Publications

 

CTN Newsletter n.14 - September 2010

Index

 

Editorial

by Guillaume Haeringer, CODE, Universitat Autònoma de Barcelona

The next CTN workshop will be held in Barcelona, on February 4-5, 2011. Since its creation the CTN workshop has witnessed the rapid growth of coalition and network theory, as well as the development of matching theory. In the recent years these fields have gained maturity and proved being capable to tackle deeper issues in Economics. These changes fostered the introduction of new techniques and modelling choices, which in turn allowed scholars to explore new questions. Few would say that coalition, network or matching theory have not gained maturity during the last decade.For these reasons the next CTN workshop will be aimed at providing a lively environment prone to debates and discussions among researchers. To this end, it has been decided to go back to the initial format of the CTN, i.e., a two-day workshop where speakers have time to introduce and present in details their recent works. We thus plan to have about 14 presentations, of about 45 minutes each, and giving time at the end of each presentation to discussions and comments. Guest speakers are Andrea Galeotti (University of Essex), Lars Ehlers (Université de Montréa) and Francis Bloch (École Polytechnique).
Should you have any query, please contact Guillaume Haeringer at the Universitat Autònoma de Barcelona (guillaume.haeringer@uab.es).

Guillaume Haeringer

 

CTN Announcements

SAVE THE DATE - 16th Coalition Theory Network Workshop
Barcelona, Spain, 4-5 February 2011

The Center for the study of the Organizations and Decisions in Economics (CODE) of the Universitat Autònoma de Barcelona, and Markets, Organizations and Votes in Economics (MOVE) will be organizing the 16th Coalition Theory Network Workshop in Barcelona, Spain, on February 4-5, 2011.
The scientific coordinators of the event will be Valeska Groenert, Guillaume Haeringer, and Jordi Massó.

More information soon!


MINT SEMINAR - “Models of Influence and Network Theory”
Paris, France, 15 October 2010

We would like to invite you to participate in the MINT Seminar "Models of Influence and Network Theory" which will take place at CES in Paris in October 15, 2010. The seminar is sponsored by the ANR (National Agency for Research /V Agence Nationale de la Recherche) and is a scientific meeting of the project MINT /V Models of Influence and Network Theory (Programme Blanc, ANR-09-BLAN-0321-01). This project is the collaboration between researchers of two CNRS laboratories:

- CES (Centre d'Economie de la Sorbonne, Universite Paris 1 Pantheon - Sorbonne), France
- GATE Lyon Saint-Etienne (Groupe d'Analyse et de Theorie Economique, Universite Lyon 2, Universite Lyon 1, Ecole Normale Superieure LSH, Centre Leon Berard, Universite Jean Monnet Saint-Etienne), France
- SKT (The Cooperation Institute on Social Choice Theory), the Netherlands.

Organizers of the seminar: Agnieszka Rusinowska & Michel Grabisch. The programme can be downloaded here.

Registration for participation is free, but in order to facilitate the organization, it is necessary to register by sending an e-mail to agnieszka.rusinowska@univ-paris1.fr by October 8, 2010.


PET 2011 - Call for papers
Bloomington, Indiana, USA, June 2-4, 2011
http://www.apet.org/

The Association for Public Economic Theory (APET) is pleased to announce that it will hold its twelfth international meeting at Indiana University, Bloomington, Indiana (beginning with a welcoming reception on the evening of June 1st). As with previous PET conferences, papers in all aspects of public economics and related areas will be presented. The organizing committee will be chaired by Gerhard Glomm and Frank Page of Indiana University and John Conley and Myrna Wooders of Vanderbilt University. Our keynote speakers will be:

* Elinor Ostrom (Indiana University)
* Edward Prescott (Arizona State University)
* Daron Acemoglu (MIT)
* Gabrielle Demange (Paris School of Economics)
* Matthew Jackson (Stanford University)

Several sessions will be organized in collaboration with the Coalition Theory Network.

Deadline for submissions: March 1, 2011.



