetry in production costs, change in concentration ratios and profitability of firms under Cournot and Bertrand-Edgeworth competition. Quantity precommitment and Bertrand competition model of Kreps and Scheinkman (1983) was extended to cases of asymmetric capacity costs and asymmetric production costs and examined whether their results continue to hold.

In the fiscal competition literature an important question is whether factor mobility, fostered by economic integration, makes redistribution by national governments more difficult. I give a short literature overview and then inspect this question by a paper of H. Cremer and P. Pestieau (1998): "Social insurance, majority voting and labor mobility", Journal of Public Economics 68, 397-420. This paper is a political economy approach to payroll tax competition of two countries choosing their systems of social insurance when labour is mobile. The paper disproves the so called "conventional wisdom" that countries with a high level of redistribution cannot sustain their policy when poor migrants from other countries want to benefit from this country's redistribution level, whereas countries with a low level of redistribution benefit from an inflow of rich individuals. Finally, I would like to present my own research idea related to this topic.

This paper presents a strategic model of risk-taking behavior in the framework of a continuous time contest. Formally, we analyze a dynamic game in which each player decides when to stop a privately observed Brownian Motion with drift. Only the player who stops his process at the highest value wins a prize. We derive a closed-form solution for the unique Nash equilibrium outcome in mixed strategies and we establish that the expected value of the stopped stochastic processes is non-monotone in the drift. In particular, the highest losses in terms of expected value occur if the drift is only moderately negative. Thus, relative performance payments, while suitable to provide the right incentives in good times, induce socially undesirable gambling activities if times are moderately bad. Possible applications of the model include contests for status, job promotion contests, competition between mutual funds, and relative payment schemes of CEOs.

- Literature overview - Detailed presentation of two papers - Dissertation outline

We prove that every transferable utility (TU) game can be generated by a coalition production economy. Given a TU game, the set of Walrasian payoff vectors of the coalition production economy induced by the game coincides with the core of the balanced cover of the game. Therefore, a Walrasian equilibrium for the induced coalition production economy in our representation always exists. Our coalition production economy induced by a TU game has one output and the same number of inputs as agents. Every input is personalized and it can be interpreted as agent's labor. In a Walrasian equilibrium, every agent is permitted to work at several firms. We also discuss a Walrasian equilibrium without no double-jobbing where every agent works at exactly one firm. This restricted concept of a Walrasian equilibrium enables us to consider the coalition structure in an equilibrium.

Our paper aims to contribute to the existing literature on Mincerian returns to education. We extend the first part of Mark. B and P. Klenow (2000), which focuses on the determinants of schooling. We incorporate into the model the spillover effects of superior technology brought with foreign direct investment, and the net migration and the death rates following Charles I. Jones (2007). The theoretical results are empirically supported using data from the Central and Eastern European counties and the Commonwealth of Independent States. We also investigate the advantages and disadvantages of different measures of human capital, and based on the existing best measure of human capital (in our case: secondary and tertiary school enrolment rates), we econometrically analyze the impact of above mentioned and additional explanatory variables that measure the quality of education and the stage of development. The rest of the research focuses on policy implications.

Based on the ‘economics of cultural transmission’ literature, this paper introduces a generalized representation of the formation of continuous cultural values (traits) in the socialization process. We define the culture of a person as a set of cultural values and introduce a cultural formation of preferences framework that models the culture of a child as the collective outcome of all socialization influences that it experiences. Thereby, a socialization influence is constituted by the chosen cultural behavior (demonstrated culture) of a person and the (relative) success that it has in the socialization process of the child. By restricting the set of agents from which a child socially learns in the socialization period to the adult generation only, we can endogenize the cultural formation of preferences process as resulting out of the optimal parental choices of their demonstrated culture (which constitutes a strategic interaction choice) and their (relative) success in the socialization process of their child. We apply this framework to an OLG environment, where the society is populated by two distinct cultural groups and analyze the endogenous evolution of the distances between the cultures of the groups.

