Stable Allocations and the Practice of Market Design
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Is Shapley Cost Sharing Optimal?∗ (For the Special Issue in Honor of Lloyd Shapley)
Is Shapley Cost Sharing Optimal?∗ (For the special issue in honor of Lloyd Shapley) Shahar Dobzinskiy Aranyak Mehtaz Tim Roughgardenx Mukund Sundararajan{ August 29, 2016 Abstract A general approach to the design of budget-balanced cost-sharing mechanisms is to use the Shapley value, applied to the given cost function, to define payments from the players to the mechanism. Is the corresponding Shapley value mechanism \optimal" in some sense? We consider the objective of minimizing worst-case inefficiency subject to a revenue constraint, and prove results in three different regimes. 1. For the public excludable good problem, the Shapley value mechanism minimizes the worst-case efficiency loss over all truthful, deterministic, and budget-balanced mechanisms that satisfy equal treatment. This result follows from a characteriza- tion of the Shapley value mechanism as the unique one that satisfies two additional technical conditions. 2. For the same problem, even over a much more general mechanism design space that allows for randomization and approximate budget-balance and does not im- pose equal treatment, the worst-case efficiency loss of the Shapley value mecha- nism is within a constant factor of the minimum possible. ∗The results in Sections 3{5 appeared, in preliminary form, in the extended abstract [8]. The results in Section 6 appeared in the PhD thesis of the fourth author [27]. yDepartment of Applied Math and Computer Science, the Weizmann Institute of Science, Rohovot 76100, Israel. This work was done while the author was visiting Stanford University, and supported by the Adams Fellowship Program of the Israel Academy of Sciences and Humanities, and by grants from the Israel Science Foundation and the USA-Israel Bi-national Science Foundation. -
Nash-Type Bargaining with Coherent Acceptability Measures
Splitting a Random Pie: Nash-Type Bargaining with Coherent Acceptability Measures Walter J. Gutjahr University of Vienna, Vienna, Austria, [email protected] Raimund M. Kovacevic Vienna University of Technology, Vienna, Austria, [email protected] David Wozabal Technische Universit¨atM¨unchen, Munich, Germany, [email protected] We propose an axiomatic solution for cooperative stochastic games where risk averse players bargain for the allocation of profits from a joint project that depends on management decisions by the agents. We model risk preferences by coherent acceptability functionals and show that in this setting the axioms of Pareto optimality, symmetry, and strategy proofness fully characterize a bargaining solution, which can be efficiently computed by solving a stochastic optimization problem. Furthermore, we demonstrate that there is no conflict of interest between players about management decisions and characterize special cases where random payoffs of players are simple functions of overall project profit. In particular, we show that for players with distortion risk functionals, the optimal bargaining solution can be represented by an exchange of standard options contracts with the project profit as the underlying. We illustrate the concepts in the paper by a detailed example of risk averse households that jointly invest into a solar plant. Key words : Stochastic bargaining games; coherent risk measures; stochastic programming; photovoltaics History : 1. Introduction If a project is undertaken jointly by several agents and there is no efficient market for individual contributions, the question of how to distribute the project's profits arises. The case when profits are deterministic is well studied in the field of cooperative game theory. -
Stable Matching: Theory, Evidence, and Practical Design
THE PRIZE IN ECONOMIC SCIENCES 2012 INFORMATION FOR THE PUBLIC Stable matching: Theory, evidence, and practical design This year’s Prize to Lloyd Shapley and Alvin Roth extends from abstract theory developed in the 1960s, over empirical work in the 1980s, to ongoing efforts to fnd practical solutions to real-world prob- lems. Examples include the assignment of new doctors to hospitals, students to schools, and human organs for transplant to recipients. Lloyd Shapley made the early theoretical contributions, which were unexpectedly adopted two decades later when Alvin Roth investigated the market for U.S. doctors. His fndings generated further analytical developments, as well as practical design of market institutions. Traditional economic analysis studies markets where prices adjust so that supply equals demand. Both theory and practice show that markets function well in many cases. But in some situations, the standard market mechanism encounters problems, and there are cases where prices cannot be used at all to allocate resources. For example, many schools and universities are prevented from charging tuition fees and, in the case of human organs for transplants, monetary payments are ruled out on ethical grounds. Yet, in these – and many other – cases, an allocation has to be made. How do such processes actually work, and when is the outcome efcient? Matching theory The Gale-Shapley algorithm Analysis of allocation mechanisms relies on a rather abstract idea. If rational people – who know their best interests and behave accordingly – simply engage in unrestricted mutual trade, then the outcome should be efcient. If it is not, some individuals would devise new trades that made them better of. -