Article: Consensus requirements and efficiency in a bargaining game with positive externalities

Daniel Cardona and Antoni Rubí-Barceló, Universitat de les Illes Balears

Our work focuses on the analysis of environments where collective disputes involve a fixed divisible surplus to share and where agents may have interrelated goals. In particular, we analyze a multilateral "pure sharing" bargaining problem with positive consumption externalities that depend negatively on the distance between agents, with the particularity that a set of n peripheral agents are equidistantly located with respect to a unique central player. Our main goal is to compare the outcomes that result in this bargaining game under alternative (i) consensus requirements and (ii) specifications of the dependence of externalities on the distance. In particular, we analyze how efficiency and players' expected utilities are affected by these two aspects.

The model we present is found in Calvert and Dietz (2005)1, who focus on the analysis of the probability that each winning coalition is formed when decisions require simple majority. Other related papers are Jehiel and Moldovanu (1995), Chien (2004) or Bjornerstedt and Westermark (2009). These papers study the effects of externalities in bargaining games characterized by the presence of a veto player and a private good, and focus on the possibilities of delays in equilibrium.

The main features of our model can be sketched as follows: The distance between any two peripheral agents is assumed to be independent of the pair and higher than the distance between any peripheral agent p and the central one c. Consequently, player c can be interpreted as the most influential player and she must receive the whole surplus in the efficient allocation. Agreements are reached through a negotiation process among agents that proceeds over discrete time t = 0,1,2,... and an agreement requires the support of a majority q of the players. The timing is as follows: at each period t ≥ 0 one player is randomly selected as the proposer, each with equal probability. Then, she proposes a share of the surplus and all other players sequentially reply with acceptance or rejection. The proposed share is approved if at least q - 1 other agents accept it. In that case the proposed alternative is implemented and the game ends; otherwise the game moves to period t + 1 where a new proposer is (randomly) selected, and so on. Players receive positive externalities from the shares received by others, which are negatively related to the distance between them. Upon agreement on a distribution of the surplus x = (x1,..., xn, xc) at period t player i ∈ I obtains utility δttui (x) where
for any peripheral agent p

,
I denotes the set of players, D > d, and δ ∈ (0, 1) denotes the common discount factor. Perpetual disagreement yields zero payoffs for all players. Our results focus on the analysis of Stationary Subgame Perfect Equilibrium (SSPE).

Under this stationarity assumption any equilibrium is characterized by stationary expected utilities , ..., , and , which implies that agents use threshold acceptance rules. In our setup, this implies that agreement is reached immediately, so any SSPE is a no delay equilibrium (Lemma 1 ). Moreover, although the strategies of identical agents are not symmetric, expected utilities must be (Proposition 1 )2. This symmetry involves that the following linear relationship can be established between the expected utility of central and peripheral agents (Lemma 2 ):

An immediate consequence of the above equation is that all agents have the same (weak) preferences over any SSPE when D ≥ nd/(n .. 1), i.e. when externalities between peripheral agents are relatively small. Hence, in case that any quota is associated with a unique SSPE expected utility pro le, there is also a common preference ranking over all consensus requirements. I.e., there is no conflict on which is the optimal decision rule. We will refer to this case as the non-conflict case, and the situations where D < nd/(n - 1) as the conflict case, and we use this classification to present the main results of the paper.
Apart from the size of externalities, there are two additional factors a effecting the expected equilibrium allocations: consensus requirement q and players' impatience δ. With respect to q, notice that in order to get the approval of other peripherals, a peripheral agent can compensate them either directly or indirectly (through the share assigned to the central player). As argued above, direct compensations to peripherals lead to inefficiency. Nevertheless, they will be used whenever q is sufficiently small, as Proposition 2 establishes, and in particular, as long as the conflict case holds.
Following the previous intuition, central player benefits from strong consensus requirements. In the non-conflict case, the interests of the central and peripheral agents are aligned, so all players (weakly) prefer big quotas, as Proposition 3 in the paper states. At this point, a particular finding deserves attention: although both the central and peripheral agents rank equally all symmetric allocations of the surplus, when the consensus requirements are weak this fact does not induce necessarily to an efficient allocation of the surplus even when players' impatience vanishes. As in a prisoner's dilemma game, these Pareto dominated outcomes are a consequence of the intrinsic competitive behavior of the agents when making proposals, which will take advantage of the impatience of others. Specifically, since the right to propose is more valuable under low consensus requirements, inefficiency increases as the quota is reduced. Moreover, and surprisingly, it may be the case that such inefficiency decreases with transaction costs.