In this paper we lay out a model with small open monetary union with staggered pricing. The framework is used to analyze macroeconomic implications effects of different rules for monetary and fiscal policies. We also conduct a welfare comparison of these policies with second order approximation to the utility of representative household. *** This talk will be followed by a meeting of BiGSEM/EBIM students. ***

It seems quite natural that nobody is willing to decrease his consumption over time aiming to maintain his level of well being above his initial level. Dybvig (1995) implemented this idea in the optimal dynamic consumption and investment policy problem on a complete financial market driven by a Brownian motion. A generalisation of the problem of optimal consumption plans to the context of Levy processes was done 2007 by Riedel. In this talk I will summarize the results of Dybvig and discuss an application on incomplete financial markets using techniques from Riedel.

We consider a pure exchange economy with finitely many indivisible commodities that are available only in integer quantities. We show that in such an economy with a sufficiently large number of agents, but finitely many agents, the strong core coincides with the set of cost-minimized Walras allocations. Because of the discreteness of agents' consumption sets, the utility maximization does not imply the cost minimization and vice versa. A cost-minimized Walras allocation is a feasible allocation such that under some price vector every agent achieves the utility maximization and the cost minimization simultaneously.

This paper analyzes the origins and welfare consequences of buyer power. It is shown that if suppliers are capacity constrained or have strictly convex costs, there are two different channels through which large buyers can obtain more favourable terms from their suppliers. In particular, this paper shows how the presence of large buyers can then erode the value of suppliers' outside option. Somewhat surprisingly, it is shown how this can induce suppliers to undertake strategies that lead to higher output and potentially higher welfare. * Roman Inderst, Christian Wey, Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG)

We analyze several exotic options of American style in a multiple prior setting and study the optimal exercise strategy from the perspective of an ambiguity averse buyer. The multiple prior model used here relaxes the assumption of a known distribution of the stock price process and takes into account decision maker's inability to completely determine the underlying asset's price dynamics. Solving the optimal stopping problem arising from the American style structure the decision maker uses a class of measures to evaluate her expected payoffs instead of a unique prior. Given time-consistency of the set of priors an appropriate version of backward induction leads to the solution as in the classical case. Using a duality result the multiple prior stopping problem can be related to the classical stopping problem for a certain probability measure -- the worst-case measure. Therefore, the problem can be reduced to computing the worst-case measure. We provide the explicit form of the worst-case measure for several exotic options exploiting the observation that the options can be decomposed in simpler event-driven claims.

We analyze a two-player game of strategic experimentation with two-armed bandits. Each player has to decide in continuous time whether to use a safe arm with a known payoff or a risky arm whose likelihood of delivering payoffs is initially unknown. The quality of the risky arms is perfectly negatively correlated between players. In marked contrast to the case where both risky arms are of the same type, we find that learning will be complete in any Markov perfect equilibrium if the stakes exceed a certain threshold, and that all equilibria are in cutoff strategies. For low stakes, the equilibrium is unique, symmetric, and coincides with the planner's solution. For high stakes, the equilibrium is unique, symmetric, and tantamount to myopic behavior. For intermediate stakes, there is a continuum of equilibria.

Decisions involving uncertainty depend on two distinct aspects: (i) the risk of the position and (ii) the attitude towards risk of the investor. The literature captures the first aspect by risk measures and the second by risk aversion. We connect both concepts by introducing the class of risk measures which are consistent with subjective risk aversion. The connection is achieved by an axiom, which asserts that less risk averse agents accept riskier gambles. We characterize this class by a simple equivalent condition. First examples satisfy surprisingly many properties of coherence.

Games in continuous time require the application of optimal control methods. In this talk we apply the method developed by Bank and Riedel of reducing the optimization problem to a stochastic representation problem in order to derive equilibria in dynamic irreversible investment games. We consider perfect competition as well as oligopoly with quite general formulations of profits and uncertainty. After discussing the symmetric case, some conclusions regarding the nature of further equilibria in our general framework will be drawn.

