The program intends to exploit the insights gained in different contexts and via different approaches to better understand the immanent interaction processes that determine and structure economic behaviour. In particular, the interplay between dynamic evolutionary processes, the resulting institutions, human decision making and intelligent design is the main goal of the program's research activities. The relevance of these phenomena reaches far beyond economics into general social sciences. Therefore, the thematic focus of our program is on the combination of strategic aspects and the dynamic nature of interaction. Mainly methodological projects will be complemented with projects dealing with the application of this general approach to concrete issues in finance, industrial dynamics and economic growth.

More details about the program's research agenda can be found here.

1.) Cooperative Games and Implementation of Cooperative Structures
2.) Ambiguity and Risk in Finance and Economics
3.) Strategic Location Decisions: Spatial Distribution, Network Formation and Knowledge Flows
4.) Government Intervention and Economic Dynamics

1.) Cooperative Games and Implementation of Cooperative Structures
    Advisors: W. Trockel, C.-J. Haake, T. Upmann (Bielefeld), J.-M. Bonnisseau, J. Abdou (Paris)

The main goal of this project is to shed more light on the nature of cooperative solution  concepts and their final manifestation by either providing noncooperative foundations or by supporting them in a suitably designed market structure.

Cooperative structures emerge in a variety of economic and social situations. Within this project, the focus will be put on cooperative games, allocation problems, models of coalition formation and of (social) network formation. Beyond the bare formulation of cooperation possibilities the literature offers solution concepts in each of these contexts. For instance, the notion of a core appears in all such models in appropriately modified versions but always relying on the same basic idea. However, the formulation of a solution concept, and further, the analysis of existence and uniqueness, do not necessarily provide a recipe, how that solution can actually be achieved. More precisely, is there a way to obtain cooperation as a result of strategic interaction and without using peculiar knowledge of agents’ characteristics? This problem is at the heart of mechanism design, which originsshould be attributed to 2007 Nobel prize winner Leonid Hurwicz (see, e.g., Hurwicz (1972)). Even earlier, Nash (1953) already had stressed the point that the cooperative and the noncooperative games represent “two approaches, each of which helps to clarify and justify the other”. From classical mechanism design, we know several different variations of implementation, distinguished according to the noncooperative model and the solution concept employed for implementation. What is common to them is the method that the combination of a mechanism, i.e., rules for a game, and the agents’ characteristics together induce a noncooperative game (e.g., in strategic or extensive form).

One aim of this project is to complement this traditional scope with the design of underlying markets. The more precise question is the following one: Is it possible to achieve a cooperative solution by having agents interact in an appropriate market? Put in other words, can one design a market such that the desired result of cooperation is obtained in a market equilibrium? For example, determining the prices in an exchange economy shall now be viewed as part of the rules of the (market-)game, while utility maximization with respect to such prices yields the envisaged outcome.

More details about this project can be found here.

2.) Ambiguity and Risk in Finance and Economics
    Advisors: F. Riedel (Bielefeld), A. Chateauneuf, G. Hollard (Paris)

The aim of this project is on the one hand to further explore the foundations of non-expected utility theory for economics and finance. This is done by non-expected utility theory, which is based upon Choquet and multiple prior models, or by several extensions of classical mean-variance preferences. On the other hand, we will provide and investigate several applications in economics and finance with special emphases on optimal stopping problems (as they arise from American Options, e.g.) and on comparative static analyses for mean-variance preferences (in portfolio selection problems, insurance problems or issues of public economics). In addition, we will explore possible uses of dynamic ambiguity models in Game Theory.

More details about this project can be found here.


3.) Strategic Location Decisions: Spatial Distribution, Network Formation and Knowledge Flows
    Advisors: H. Dawid, G. Muehlheusser, W. Trockel (Bielefeld), B. Cornet, G. Giraud (Paris)

In previous years the analysis of global effects of local interaction structures has attracted a lot of attention of economists, where ’local’ might either be interpreted in terms of spatial proximity, as in the literature on ’New Economic Geography’, in terms of product characteristics or in terms of closeness with respect to some network structure generated for example by linkages between firms or social relationships. Whereas in a spatial framework moving to a certain region implies that an economic agent becomes neighbor of all other agents in that region, in non-spatial networks connections can be established bilaterally. In many relevant economic applications the interaction between economic agents is governed by a combination of different types of neighborhood structures where some are of spatial nature and others are due to networks. This project aims to analyze the strategic decisions of firms concerning their position in spatial respectively non-spatial frameworks. In particular, we focus on the effects of location decisions on (local) knowledge flows between firms, the impact of the distribution of consumers across regions on firms’ location decisions and the interplay of location decisions with market competition and innovative activities. The project consists of three parts, the first concentrating on location decisions in a spatial setting, the second on strategic network formation. The two parts are closely connected with respect to the research questions considered and the methodological approach. Furthermore, it is planned to combine the two aspects of the project by considering location decisions in scenarios where knowledge flows are fostered both by spatial proximity and by links in a firm network. The third part of the project also deals with network formation, but takes a different view by trying to formalize with the concept of relational capability the aim of individuals to maximize quality and quantity of their relationships.

More details about this project can be found here.

4.) Government Intervention and Economic Dynamics
    Advisors: B. Eckwert, A. Greiner (Bielefeld), A. d’Autume, T. Seegmuller, B. Wigniolle (Paris)

This project focuses on the impact of government interventions on growth. The first two parts deal with the effects of different ways to finance processes leading to human capital formation. The first part concentrates on the economic implications of financing schemes for higher education. The considered financing schemes differ with regard to their risk pooling capacities and they affect the incentives of individuals to invest in higher education. The goal of this part is twofold. First, it studies the effects of various financing schemes on the investment decisions in the education sector. And second, it explores the effects of more reliable screening mechanisms with regard to individual talent on human capital formation and its implications for income inequality and welfare. The second part is devoted to the design of an optimal growth policy, assuming labor market imperfections and inequalities where different regions are allowed for. A third part deals with the stabilization role of economic policy. If agents are heterogenous and markets imperfect, there may exist endogenous fluctuations that can be reduced or amplified according to the taxation policy. Finally a fourth part studies the role of economic policy in the very long run, when population size, pollution and land can be ultimate obstacles to growth.

More details about this project can be found here.