In the conflict case, agents' preferences over alternative symmetric sharing configurations are not unanimous. In particular, central and peripheral agents have opposite preferences. In this case, Proposition 4 distinguishes two different subcases depending on the parameters. In the first one, (1) for any quota q < n + 1 there always exists an open set of discount factors such that q is the strictly preferred quota rule of agent c (thus, the worst for peripheral agents) and (2) unanimity is also ranked on top by the central (for some discount factors) when externalities between peripheral agents are sufficiently small. In the second subcase, agent c weakly prefers higher quotas (as in the non-conflict case). Thus, the parameter configuration (and in particular, transaction costs) have a strong impact on how agents rank quota rules.
Summarizing, the presence of externalities in the context of a pure sharing bargaining problem highlights the importance of the consensus required to reach an agreement: higher quota rules (generally) minimize the inefficiency created by the intrinsic competitive behavior of the alternating o er bargaining game.

1See also Baron and Ferejohn (1989) or Banks and Duggan (2004) for an analysis of alternating offer bargaining games where non unanimous voting rules are considered.

2A similar result is found in Eraslan (2002) in a bargaining game without externalities.

References
[1] Banks J.S. and Duggan, J. (2006). A General Bargaining Model of Legislative Policy-Making. Quarterly Journal of Political Science 1, 49-85.
[2] Baron, D. and Ferejohn, J. (1989). Bargaining in Legislatures. American Political Science Review 83, 1181-1206.
[3] Bjornerstedt, J. and Westermark, A. (2009). Stationary equilibria in Bargaining with Externalities. Unpublished manuscript.
[4] Calvert. R.L and Dietz, N. (2005). Legislative Coalitions in a Bargaining Model with Externalities. Social Choice and Strategic Decisions. Springer Berlin Heidelberg.
[5] Chien, H-K. (2004). Coase Theorem with Identity-Dependent Externalities. Unpublished manuscript.
[6] Duggan, J. (2004) Collective Choice with Linear Utilities. Unpublished manuscript.
[7] Eraslan, H. (2002). Uniqueness of Stationary Equilibrium Payoffs in the Baron-Ferejohn Model. Journal of Economic Theory 103, 11-30.
[8] Jehiel, P. and Moldovanu, B. (1995). Cyclical Delay in Bargaining with Externalities. Review of Economic Studies 62, 619-637.

 

Article: Endogenous network formation in patent contests and its role as a barrier to entry

Marco Marinucci (CORE, UCL) and Wouter Vergote (CEREC, FUSL and CORE, UCL)

It is widely recognized that firms often engage in R&D contests in order to be the first, and often the only, to develop a new product/technology. In such an environment firms generally have the opportunity to develop some degree of collaboration. Historically, the literature modeling R&D competition has focused mainly on pure R&D competition (patent race, contest etc.) and on full R&D cooperation (R&D Partnerships, Research Joint Ventures). That is, situations in which firms are either friends or foes.
Recently, more attention has been devoted to instances in which firms are both friends and foes: intermediate forms of collaboration in which firms cooperate to strengthen their joint position in R&D contests, without sharing the benefits of winning the contest.
Many authors have documented this trend towards more co-opetition. Others note the existence of across-country differences in weak R&D collaboration. Cohen et al. (2002), for instance, find that low-tech Japanese firms usually cooperate through several forms of information sharing more often and more extensively than U.S. firms.

Given these stylized facts our first goal is to provide a theoretical framework that allows us to analyze sectors featured by "R&D co-opetition", namely sectors where firms cooperate in R&D before competing with one another in the market for innovation.In such a setting, two important, but related, questions arise quite naturally:
1. How does weak cooperation benefit firms in the competition stage and how does that influence R&D activity?
2. Given the impact cooperation has on R&D activity, what are the likely patterns of cooperation that will emerge?

