Research

Latest Papers

Kerr, S., Lippert, S., Lou, Y., 2024. Financial transfers and climate cooperation. R&R Economic Theory.

We investigate the impact of side payments to countries that have a low net benefit from participating in efficient climate cooperation in a repeated game framework with investment in green compliance technology. We consider different timings of these payments and different degrees of commitment. If high-benefit countries cannot commit ex ante to transfer funds to low-benefit participants to an agreement, then there is a trade-off. Investment-based agreements, where transfers occur before emissions are realized, but after investments have been committed, maximize the scope of cooperation. Emissions-based agreements minimize transfers whenever these agreements implement cooperation. If countries can commit to transfer funds, then agreements in which countries with high benefits of climate cooperation pre-commit to emissions-based payments to countries with low benefits both maximize the scope of cooperation and minimize transfers.

Lippert, S., Russell, H., Tremewan, J., 2024. Group size and Pledge-and-Review bargaining.

We conduct a  laboratory experiment to test whether the efficacy of the pledge-and-review institution in the bilateral case reported in Lippert and Tremewan (2021) is robust to increased group size. This is \textit{a priori} unclear, as with more than two players punishment for a low contribution by voting down a deal cannot be perfectly targeted, increasing the incentive to free ride. We find that the pledge-and-review institution remains effective in sustaining contributions and increasing efficiency. While the absolute efficiency gain of the pledge-and-review institution over a voluntary contribution mechanism increased, when controlling for group size there is a relative decline in the efficiency gain of the institution.

Fabrizi, S., Lippert, S., Pan, A., Ryan, M., 2024. Unanimity under Ambiguity.

Ellis (2016) introduced a variant of the classic (jury) voting game in which voters have ambiguous prior beliefs. He focussed on voting under majority rule and the implications of ambiguity for Condorcet’s Theorem. Ryan (2021) studied Ellis’ game when voting takes place under the unanimity rule. His focus was on the implications of ambiguity for the “jury paradox” (Feddersen and Pesendorfer, 1998). Neither paper described all equilibria of these games, though both authors identified equilibria with a very different structure to those in the respective games without ambiguity. We complete the description of all equilibria of voting games under the unanimity rule. In particular, we identify equilibria having the same form as those in Feddersen and Pesendorfer (1998), as well as equilibria with a “dual” form.

Lippert, S., Dreber, A., Johannesson, M., Tierney, W., Cyrus-Lai, W., Uhlmann, E., Emotion Expression Collaboration, Pfeiffer, T., 2024. Can Large Language Models help predict results from a complex behavioural science study?

We tested whether Large Language Models (LLMs) can help predict results from a complex behavioural science experiment. In Study 1, we investigated the performance of the widely used LLMs GPT-3.5 and GPT-4 at forecasting the empirical findings of a large-scale experimental study of emotions, gender, and social perceptions. We found that GPT-4, but not GPT-3.5, matched the performance of a crowd of 119 human, with correlations of 0.89 (GPT-4), 0.07 (GPT3.5), and 0.87 (human experts) between aggregated forecasts and realized effect sizes. In Study 2, providing participants from a university subject pool the opportunity to query a GPT-4 powered chatbot significantly increased the accuracy of their forecasts. Results indicate promise for AIs to help predict—at scale and minimal cost—which claims about human behaviour will find empirical support and which will not. Our discussion focuses on avenues for human-AI collaboration in science. 

Feess, E., Lippert, S., Martini-Tibbs, J., Tremewan, J., 2024. Leadership and cooperation in a sequential prisoners' dilemma.

An organizational designer with the objective of achieving mutual cooperation in a sequential Prisoners' Dilemma faces two key questions: Should the order of moves be random or should one of the players be awarded the right to decide who moves first? And if so, should the other player be informed about the endogeneity of moves? To answer these questions, we develop a behavioral game theoretical model and an experiment that allow us to disentangle two important social factors for behavior in such a game: choice reciprocity where a first mover is rewarded by the follower for their cooperation, and selection reciprocity where a player is rewarded for their willingness to take on the risk of moving first. Our model yields a separating equilibrium where only players with high choice reciprocity move first and predicts that endogenous sorting where the other player is unaware of the self-selection outperforms exogenous sorting. By contrast, full transparency may backfire if players who infer they have been compelled to move first by players with low choice reciprocity defect too often. Our data, however, suggest that full transparency is optimal due to selection reciprocity, and because players forced to move first do not cooperate less than in the other treatments.

