Vincent P. Crawford, "New Directions for Modelling Strategic Behavior: Game-theoretic Models of Communication, Coordination, and Cooperation in Economic Relationships"
Vincent P. Crawford, "New Directions for Modelling Strategic Behavior: Game-theoretic Models of Communication, Coordination, and Cooperation in Economic Relationships", Journal of Economic Perspectives 30(4), Fall 2016, 131–150.
Open access link https://www.aeaweb.org/articles?id=10.1257/jep.30.4.131
H. Peyton Young and Paul Glasserman publish 'Contagion in Financial Networks' in the Journal of Economic Literature 2016, 54(3), 779–831
Journal of Economic Litterature 2016, 54(3), 779–831
The recent financial crisis has prompted much new research on the interconnectedness of the modern financial system and the extent to which it contributes to systemic fragility. Network connections diversify firms’ risk exposures, but they also create channels through which shocks can spread by contagion. We review the extensive literature on this issue, with the focus on how network structure interacts with other key variables such as leverage, size, common exposures, and short-term funding. We discuss various metrics that have been proposed for evaluating the susceptibility of the system to contagion and suggest directions for future research.
(JEL D85, E44, G01, G21, G22, G23, G28)
Marco Gonzalez-Navarro and Climent Quintana-Domeque, Review of Economics and Statistics, May 2016, Vol. 98, No. 2: 254–267
Review of Economics and Statistics, May 2016, Vol. 98, No. 2: 254–267.
We provide the first experimental estimation of the effects of the supply of publicly financed urban infrastructure on property values. Using random allocation of first-time street asphalting of residential streets located in peripheral neighborhoods in Mexico, we show that within two years of the intervention, households are able to transform their increased property wealth into significantly larger rates of vehicle ownership, household appliances, and home improvements. Increased consumption is made possible by both credit use and less saving. A cost-benefit analysis indicates that the valuation of street asphalting as capitalized into property values is about as large as construction costs.
Itai Arieli and H. Peyton Young, Stochastic Learning Dynamics and Speed of Convergence in Population Games. Econometrica, Vol. 84, No. 2 (March, 2016), 627-676
Econometrica, Vol. 84, No. 2 (March, 2016), 627-676
We study how long it takes for large populations of interacting agents to come close to Nash equilibrium when they adapt their behavior using a stochastic better reply dynamic. Prior work considers this question mainly for 2×2 games and potential games; here we characterize convergence times for general weakly acyclic games, including coordination games, dominance solvable games, games with strategic complementarities, potential games, and many others with applications in economics, biology, and distributed control. If players’ better replies are governed by idiosyncratic shocks, the convergence time can grow exponentially in the population size; moreover, this is true even in games with very simple payoff structures. However, if their responses are sufficiently correlated due to aggregate shocks, the convergence time is greatly accelerated; in fact, it is bounded for all sufficiently large populations. We provide explicit bounds on the speed of convergence as a function of key structural parameters including the number of strategies, the length of the better reply paths, the extent to which players can influence the payoffs of others, and the desired degree of approximation to Nash equilibrium.
James Malcomson, Relational Incentive Contracts With Persistent Private Information. Econometrica, Vol. 84, No. 1 (January, 2016), 317–346
Econometrica, Vol. 84, No. 1 (January, 2016), 317–346
This paper investigates relational incentive contracts with continuous, privately observed agent types that are persistent over time. With fixed agent types, full separation is not possible when continuation equilibrium payoffs following revelation are on the Pareto frontier of attainable payoffs. This result is related to the ratchet effect in that: (1) a type imitating a less productive type receives an information rent, and (2) with full separation, one imitating a more productive type receives the same future payoff as that more productive type. However, the reason for (2) is fundamentally different than with the ratchet effect. It arises from the dynamic enforcement requirement in relational contracts, not from the principal having all the bargaining power, and applies whatever the distribution between principal and agent of the future gains from the relationship (i.e., whatever the point on the Pareto frontier). This result extends to sufficiently persistent types under certain conditions.