Answering these two questions allows us to assess how R&D network formation affects R&D outlays of innovating firms and whether it can serve as an entry-deterrent to the market for innovation.
Parts of these questions have been studied in detail in the literature, but, as far as we know, these two questions have not yet been analyzed jointly. We do so by studying the pairwise stable equilibria of a two-stage game in which firms form networks of weak R&D collaborations after which they compete on the market for innovation. We identify in a general way how network formation affects R&D behavior in the competition stage and show that it can serve, in equilibrium, as a barrier to entry on the market for innovation.
An important reason why the literature has encountered difficulties in performing this exercise is the modeling approach of the competition stage on the market for innovation. For instance, the contributions which are closest to ours, Goyal and Joshi (2006) and Joshi (2008), propose a two stage game where in the first stage firms cooperate in R&D while in the second they participate in a 'classic' patent contest à la Loury (1979). The latter approach assumes that the valuation for the patent is identical for all players and is common information. Our approach is different in that we model the innovation game as an all-pay auction with private information. The reason behind this choice is threefold.
- First, weak cooperation can potentially lead firms to asymmetrically assess their expected valuation for a patentable invention and hence we need to allow for the possibility that firms differ in their valuation for the benefits of obtaining a patent. When potential benefits are different among the various competitors, this will likely have an impact on the efforts dedicated to innovation. Moreover, since this valuation is usually private information, modeling the patent game as an all-pay auction with private information allows us to take this into account.
- Second, since we wish to model the incentive to form weak R&D links before entering into the patent game, the expected payoffs of the latter will play a major role in deciding which links to form. In order to perform this backward induction approach, the expected payoffs of the patent game need to be tractable. As has been pointed out by Joshi (2008), when research intensities are chosen non-cooperatively the equilibrium payoffs are no longer tractable in the Loury model. The all-pay auction with private information allows us to circumvent this problem by using the results of Parreiras and Rubinchik (2006) and (2010).
- Third, from a methodological point of view, as has been pointed out by Baye and Hoppe (2003) there is a quasi-equivalence between classic patent races and rent seeking games, of which an all pay auction is a special case through assuming that the firm with the highest R&D effort wins the patent game with probability one.

Hence, even though modeling the patent game as an all pay auction may seem, at first sight, an oversimplification, it allows us to take a more general approach by taking heterogeneous and private valuations for a patent into account, while maintaining the spirit of the classic patent race (Loury) and, by doing so, study the stability of weak R&D networks.
In the first stage of our model, we consider a network formation game in which a link increases the expected value of the benefits of winning the patent game. There are many channels through which link formation can potentially increase the value of the innovation. Firms can, by forming a link, share a research lab, reducing the costs of innovation and hence increasing the (expected) net value of the innovation. In addition, exchanging R&D related information can increase the number of applications of an innovation, and hence its value. Alternatively, sharing R&D information and experience may also speed up the process to bring the innovation to the market. The faster an innovation is launched, the higher its value. The latter two interpretations readily allow the effect of link formation on the expected benefits to be multiplicative. This simplification allows us to solve the model analytically while at the same time permitting a natural interpretation and micro-foundation.
Once we specify the model this way, it will be clear that the formation of an R&D link between two firms will affect the expected profits of all the (potential) participants in the R&D contest. Network formation makes a firm stronger with respect to others and this may lead some rivals to decide not to invest in R&D by exiting the market for innovation. Hence cooperation through networks has the potential to act as a barrier to entry to the market for innovation. Given this we wish to know if this potential barrier to entry can arise in equilibrium. If the answer is yes, then we provide an alternative explanation for why some firms may decide not to incur R&D efforts, even though all firms started off on equal foot.