Fabrizi, S., Lippert, S., 2020. On moral hazard and joint R&D.

We analyze two entrepreneurs' choices of how much to invest in rival product innovation projects, and whether to conduct them competitively, in a cross-licensing agreement, or in an R&D joint venture. We distinguish late and early-stage projects and allow for cooperative and non-cooperative conduct in the product market ensuing an R&D joint venture. We find that early-stage projects are more likely carried out as stand-alone R&D or in cross-licensing agreements than late-stage projects; and that lenient enforcement of non-cooperative product-market conduct after R&D joint ventures should depend on the stage of the R&D project. We propose a `synergy - market-size defense.'

Fabrizi, S., Lippert, S., Rodrigues Neto, J.A., 2019. Attack, defense and the market for protection.

We study the market for the provision of protection. Its demand side arises from an interaction between heterogeneous populations of attackers and potentially connected defenders. Attackers decide whether to perpetrate untargeted attacks. Defenders decide whether to buy protection at a market price. If interconnected, unprotected defenders are also exposed to secondary attacks spreading through their network. With varying modes of attack, active attackers affect the cost of providing protection thereby inducing possible \textit{economies of use}. After providing sufficient conditions for the existence and uniqueness of a Nash equilibrium in the interaction between attackers and defenders, we analyze pricing incentives and protection coverage under alternative market structures. We discuss efficiency issues in the market for protection. Market concentration may be socially beneficial due to the internalization of economies of use. Higher connectedness may be socially beneficial due to increased incentives to buy protection.

Publications

Bloch, F., Fabrizi, S., Lippert, S., 2022. Hiding and herding in market entry. Journal of Economic Theory 206, 105568 (supported by Marsden Grant UOO0821).

We model entry decisions of rival firms into a new market with uncertain common entry costs, potential product market competition, and experimentation. We show that a herding equilibrium, where firms enter immediately when they learn that the cost is low and are immediately followed by their rival, always exists. We also show the existence of equilibria that avoid herding. In these equilibria, which we refer to as hiding equilibria, uninformed firms coordinate to enter at specific entry dates with positive probability and firms that learned that the cost is low before those dates strategically delay their entry to hide under the cover of the uninformed firms. We show that such hiding equilibria, which do not trigger immediate entry, are more likely to exist with an early than a late entry date, are unique given a fixed entry date, and that equilibrium payoffs are non-monotonic in the entry date. We also study hiding equilibria with multiple entry dates for uninformed firms.

Fabrizi, S., Lippert, S., Pan, A., Ryan, M., 2022. A theory of jury voting with an ambiguous likelihood. Theory and Decision 93, 399–425 (supported by Marsden Grant UOA1617).

We examine collective decision-making in a jury voting game under the unanimity rule when voters have ambiguous beliefs. Unlike in existing studies  (Ellis, 2016; Fabrizi, Lippert, Pan, and Ryan, 2020; Ryan, 2021), the locus of ambiguity is the likelihood function (signal precision) rather than the prior. This significantly alters the properties of symmetric equilibria. While prior ambiguity may induce multiple equilibria (Fabrizi et al., 2020; Ryan, 2021) we show that all (non-trivial symmetric) equilibria under likelihood ambiguity have the same form as in the absence of ambiguity (Feddersen and Pesendorfer, 1998). Moreover, likelihood ambiguity partially offsets the pernicious effects of pivotality on decision quality: there exists an equilibrium in which the frequency of Type I error (convicting the innocent) is typically lower than in the absence of ambiguity. This, too, is in contrast to prior ambiguity, which has the opposite tendency (Ellis, 2016; Fabrizi et al., 2020; Ryan, 2021).