PIER Working Paper 11-035
Penn Institute for Economic Research Department of Economics University of Pennsylvania 3718 Locust Walk Philadelphia, PA 19104-6297 [email protected] http://economics.sas.upenn.edu/pier PIER Working Paper 11-035 “Identification and Estimation of Stochastic Bargaining Models Fourth Version” by Antonio Merlo and Xun Tang http://ssrn.com/abstract=1946367 Identification and Estimation of Stochastic Bargaining Models∗ Antonio Merlo† Xun Tang‡ Revised, October 2011 Abstract Stochastic sequential bargaining models (Merlo and Wilson (1995, 1998)) have found wide applications in different fields including political economy and macroeconomics due to their flexibility in explaining delays in reaching an agreement. This paper presents new results in nonparametric identification and estimation of such models under different data scenarios. Key words: Nonparametric identification and estimation, non-cooperative bargaining, stochastic sequential bargaining, rationalizable counterfactual outcomes. JEL codes: C14, C35, C73, C78. ∗We thank co-editor Jean-Marc Robin and three anonymous referees for their helpful suggestions. Steven Berry, Herman Bierens, Hanming Fang, Philip Haile, Isabelle Perrigne, Katja Seim, Elie Tamer, Petra Todd, Quang Vuong, Ken Wolpin and seminar and conference participants at several institutions provided useful comments. We thank Hulya Eraslan for sharing her data with us and Chamna Yoon for providing excellent research assistance. The usual disclaimer applies. †Department of Economics, University of Pennsylvania, CEPR, CESifo and NBER, [email protected]. ‡Department of Economics, University of Pennsylvania, [email protected]. 1 1 Introduction Starting with the seminal contributions of Stahl (1972) and Rubinstein (1982), noncooper- ative (or strategic) bargaining theory has flourished in the past thirty years. The original model of bilateral bargaining with alternating offers and complete information has been extended in a number of directions allowing for more general extensive forms, information structure and more than two players (e.g. -
From Axiomatic to Strategic Models of Bargaining with Logical Beliefs and Goals
From axiomatic to strategic models of bargaining with logical beliefs and goals Quoc Bao Vo and Minyi Li Faculty of Information & Communication Technologies Swinburne University of Technology, Australia email: {bvo | myli}@swin.edu.au ABSTRACT the strategic (non-cooperative) approach to provide the foundations 1 In this paper, we introduce axiomatic and strategic models for bar- for cooperative bargaining solution concepts. His approach was to gaining and investigate the link between the two. Bargaining situ- design a non-cooperative game, now known as the Nash demand ations are described in propositional logic while the agents’ pref- game, in which the only equilibrium outcome is exactly the one erences over the outcomes are expressed as ordinal preferences. suggested by Nash solution. Our main contribution is an axiomatic theory of bargaining. We We’ll now turn our attention to multiagent systems in which propose a bargaining solution based on the well-known egalitarian agents hold beliefs about the environment they are operating in and social welfare for bargaining problems in which the agents’ logical have goals they want to achieve or maintain. In many multiagent beliefs specify their bottom lines. We prove that the proposed so- frameworks, the agents beliefs and goals are represented as logical lution is uniquely identified by a set of axioms. We further present sentences. Moreover, the agents are required to interact, coordi- a model of bargaining based on argumentation frameworks with nate and in most cases, negotiate to reach agreements about who the view to develop a strategic model of bargaining using the con- do what and who get what. -
Minmax Shapley Value and Biform Contests Subgame Perfect Nash Equilibrium