Our main results are as follows.
1. We show that our set up allows us to endogenize both R&D effort and network formation: we completely characterize all pairwise stable network structures given any (finite) number of firms.
2. As in Goyal & Joshi (2006) and Joshi (2008) we find that the complete network is always pairwise stable when the cost of forming a link is insignificant. However, when the benefit of forming a link (i.e. a partnership) is large enough, there also exist asymmetric pairwise stable networks which have the dominant group architecture: a non empty set of firms does not participate to the contest while all participating firms form links with one another. Therefore, as cooperation becomes of higher strategic importance, it becomes possible that some firms decide, in equilibrium, not to participate in the R&D contest, even when the cost of linking is negligible. We show that no other networks can be pairwise stable and that the smallest pairwise stable dominant group networks arise for intermediate values of strategic importance of link formation.
Again, the economic intuition behind our results is rather straightforward. Network formation between firms leads to better prospects from a future invention. By adding a link with another firm, a firm becomes a stronger participant in the R&D contest. Firms that have few links can become so weak that, for any possible valuation they may draw for the future invention (the patent), the marginal benefit from any positive R&D amount is always lower than the marginal cost, which makes them decide not to participate in the contest. Hence link formation between some firms can form a barrier to entry for other firms, strengthening the position of the former. Importantly, this barrier to entry need not necessarily be welfare reducing, from the point of view of the firms.
Although our model is a theoretical exercise, it may help to understand why we observe different patterns in weak R&D collaboration across countries. As mentioned in the introduction weak R&D collaboration in low tech industries seems to be more prevalent in Japan than in the US. Cohen et al. (2002) argue that this could be due to substantial discrepancies between the Japanese and the American intellectual property right regimes which affect the strategic incentive to collaborate. We argue that precisely these differences can potentially account for the emergence of a particular stable R&D network, rather than another.

In conclusion, we provide a theoretical background to sectors featured by R&D co-opetition, namely sectors where firms cooperate in R&D even though they compete in a patent contest. Our analysis started from the observation that, during the last years, there has been an increasing number of weak partnerships among firms that compete for the development of new products/technologies. In this setting, we studied, by using an all-pay auction approach, how this weak collaboration affects strategic decisions during the patent contest itself, and how the latter influences the possible network structures the firms can hope to form. We find that, different from previous literature, the complete network is not the unique pairwise stable network when the benefits from cooperating are important. Interestingly, the other possible stable networks all have the realistic property that some firms decide not to participate in the contest. In other words, network formation can serve as an endogenous barrier to entry.

References

[2003] Baye M.R. and Hoppe H. C., "The Strategic Equivalence of Rent-seeking, Innovation and Patent Race Games", Games and Economic Behavior, 44 (2), 217-226.
[2002] Cohen W., Goto A., Nagata A., Nelson R., and Walsh J., "R&D Spillovers, Patents and the Incentives to Innovate in Japan and United States", Research Policy, 31 (8-9), 1349-1367.
[2006] Goyal S. and Joshi S., "Unequal Connections", International Journal of Game Theory, 34 (3), 319-349.
[2008] Joshi S., "Endogenous Formation of Coalitions in a Model of a Race", Journal of Economic Behavior & Organization, 65 (1), 62-85.
[1979] Loury G.C., "Market Structure and Innovation", Quarterly Journal of Economics, 71 (1), 44-74.
[2006] Parreiras S. O. and Rubinchik A., "Contests with Heterogeneous Agents", CORE Discussion Papers, 2006/4, Université Catholique de Louvain, Belgium.
[2010] Parreiras S.O. and Rubinchik A. (2010), "Contests with three or more heterogenous agents", Games and Economic Behaviour, 69(2), 703-715.

Scientific report of the 15th CTN workshop on June 17-18 2010 in Marseilles (France)

by Frédéric Deroïan, Groupement de Recherche en Economie Quantitative d'Aix-Marseille (GREQAM) - Université de Marseille

The event was a two-day workshop with both plenary and parallel sessions. There were 43 presentations, including three guests and seven slots dedicated to CTN members (there was no presentation from Warwick). The event was organized in June in order to attract trans-Atlantic colleagues. Indeed, the guests came from Berkeley, MIT and Brown. There were also two presentations from Montréal, one from Laval (Québec), one from Stanford, one from U. of Oregon. There was also one presentation from Hitotsubashi U, Tokyo.