We analyze the strategic behavior of firms when demand is determined by a rule of thumb behavior of consumers. We build upon consumer dynamics where individual consumers follow simple behavioral decision rules governed by imitation and habit as suggested in consumer research. More specifically, demand is viewed as the outcome of a population game in which the switching probabilities are determined by the consumers' behavioral rules. The resulting description of consumer dynamics is then used to investigate the monopoly market and competition between firms. We derive a Nash equilibrium in a pricing model and examine the influence of advertising. We show for the monopoly case that a reduction of the space of all price paths in time to the space of time-constant prices is sensible since the latter in general contains Nash equilibria. For an increasing number of (non-identical) firms we show a tendency towards perfect competition: For any integer m, the prices of the m "weakest" products approach their marginal costs. Our model is consistent with observed market behavior such as product life cycles.

This paper analyzes defaultable bonds combining reduced-form and structural approaches. Default is represented via default intensities and recovery payment is specified from a company-specifc and an economy-wide point of view. Additionally, this framework differentiates between default and recovery time. Within this model, the value of a defaultable bond depends on default and recovery intensities and on the underlying recovery payment factor.

In this talk, we solve the problem to optimally stop a value process for an agent assessing risk in a convex manner or, equivalently, assessing utility by virtue of dynamic variational preferences. By generalizing the optimal stopping approach under ambiguity from the coherent to the convex risk case introducing variational super-martingales, we obtain optimal solutions for the stopping problem as well as a minimax result. To explicitly construct optimal stopping times by virtue of Snell envelopes, we make use of a robust representation of variational preferences. As a byproduct, we generalize these preferences to the case of continuous probability spaces and introduce a "martingale theory" for variational super-martingales. To illustrate the main result, we consider prominent convex risk measures: dynamic entropic risk and a dynamic convex generalization of average value at risk.

Bester and G�th (1998) take advantage of the indirect evolutionary approach and the evolutionary solution concept of ESS (Evolutionary Stable Strategy) to explain the quality of altruism. Unfortunately, ESS says only little about the evolving to such a state and becomes insufficient for dynamic stability with respect to the replicator dynamics if the underlying strategy space is continuous. We build on this work by allowing envy and adopting alternative solution concepts, namely CSS (Continuously Stable Strategy), NIS (Neighborhood Invader Strategy), and Evolutionary Robustness. These concepts are much in line with the one-dimensional frame of opposed preferences. The evolutionary qualities of altruism and envy are determined by the strategic environment."

In this paper we examine in a game theoretic framework how far the availability of complementary assets influences the speed of technological progress in an industrial agglomeration. We consider a model where R\&D efforts of an incumbent firm generate technological know-how embodied in key R\&D employees, who might use this know-how to found a spinoff of the incumbent. Complementary assets are needed for the spinoff to be able to operate, and therefore expected profits from founding a spinoff depend on how easily the needed complementary assets can be acquired. Accordingly, well developed complementary assets markets might have two opposite effects. First, incentives of firms to invest in R\&D might be reduced and, second, the generation of spinoffs, which leads to the diffusion and duplication of know-how, might be fostered. We also discuss how this tradeoff influences the effect of complementary assets on the innovation expenditures, the speed of technological change and the evolution of industry concentration in several scenarios with different industry characteristics.

During the talk I am going to discuss recent advances in the field of modelling innovations on a macro level. Specifically I wish to talk about the paper by Aghion et al., 2005, which gives name for the talk. In this paper authors try to explicitly model a process of choice of scientists whether to pursue academic career or be involved in applied research in commercial sector. The main interest of the paper is in the distinction, authors formally do between fundamental invention - creation of a totally new line or sequence of research projects - and practical innovation, which means adding up new generation of product in one of the existing lines of research. Such an approach promises tro be productive while applied to a more general model of growth