1 סדרת מאמרים לדיון Working paper series No. 14 – 2011 Minmax Shapley Value and Biform Contests Subgame Perfect Nash Equilibrium Mordechai E. Schwarz 142 מערכות מידע חשבונאיות ממוחשבות 1 Minmax Shapley Value and Biform Contests Subgame Perfect Nash Equilibrium Mordechai E. Schwarz1 Abstract A biform contest is a two-stage game. In the first stage, agents exert resources to build up their position towards the second stage. The second stage is either a bargaining game or a cooperative game, but if no cooperative solution is achieved it turns to a rent-seeking contest. It is shown that with a passive regulator, the second stage is a cooperative game and if all contestants are risk-averse, the biform contest non-cooperatively implements the minmax Shapley value, as defined in the paper, in subgame perfect equilibrium. Keywords: biform game, biform contest, rent-seeking, externalities, minmax approach, minmax coalitional worth, minmax Shapley value. JEL classification: C7, D7 1 Department of Economics and Management, The Open University of Israel. Email: [email protected]. I am truly indebted to J. Atsu Amegashie, Shmuel Nitzan and Aviad Heifetz for very helpful comments on earlier versions of this work. Of course, the responsibility for every error is exclusively mine. 2 1. Introduction Cooperation among rent-seekers is usually modeled as a two-stage game. There are at least three main categories of these models. One category which I call wolf-pack games studied a two-stage group rent-seeking without a specific sharing rule of the prize among the winning group members. Contestants cooperate within group rent-seeking against rival groups in the first stage, and then the individual members of the winning group engage in another rent- seeking contest for the prize in the second stage2. -
Comparing the Fairness of Two Popular Solution Concepts of Coalition Games: Shapley Value and Nucleolus1
1 COMPARING THE FAIRNESS OF TWO POPULAR SOLUTION CONCEPTS OF COALITION GAMES: SHAPLEY VALUE AND NUCLEOLUS1 AUTHORS REDACTED TO PRESERVE ANONYMITY ABSTRACT An analytics model is developed to compare two popular solution concepts of coalition games, and to determine which one is fairer and more appropriate to use in real life applications of coalition games. Coalition games have found wide application in economics, finance, politics, and computing. When applications are developed using coalition game theory, designers have the option of choosing from several solutions concepts and the effectiveness of the solution depends on the accuracy of the underlying solution concepts. The algorithm presented sheds light on the effectiveness and fairness of the solution concepts and, in particular, is used to compare the fairness between Shapley Value and Nucleolus solution concepts. When imputations for coalitions are expressed in a barycentric triangle, they create a core, and larger core areas leave room for more competition among the coalitions which can create instability. Smaller core areas are desirable because they leave little room for further collaboration and come to a quick resolution. An example supports the idea of smaller core comparison, and imputations have been calculated using Shapley Value and Nucleolus expressed in a barycentric triangle for comparison. INTRODUCTION Game theory has its foundations in applied mathematics. The mathematical models and built-in consistency of game theory make it a suitable framework and basis for modeling and designing of automated bargaining and decision-making software systems in interactive negotiation. For example, a game theory framework can serve as the most efficient bidding rules for Web Services, e-commerce auction website, or tamper-proof automated negotiations for purchasing communication bandwidth. -
1 Cooperative Bargaining
1 Cooperative bargaining 1.1 The bargaining problem Bargaining situations are ubiquitous in our times, both in the Western and the Eastern hemisphere. Wage negotiations between a group of employers and a trade union, trade agreements between single countries (e.g. the US and Mexico) or between larger associ- ations (the European Union and the US) or, in the political sphere, disarmament talks between East and West during the cold war era, and, last but not least, environmental negotiations among developed nations and between developed and less developed coun- tries are only some examples of bargaining that have received considerable attention over the years. The problem is one of a choice of a feasible alternative by a group of people or nations or associations with often conflicting preferences in a framework of cooperation. As Kalai (1985, p. 77) writes, this `may be viewed as a theory of consen- sus, because when it is applied it is often assumed that a ¯nal choice can be made if and only if every member of the group supports this choice'. Kalai continues saying that `because this theory deals with the aggregation of peoples' preferences over a set of feasible alternatives, it bears close similarities to theories of social choice and the design of social welfare functions'. The ¯nal outcome that the individuals (or groups) involved strive for may be attained by the parties themselves. Sometimes, however, the ¯nal result will be reached via the mediation of an outside person, an arbitrator. There is one feature that distinguishes the bargaining problem fundamentally from almost all the other social choice approaches. -
What Is Game Theory Trying to Accomplish?