Lippert, S., Tremewan, J., 2021. Pledge-and-review in the laboratory. Games and Economic Behavior 130, 179-195.

We perform a laboratory test of Pledge-and-Review bargaining, implementing a simplified version of the model analysed in Harstad (2021a). In theory, this institution should increase contributions to a public good only if there is uncertainty over the value of possible future payoffs. In contrast, we find that Pledge-and-Review increases efficiency in all the settings we investigate, and that the improvement is most persistent in our setting without uncertainty. Our results suggest that the Pledge-and-Review institution may be useful, even without uncertainty, as it allows conditional cooperators to test, risk free, the cooperativeness of their partners.

Pan, A., Fabrizi, S., Lippert, S., 2018. Non-congruent views about signal precision in collective decisions. B.E. Journal of Theoretical Economics 18(2), 20160185 (supported by Marsden Grant UOA1617).

We relax the standard assumptions in collective decision-making models that voters can not only derive a perfect view about the accuracy of the information at their disposal before casting their votes, but can, in addition, also correctly assess other voters’ views about it. We assume that decision-makers hold potentially differing views, while remaining ignorant about such differences, if any. In this setting, we find that information aggregation works well with voting rules other than simple majority: as voters vote less often against their information than in conventional models, they can deliver higher-quality decisions, including in the canonical 12 jurorscase. We obtain voting equilibria with many instances, in which other voting rules, including unanimity, clearly outperform simple majority.

Fabrizi, S., Lippert, S., 2017. Corruption and the public display of wealth. Journal of Public Economic Theory 19(4), 827-840 (among the most downloaded articles published in JPET in 2017 and 2018 ).

We study an agent–client model of corruption, in which potential corruptors are uncertain about the probability with which officials are subjected to an audit, either high or low. We characterize a signaling equilibrium, in which officials who are less likely to be audited engage in public conspicuous consumption, whereas those who are more likely to be audited do not. In this equilibrium, officials are better off than in the equilibria without conspicuous consumption. The signaling equilibrium exists if the officials' bargaining power vis-à-vis potential corruptors is sufficiently high, which implies that corruption can be curbed by creating competition among officials.

Fabrizi, S., Lippert, S., Puppe, C., Rosenkranz, S., 2016. Manufacturer suggested retail prices, loss aversion and competition. Journal of Economic Psychology 53, 141-153.

We study a model of vertical relations with imperfect retail competition in which a fraction of the consumers display reference-dependent demand with respect to the manufacturer’s suggested retail price. We demonstrate that in equilibrium the suggestion will either be undercut or complied with by the retailers, but never surpassed: undercutting occurs if competition is fierce, the impact from consumers affected by reference-dependent preferences is significant, and high price suggestions are credible; compliance occurs otherwise. We provide comparisons, and discuss implications, for consumer surplus for the scenarios with suggested retail prices, without vertical restraints and with resale price maintenance.

Bloch, F., Fabrizi, S., Lippert, S., 2015. Learning and collusion in new markets with uncertain entry costs. Economic Theory 58(2), 273-303 (supported by Marsden Grant UOO0821).

This paper analyzes an entry timing game with uncertain entry costs. Two firms receive costless signals about the cost of a new project and decide when to invest. We characterize the equilibrium of the investment timing game with private and public signals. We show that competition leads the two firms to invest too early and analyze two collusion schemes, one in which one firm pays the other to stay out of the market and one in which this buyout is mediated by a third party. We characterize conditions under which the efficient outcome can be implemented in both collusion schemes.

Fabrizi, S., Lippert, S., Norback, P.J., Persson, L., 2013. Venture capitalists and the patenting of innovations. Journal of Industrial Economics 61(3), 623-659 (supported by Marsden Grant UOO0821).

We model patent-signaling by informed venture capitalists to incumbent acquirers of developed innovations. We show that, to signal, venture capitalists develop more patents with higher impact than incumbents would. A tightening of patenting requirements by the patent offices, such as an increase in the required inventive step, increases the pool of unprotected early-stage ideas, which venture capitalists are better at judging than incumbents, and decreases the number and breadth of patented claims needed to separate highly valuable from less valuable innovations. Consequently, such a tightening would make venture capitalists more likely to back entrepreneurs and increase entrepreneurial incentives to innovate.