This paper proposes a bounded rationality approach to model equilibrium play in games. It is based on the observation that decision makers often do not seem to fully distinguish between di®erent but seemingly similar decisions. To capture this, for each player a similarity grouping of decisions is de¯ned based on equality of available actions and analogy of locally foreseen subtrees. The considered equilibrium concept is a (trembling-hand) perfect Nash-equilibrium (Selten, 1975) in which players are required to choose the same behaviour for similar decisions. Based on the approach, it is shown how the Chain Store Paradox (Selten, 1978) can be resolved, and how mixed equilibria in the Centipede Game (Rosenthal, 1981) can be rationalised. Key words: Bounded Rationality, Chain Store Paradox, Imperfect Recall, Limited Foresight, Reasoning by Analogy

One approach to explain the evolution of social networks is strategic network formation. Agents alter the network structure to pursue their goals. In the various specific models two types of incentives are predominant: one is the quick access to other agents’ resources (by short paths); the other stems from the advantage of being a mediator/broker between other agents. In the literature of social network analysis both types of incentives are well-known as closeness centrality and betweenness centrality (see Freeman 79). We study a model where every agent tries to optimize his/her centrality. In contrast to all other models of strategic network formation, we analyze contexts where both kinds of incentives are present, while treating the partial models (only closeness incentives matter; only betweenness incentives matter) as special cases. We analyze the emerging networks by analytical means and by computer simulation. As a first result, we observe that closeness incentives typically lead to tree-like networks, while betweenness incentives typically lead to complete bipartite networks. When both types of incentives are present, it turns out that the dynamics differ drastically from the partial models. Moreover, we describe how the weight of the two incentives affects the emerging networks in terms of density, transitivity, diameter and further structural properties.

Experimental evidence stresses the importance of so–called social preferences for understanding economic behavior. Social preferences are defined over the entire allocation in a given economic environment, and not just over one’s own consumption as is traditionally presumed. We study the implications for competitive market outcomes if agents have such preferences. First, we clarify under what conditions an agent behaves as if she was selfish—i.e. when her demand function is independent of others’ behavior. An agent behaves as if selfish if and only if her preferences can be represented by a utility function that is separable between her own utility and the allocation of goods for all other agents. Next, we study equilibrium outcomes in economies where individual agents behave as if selfish. We show that one can identify a corresponding ego–economy such that the equilibria of the ego–economy coincide with the equilibria of the original economy. As a consequence, competitive equilibria exist and they are material efficient. In general, however, the First Welfare Theorem fails. We introduce the class of Bergsonian social utility functions, which are social utility functions that are completely separable in all agents’ material utility. For such social preferences, the Second Welfare Theorem holds under a suitable growth condition. We also establish that in uncertain environments, agents with social preferences typically do not behave as if selfish. Furthermore, in the presence of public goods, both demand and equilibrium outcomes depend on social preferences.

In club theory, one of the most important problems is how to allocate the costs to the members. Considering an airport as a club with different types of aircrafts as its members, the cost of constructing airport band is allocated to different users. This problem is named "Airport Problem" and has been solved by using cooperative game theory. After a literature review, the basics of cooperative game theory are explained and different solutions in this class of games such as Stable Set, Core, Bargaining Set, Kernel, Shapley Value, Nucleolus and their characteristics are discussed. Then, the concept of convex games is defined and solution concepts in this class of games are explored. It is proved that the airport problem is convex and then two algorithms are presented to calculate the Shapley Value and the Nucleolus of the problem. As a case study, Mehr-Abad International Airport of Tehran has been studied and two cost allocations suggested by Shapley Value and Nucleolus solutions are found. At the end, it is proved that the current method for determining the landing fees by using the weights of airplanes is not optimum and the medium and small airplanes subsidize the bigger ones. On the other hand, the cost pricing suggested by Shapley Value is both optimum and fair and the one which is suggested by Nucleolus has the most stability.