There were three keynote speakers. Adam Szeidl (Berkeley U.) presented a natural experiment about trust in social networks in Peruvian shantytowns. The presentation of Parag Pathak (MIT) concerned matching in American hospitals. The issue was about hasbands and wifes. The authors present theoretical insights about the shape of stable matchings when some pairs are geographically tied. Kaivan Munshi (Brown U.) presented a convincing series of empirical works about the impact of social networks in the ability of a historically disadvantaged community to benefit from economic opportunities.

Some senior presentations were also presented. Among them, Yann Bramoullé (Laval) presented a promising work on favoritism. Anne Van den Nouweland (Oregon U.) presented some advances about an axiomatic characterization of the position value for general communication situations. Françoise Forges (Paris-Dauphine) presented core-stable rings in second price auctions with common values. Maria Montero (Nottingham) evocated the paradox of new members in the EU council of ministers, based on a non cooperative bargaining analysis. Federico Valenciano (University of the Basque Country) discussed the Bala and Goyal's seminal communication model in a situation of incomplete information. Christian Ghiglino (Essex U.) presented an important work about cheap talk on networks. Onur Özgür's talk concerned dynamics games of conformism on networks. Jordi Masso (CODE) spoke about matching issues, a more specifically about cooperative solutions of a generalized assignment Games. Stephan Ambec (Toulouse School of Economics) talk concerned the polluter-pays principle in a coalition formation setting. Paolo Pin (Siena) presented a work on stochastic stability of best-shot games, when mistakes are correlated with types. Rahmi Ilkilic (Maastricht) talked about cartel formation in a networked market. Akira Okada (Hitotsubashi) presented a work on dynamic group formation in the repeated prisoners' dilemma. Theo Driessen (Twente) spoke about nucleolus and prekernel in TU games.

There were also seven slots dedicated to the CTN partners. Volker Britz (Maastricht) presented a work on the theory of the firm based on bargaining. Myrna Wooders (Vanderbilt) presented a work on status effects in a context of local public goods. Valeska Gronert (CODE) presented a characterization of pairwise Nash stable networks. Jean-François Caulier (CORE) presented a work on coalitional network games. Emily Tanimura (CES) talked about diffusions of innovations in communities, and emphasized the role of correlations between social spheres. Alessandro Tavoni (FEEM) evocated an evolutionary model of renewable resource management. Frédéric Deroïan (GREQAM) presented a work on asymmetric interactions, and their implication in terms of aggregate effort.

The other presentations were junior presentations. Without entering in the detail of presentations, that covered the fields of networks, coalitions and matching, speakers were Gergerly Horvath (Alicante), Sylvain Béal (Saint-Etienne), Emilyia Lazarova (Belfast), Antoine Loeper (Northwestern), Vincent Boucher (Montréal), Olivier Bochet (Bern and Maastricht), Laszlo Koczy (Budapest), Kris De Jaegher (Utrecht), Joost Vandenbossche (Ghent), Yair Livne (Stanford), Nicolas Quérou (Belfast), Alexander Westcamp (Bonn), Tom Truyts (Leuven and CORE), Pascal Billand (Saint-Etienne), Gilles Grandjean (CORE), Roman Chuhay (Alicante), Dotan Persitz (Eitan Berglas School of Economics, Tel Aviv), Messan Agbaglah (Montréal), Markus Kinateder (Navarra), Olivier Baetz (Cambridge).




Visit the CTN Members' seminars web pages

CES: http://centredeconomiesorbonne.univ-paris1.fr/bandeau-haut/seminaires/
CODE: http://code.uab.es/events.html
CORE: http://www.uclouvain.be/en-43617.html
FEEM: http://www.feem.it/getpage.aspx?id=82&sez=Events&padre=21&tab=1
GREQAM: http://www.greqam.fr/spip.php?rubrique13&lang=fr
Maastricht: http://www.fdewb.unimaas.nl/meteor-seminar-et
Vanderbilt: http://www.vanderbilt.edu/econ/seminars-and-research/index.html
Warwick: http://www2.warwick.ac.uk/fac/soc/economics/forums/

 

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The CTN Newsletter is prepared with the contribution of all the CTN Partner Institutions. Please send comments and questions to: silvia.bertolin@feem.it.
The next issue will be published in March 2011

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