Archive for November, 2009

Wine & Economics

November 30, 2009

Just received this call for papers:

Dear wine friends,
the American Association of Wine Economists (AAWE) will hold its 4th Annual Conference from June 25-28, 2010, at UC Davis in California.
The conference will be hosted by UC Davis and the Robert Mondavi Institute for Wine and Food Science. All economics and statistics papers related to wine and food are welcome.

Details will be posted on our website at
www.wine-economics.org

Looking forward to next year’s EEA…

November 13, 2009

…which will take place in Philadelphia in February. I will present at the Agent-Based Economics Session (organized by Jason Barr).

More information on the conference can be found on the EEA homepage.

Extended Abstract

We build a computational model of heterogeneous agents playing a public good game on a dynamic network. In public good games the unique Nash equilibrium leads to a suboptimal pro- vision of public goods. Giving rewards to contributors transforms the game but gives rise to a second-order dilemma. By allowing for coevolution of strategies and network structure the adaptive dynamics operate on both structure and strategy. Agents learn with whom to interact and how to act and can overcome the second-order dilemma. The key variable of interest is the long-run frequency of contribution to the public good.

The public good game with rewards is a two-stage game where agents choose to contribute to the public good in the first stage and have the possibility to give rewards to direct neighbors in the second stage. Rewards are assigned based on both social distance and the quality of the contribution. We consider different network topologies under different imitation strategies with syncronous and asyncronous updating and analyze their impact on the long-run frequency of contributions to the public good.
Evolutionary models with local interactions on static networks have been discussed analyt- ically (see Eshel et al. (1998) for a circle network, Albin and Foley (2001) and Nowak and May (1993) for a two-dimensional lattice, and Watts (1999, chapter 8 ) for small-world networks). Dy- namic networks have recently been discussed by Skyrms and Pemantle (2000), Alexander (2007, chapter 3.5) and Jun and Sethi (2009). We build on this literature by examining the long-run frequency of cooperation in public good games with rewards played on dynamic, directed networks.

The model captures several stylized facts:

  1. In modern societies people can, at least to some extent, select their partners. Links may be altered when individuals move to another neighborhood, city or country. We take this into account by allowing the network to evolve. Specifically, we allow agents to break a link with a direct neighbor if this link becomes weak relative to the agent’s other links.
  2. The effect of rewards on prosocial behavior has been discussed theoretically (Ellingsen and Johannesson, 2007; Benabou and Tirole, 2006; Brennan and Pettit, 2000; Hollaender, 1990) and experimentally (Masclet et al., 2003; Gaechter and Fehr, 1999). In our model rewards create a selective incentive for contribution. They strengthen the links between contributors so that the benefits of the rewards are enjoyed primarily be cooperators and prosocial behavior can survive selectionary pressure.
  3. If the quality of other agent’s contributions is observable agents with higher abilities will be more likely to receive rewards. This creates an endogeneous feedback mechanism inducing skilled agents to contribute more often. Agents with low ability will eventually stop contributing and individual agents self-select.

References

  • Albin, Peter S. and Duncan K. Foley, “The Co-Evolution of Cooperation and Complexity in a Multi-player, local-interaction Prisoner’s Dilemma,” Complexity, 2001, 6 (3), 54–63.
  • Alexander, Jason McKenzie, The Structural Evolution of Morality, Cambridge University Press, 2007. Benabou, Roland and Jean Tirole, “Incentives and Prosocial Behavior,” American Economic Review, 2006, 96 (5), 1652–1678.
  • Brennan, Geoffrey and Phillip Pettit, “The hidden economy of esteem,” Economics and Philosophy, 2000, 16 (1), 77–98.
  • Ellingsen, Tore and Magnus Johannesson, “Paying Respect,” Journal of Economic Perspectives, 2007, 21 (4), 135–149.
  • Eshel, Ilan, Larry Samuelson, and Avner Shaked, “Altruists, Egosists, and Hooligans in a Local Interaction Model,” American Economic Review, 1998, 88 (1), 157–179. Gaechter, Simon and Ernst Fehr, “Collective action as a social exchange,” Journal of Economic Behavior and Organization, 1999, 39 (4), 341–369.
  • Hollaender, Heinz, “A Social Exchange Approch to Voluntary Cooperation,” American Economic Review, 1990, 80 (5), 1157–1167.
  • Jun, Tackseung and Rajiv Sethi, “Reciprocity in evolving social networks,” Journal of Evolutionary Economics, 2009, 119 (3), 379–396.
  • Masclet, David, Charles Noussair, Steven Tucker, and Marie-Claire Villeval, “Monetary and Non- monetary Punishment in the Voluntary Contributions Mechanism,” American Economic Review, 2003, 93 (1), 366–380.
  • Nowak, Martin A. and Robert M. May, “The spatial dilemmas of evolution,” International Journal of Bifurcation and Chaos, 1993, 3 (1), 35–78.
  • Skyrms, Brian and Robin Pemantle, “A Dynamic Model of Social Network Formation,” Proceedings of the National Academy of Sciences, 2000, 97 (16), 9340–9346.
  • Watts, Duncan J., Small Worlds – The Dynamics of Networks between Order and Randomness Princeton Studies in Complexity, Princeton University Press, 1999.