We give an overview of evolutionary reasoning in Game Theory, with a special emphasis on games with a continuum of strategies. Whereas traditional game theory relies on the concepts of ratiuonality, common knowledge and Nash equilibrium, evolutionary models use only the forces of selection and mutation to describe long run outcomes in games. Interestingly, the "folk theorem of evolutionary game theory" shows that stable states of such dynamics frequently are (very robust) Nash equilibria. In this sense, evolution leads to rationality. The talk discusses in which sense this can be rationalized to games with a continuum of strategies. gez. E. Baake, M. Baake, K. Reinhold

This paper compares two procedures for allocating multiple oligopoly licenses to firms with independent marginal costs: a simultaneous “pay-your-bid” auction and a sequential first-price auction, where the winning bids are announced at the end of each round. When the winners’ marginal costs are truthfully revealed after the auction, so that the information their bids convey cannot affect the market competition, the two schemes are allocation and revenue equivalent. In the sequential auction, however, the firms bid in a more informed manner. As a result, the weaker (ex post) of the two oligopolists can win his license at a lower price than the one he would pay in the simultaneous auction. Conversely, the stronger oligopolist pays a higher price. Hence, the sequential auction results in a more equal distribution of the wealth generated by the oligopolistic market. In addition, it eliminates the possibility of winner’s regret, that is, of gaining a license at a price that exceeds its eventual value. When the winners’ marginal costs have to be inferred from their bids in the auction, it is possible for the firms to enhance their market profits by signaling a different type. In this case, our results extend only in the case of the Cournot oligopoly, in which the firms are better-off overstating their strength. In the Bertrand oligopoly, in which the firms’ signaling incentives are negative, a separating equilibrium exists only in the simultaneous auction.

Social networks are important for determining economic outcomes. Networks are typically large and complex, so that individuals may not know the exact structure of the network they belong to. This paper studies the role of beliefs in games on networks in which players have incomplete information about the network structure. Suppose players are located on a network, and play a fixed game with their neighbors. Players have a common prior on the network structure, and, in addition, they have some local information. This paper asks under what conditions on two priors it is the case that for any network game in which players hold one of those priors, for any equilibrium of that game, there is an approximate equilibrium in the game in which players hold the other prior such that ex ante payoffs are close in both equilibria. We show that in order for this to hold, both the distribution of player types and the correlation between neighbor types should be similar under both priors.

Modern linguistics has identified a remarkable number of "linguistic universals", i.e. non-trivial properties that are shared by all known human languages. One of the central questions in the theory of language is how such universals are to be explained. One influential school, called "functionalism", takes it that universals are to be explained as adaptations of languages to their communicative and cognitive usage. Even if correct, this is not a causal explanation yet though, because natural languages are not specifically designed for their function. A promising approach to bridge this gap is to assume that natural languages underly a cultural evolutionary dynamics. Under this view, linguistic universals are properties that are shared by all evolutionarily stable states of this dynamics. Evolutionary Game Theory, as a meta-theory for evolutionary processes in biology and society, is well-suited to model linguistic evolution formally. In the talk I will present a game theoretic account of the typology of case marking patterns across the languages of the world. The assumed utility function is estimated empirically from language usage data. The EGT account thus serves to connect usage patterns of natural language to typologically invariant structural patterns.

The relationship between growth and pollution is studied through a vintage capital model, where new technology is more environmentally friendly. We find that once the optimal scrapping age of technologies is reached, an economy may achieve two possible cases of sustainable development, one in which pollution falls and another in which it stabilizes, or a catastrophic outcome, where environmental quality reaches its lower bound. The outcome will depend on countries' investment path and their propensity to innovate in environmentally clean technologies, both of which are likely to differ across economies. Empirical results using long time series for a number of developed and developing countries indeed confirm heterogenous experiences in the pollution-output relationship. Keywords: Environmental quality, sustainable economic development, vintage capital model, EKC

This paper studies the question to what extent premia for macroeconomic risks in banking are su cient to avoid banking crises. We investigate a competitive banking system embedded in an overlapping generation model subject to repeated macroeconomic shocks. We show that even if banks fully incorporate macroeconomic risks in their pricing of loans, a banking system may enter bankruptcy with a probability of one. A major cause for this default is that risk premia of a competitive banking system may become too small if the capital base is low. Keywords: Financial intermediation, macroeconomic risks, banking crises, risk premia, banking regulation. JEL classification: D41, E4, G2.