1 What Is Game Theory Trying to Accomplish? 1 Introduction The language of game theory—coalitions, payo¤s, markets, votes— suggests that it is not a branch of abstract mathematics; that it is moti- vated by and related to the world around us; and that it should be able to tell us something about that world. Most of us have long realized that game theory and the ‘‘real world’’ (it might better be called the complex world) have a relationship that is not entirely comfortable; that it is not clear just what it is that we are trying to do when we build a game- theoretic model and then apply solution concepts to it. This is the subject I would like to explore in this paper. I might add that much the same questions apply to economic theory, at least the kind that those of us working in mathematical economics see most often; and that much of my paper will apply, mutatis mutandis, to economic theory as well. There is a branch of philosophy that deals with theory in the social sciences, so some of the things I have to say are unquestionably old hat. But I am not trying to be particularly original: I am only trying to open this topic, which I think concerns all of us, for discussion, and to suggest a particu- lar point of view. No doubt others have thought about these questions more thoroughly and deeply than I have, and are better versed in the history and philosophy of science in general. I will be grateful to anybody who sets me straight when I err, and who gives me references for the things I get right. -
Lecture Notes on Game Theory
Sloan School of Management 15.013 – Industrial Economics for Strategic Decisions Massachusetts Institute of Technology Professor Robert S. Pindyck Lecture Notes on Game Theory (Revised: July 2013) These lecture notes extend some of the basic ideas in game theory that were covered in 15.010. We will begin by explaining what we mean by rational — or rationalizable — strategies. We will apply this concept to a discussion of the War of Attrition, which can turn out to be a rather complicated game. We will see what it means to approach and play (or decide to not play) a War of Attrition type game rationally. Then we will turn to models of duopolistic competition. We will first consider the choice of strategic variable when duopolists compete in the sale of differentiated products — in particular, what are the implications of choosing quantities instead of prices. Next we will examine some of the issues that arise when there is asymmetric or imperfect information. In particular, we will see what happens when a firm has limited information about the costs of its competitor, or when both firms have limited information about market demand. Finally, we will discuss bargaining situations, and the Nash cooperative solution to a bargaining game. 1. Rationalizable Strategies Our focus throughout these notes (and throughout 15.013) is is with rational decision- making. Sometimes what we mean by rational decision-making is obvious — for example, setting a price that maximizes profits. But sometimes it is not so obvious, particularly in gaming situations. Thus we will find it useful to introduce the concept of a rationalizable strategy, a concept that is in fact rather simple. -
Disagreement Points in Wage Bargaining
DISAGREEMENT POINTS IN WAGE BARGAINING by Erling Earth Institute of Industrial Relations, University of California at Berkeley, and Institute for Social Research, Oslo. Berkeley, December 15, 1991 1 Abstract Workers face declining pay-offs during a strike. The consequence of this is explored in a non-cooperative sequential bargaining game of alternating offers. It turns out that the subgame perfect equilibrium wage is a weighted average of the standard bargaining solution in the literature and the outside option of the workers. The outside option affects the wage even when it does not constrain the outcome nor enters any of the parties utility functions. In a cooperative framework the disagreement point of the workers should according to this model be represented by a weighted average of the strike pay and the outside option, the weights being determined by the length of time that the workers credibly can threaten to keep on striking. This paper thus gives support from a "corresponding" non-cooperative bargaining game to the rather prevalent use of models where the unemployment rate enters the Nash product determining bargained wages. Equilibrium unemployment prevails in an economy with wage bargaining at the firm level and limits on the workers ability to strike forever. 1. Introduction1 Workers face declining pay-offs during strike. This paper explores the consequences of this empirical fact in a non-cooperative sequential bargaining game of alternating offers. In stationary bargaining games of the Rubinstein (1982) type, the outside option of a player does not affect the outcome if it does not exceed what could be obtained in the bargaining game without the outside option. -
Essays on Bargaining with Outside Options
Tesi doctoral Universitat Autònoma de Barcelona Essays on Bargaining with Outside Options MERCEDES ADAMUZ PEÑA Contents 1. Bargaining with Outside Options: An Introduction 1:1Introduction:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: 2 1:2OptingOut : T heRoleofP rocedures::::::::::::::::::::::::::::::::::: 3 1:3T henatureoftheOutsideOption:::::::::::::::::::::::::::::::::::::::: 8 1:4T heP lanoftheT hesis::::::::::::::::::::::::::::::::::::::::::::::::::::::::: 14 2. Concession Bargaining and Costly Arbitration 2:1Introduction:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: 17 2:2T heModel::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: 20 2:3EquilibriawithArbitration::::::::::::::::::::::::::::::::::::::::::::::::::: 23 2:4Conclusions:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: 39 3. Bargaining over Finite Alternatives and Arbitration 3:1Introduction:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: 41 3:2T heModel::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: 43 3:3EquilibriaunderF inalOfferArbitration:::::::::::::::::::::::::::::: 45 3:4EquilibriaunderConventionalArbitration:::::::::::::::::::::::::: 49 3:5Conclusions:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: 52 4. Opting Out in the War of Attrition 4:1Introduction::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: 54 4:2T heModel::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::