Fabrizi, S., Lippert, S., 2012. Due diligence, research joint ventures, and the incentives to innovate. Journal of Institutional and Theoretical Economics 168(4), 588-611 (supported by Marsden Grant UOO0821).

The decision to cooperate within R&D joint ventures is often based on expert advice. Such advice typically originates in a due-diligence process, which assesses the R&D joint venture's profitability, for example, by appraising the achievability of synergies. We show that if the experts who advise the owners considering forming an R&D joint venture are also responsible for R&D efforts, they can have incentives to withhold information about the extent of those synergies. Owners optimally react by reducing the incentives to innovate in low-value projects developed within R&D joint ventures and in high-value projects developed within competing research organizations.

Lippert, S., Spagnolo, G., 2011. Networks of relations and word-of-mouth communication. Games and Economic Behavior 72(1), 202-217.

We study networks of relations – groups of agents linked by several cooperative relationships – exploring equilibrium conditions under different network configurations and information structures. Relationships are the links through which soft information can flow, and the value of a network lies in its ability to enforce agreements that could not be sustained without the information and sanctioning power provided by other network members. The model explains why network closure is important; why stable subnetworks may inhibit more valuable larger networks; and why information flows and action choices cannot be analyzed separately. Contagion strategies are suboptimal here, as they inhibit information transmission, delaying punishments.

Lippert, S., Schumacher, C., 2009. Hopping on the methadone bus. Journal of Health Economics 28(3), 728-736.

This paper investigates the impact of a ‘free drug program’ on the market equilibrium of drugs. We introduce a screening model of the hard drug market in which dealers use payment and punishment options to screen between high and low risk users. We show that, if a free drug program selects sufficiently many high-risk drug users, the pure-strategy separating market equilibrium ceases to exist and a symmetric mixed-strategy equilibrium results, in which drug users derive a higher expected utility. This encourages new drug users to enter the market. The novelty of the paper is the transmission mechanism for this effect, which is via the influence on market price.

Lippert, S., Spagnolo, G., 2008. Internet peering as networks of relations. Telecommunications Policy 32(1), 33-49.

This paper applies results from recent theoretical work on networks of relations to analyze optimal peering strategies for asymmetric Internet Service Providers (ISPs). From a network of relations perspective, ISPs’ asymmetry in bilateral peering agreements need not be a problem, since when these form a closed network, asymmetries are pooled and information transmission is faster. Both these effects reduce the incentives for opportunism in general, and interconnection quality degradation in particular. The paper also explains why bilateral monetary transfers between asymmetric ISPs (Bilateral Paid Peering), though potentially good for bilateral peering, may have negative effects on the sustainability of the overall peering network.

Other Publications

Lippert, S., 2018. Review of Krishnendu Ghosh Dastidar: "Oligopoly, Auctions and Market Quality". Journal of Economic Psychology 68, 16-17.

Fabrizi, S., Lippert, S., Panzar, J., 2017. Introduction to the Special Issue on Advances in Competition Policy and Regulation. New Zealand Economic Papers 51(2), 97-99.

Lippert, S., 2016. Review of Supriya Sarnikar: "What can behavioral economics teach us about teaching economics?" Journal of Economic Psychology 56, 302-304.

Lippert, S., 2011. Social capital in networks of relations. In Sacconi, L., Degli Antoni, G., eds. Social capital, corporate social responsibility, economic behaviour and performance. Pages 149-160. Palgrave Macmillan, New York, NY.

Research Funding

Royal Society of New Zealand Marsden Grant, 2017-2021 (NZ$ 705,000) for `Collective decision-making without common priors' (Co-PI; with S. Fabrizi, T. Pfeiffer & M. Ryan).

Royal Society of New Zealand Marsden Fast Start Grant, 2008-2012, (NZ$ 293,745) for `Venture capital and intellectual property' (PI; with N. Erkal & S. Fabrizi).