Research
Working Papers
"When Transaction Costs Restore Efficiency: Coalition Formation with Costly Binding Agreements" (Job Market Paper) [latest draft]
Establishing binding agreements is often costly in real world economies. The costly nature of these agreements decreases the gains from cooperation and affects which agreements form by changing the incentives of agents, potentially leading to different equilibrium outcomes. However, economic theory often assumes away from these costs or associates them with a negative impact on the surplus of agents as they reduce the gains from cooperation. In this paper I explore the implications of costs associated with binding agreements on equilibrium agreement structures. Using an alternating offers bargaining model of coalition formation I show that surprisingly, the presence of transaction costs can lead to an efficient outcome in situations where inefficiency arises in equilibrium without these costs. These results provide new insights for policies targeting transaction costs.
"Games in Partition Function form with Restricted Cooperation" [latest draft]
There are many situations in Economics and Political Science that involve limited possibilities for firms or parties to organize themselves into groups, mostly due to regulatory restrictions. In addition, in these settings the surplus of a given group often depends on the organization structures formed outside of the group. This paper introduces a coalition formation model that is able to analyze markets with both restricted cooperation and externalities across coalitions. The key idea of the paper is to develop a stability concept for coalition formation problems where the reactions to deviations are strategic rather than focusing only on the deviators' payoffs, while agents cannot arbitrarily form any possible coalitions. This new stability concept is a generalization the of the recursive core of Kóczy (2007), that is able to deal with externalities, to situations where the potential links among players are restricted. The restricted recursive core introduced in this paper allows a more realistic modeling coalition formation, opening the possibility to use this framework in a wide range of applications such as analyzing the welfare effects of mergers.
"Generalized type spaces" (with Miklós Pintér) [latest draft]
Ordinary type spaces (Heifetz and Samet, 1998) are essential ingredients of incomplete information games. With ordinary type spaces one can grab the notions of beliefs, belief hierarchies and common prior etc. However, ordinary type spaces cannot handle the notions of finite belief hierarchy and unawareness among others. In this paper we consider a generalization of ordinary type spaces, and introduce the so called generalized type spaces which can grab all notions ordinary type spaces can and more, finite belief hierarchies and unawareness among others. We also demonstrate that the universal generalized type space exists
Work in Progress
"Competing for the Quiet Life: An Organizational Theory of Market Structure" (with Patrick Legros and Andrew F. Newman)
We present a model of the joint determination of firm boundaries and market structure. The combined effects of free riding on the market price by stand-alone producers, and high private costs/low prices when there are many small Cournot firms, place lower and upper bounds on the degree of competition. With free entry of self-interested professional managers and linear demand, there is generically a unique degree of oligopoly, decreasing in the level of demand. We discuss implications of alternative assumptions about private costs and of “non-organizational” firms that, unlike professional managers, can contractually pre-commit to output levels during firm formation.
"Lexicographic Semiorders and Ambiguity"
This paper provides a new model of decision making under ambiguity in a multiple priors framework that uses lexicographic semiorders to define the choice rule. In the model decision makers compare ambiguous acts lexicographically starting from the worst possible scenario. The decision maker chooses an option if it is significantly better than the others in the worst case. Instead, if the options are too close to each other, the decision maker ignores the worst case and turns to the second worst scenario to compare the acts. This process continues up to the best scenario if no option is chosen before. The size of the differences between evaluations of acts the agent regards as "too close" constitutes a measure of ambiguity aversion. This way the model is more realistic than the well-known maxmin model of Gilboa and Schmeidler (1989) as it is able to express attitude towards ambiguity; while does not always depend on the extreme outcomes as the α-maxmin model by Ghirardato et al (2004). Therefore my decision model has empirically testable behavioral implications that currently used ambiguity models cannot express.