We propose a global games approach to the standard two-stage entry game. The entry decisions in the first stage are strategic substitutes. The second-stage game of product market competition reflects a fundamental common value “market attractiveness” parameter, about which firms get private noisy signals. The main result establishes the selection of a unique equilibrium in the entry game, as noise vanishes, in cut-off strategies implying efficient entry. This provides a theoretical foundation for the equilibrium selection commonly used in entry models in the empirical literature. In addition, using supermodularity techniques, we provide novel conditions of independent interest on the primitives (demand and cost functions) of market competition to justify our assumptions for Bertrand and Cournot competition. These include results on the effects of entry and demand shifts and highlight the critical relevance of the property of log-supermodularity of demand.

We study the symmetric volunteer’s dilemma with binary actions and cost sharing, where the volunteering cost is split equally among volunteers. In the one-shot game, all pure-strategy Nash equilibria involve a single volunteer, while Pareto optimality allows any non-zero number. In the infinitely repeated game, all Pareto optima can be sustained in a subgame-perfect Nash equilibrium based on a grim-trigger strategy: trivially under undiscounted payoffs, and provided the discount factor exceeds a threshold under discounted payoffs. This threshold is non-monotonic in the number of volunteers; it is zero with one volunteer, highest with two, and decreases with both more volunteers beyond two and more players. Thus, the scope for tacit cooperation is universal with one volunteer, minimal with two, then improving as more join in, all the way to universal again only in the limit with more and more players and volunteers. Considering efficiency, scope for cooperation and equity/focality as criteria, the grand coalition of volunteers emerges as the best cooperation scenario.

We propose a global games approach to the standard two-stage entry game. The entry decisions in the first stage are strategic substitutes. The second-stage game of product market competition reflects a fundamental common value "market attractiveness" parameter, about which firms get private noisy signals. The main result establishes the selection of a unique equilibrium in the entry game, as noise vanishes, in cut-off strategies implying efficient entry. This provides a theoretical foundation for the equilibrium selection commonly used in entry models in the empirical literature. In addition, using supermodularity techniques, we provide novel conditions of independent interest on the primitives (demand and cost functions) of market competition to justify our assumptions for Bertrand and Cournot competition. These include results on the effects of entry and demand shifts and highlight the critical relevance of the property of log-supermodularity of demand.

We study a simple game-theoretic model of criminal decision making as a coordination game between potential criminals, assuming that the expected punishment is perceived as lower than the gains from crime, for behavioral reasons. With three Nash equilibria (two in pure and one in mixed strategies), we invoke Pareto and risk dominance criteria to discuss equilibrium selection. The (completely-mixed) minmax strategies of the corresponding zero-sum game coincide with the unique mixed strategy Nash equilibrium of the original game. We show that, at the unique symmetric mixed strategy Nash equilibrium, the probability of committing a crime is positively related to the severity of punishment and negatively related to the reward from criminal activity and to the size of the population of potential criminals. We also analyze the effect of risk aversion on criminality and find that higher risk aversion increases the propensity for crime.

Milgrom and Shannon (1994) provide necessary and sufficient conditions on parameterized optimization problems for their solution sets to be globally monotone in the parameter. We establish that their conditions may be significantly relaxed when focusing on discrete, binary comparisons between solution sets. Such binary comparisons are ubiquitous in economics and may involve comparing the same decision maker across two distinct regimes or two distinct decision makers with related objectives (e.g., a monopolist firm versus a social planner). While the single‐crossing property remains prominent in the theory, quasisupermodularity of the objective functions of interest is not needed. Our approach relies upon a novel method of embedding a new optimization problem with a quasisupermodular objective function “between” the two original problems of interest. In smooth problems, sufficient conditions for our new assumptions may be verified by elementary differential comparisons, making them well suited for applied work. We illustrate the relevance of this novel approach with several economic applications.

The paper compares two types of industrial organization in the Cournot duopoly: (a) the classical one, where the market players maximize profits and the outcome of the game is a Cournot-Nash equilibrium; (b) a contest in which players strive to win a fixed prize/bonus employing unbeatable strategies. Passing from (a) to (b) leads to a perfect competition with zero profits of the players (Schaffer's paradox). Transition from (b) to (a) results in a substantial decline in the production output, which also seems paradoxical, as it is commonly accepted that competition increases efficiency. We examine these phenomena in two versions of the Cournot model: with a homogeneous good and with differentiated goods.

This research deals with comparative advertising strategies of firms in an oligopolistic market in the presence of the sleeper effect, through the lens of a differential game with time delay. We examine the open-loop Nash equilibrium and, for its validation, propose a new verification theorem that determines if a given strategy profile constitutes a Nash equilibrium. Our results reveal how the sleeper effect influences the equilibrium of comparative advertising strategies across two decision-making periods. Moreover, we highlight how market factors and firm attributes can significantly affect these strategies and derive conditions under which a firm will abstain from such strategies. Overall, our study provides novel insights into how market dynamics, firm attributes, and the sleeper effect interact in shaping comparative advertising strategies.

The paper analyzes unbeatable strategies in a Cournot duopoly model with differentiated goods. We conduct an extensive comparative analysis of Cournot-Nash equilibrium strategies and unbeatable ones in this framework. This article focuses on an asymmetric model, extending the results previously obtained in the symmetric case.

We compare free trade with autarky in a partial equilibrium model with asymmetric Cournot competition and linear demand and costs. While the existing literature can only guarantee under strong symmetry without trade costs that trade increases world output, consumer surplus, and total welfare, we show that weaker conditions such as partial symmetry guarantee these global gains from trade in an n-country world with trade costs. We also show that free entry and exit ensure that every country gains from trade. Without any additional conditions, trade always increases a social objective function that values consumers twice as much as firms.

This paper revisits the well-known volunteer's dilemma on the production of a public good when a single participant is sufficient for the task. We propose a cost-sharing model with a volunteering cost that decreases exponentially in the number of volunteers. We show that, at the unique mixed-strategy equilibrium, the probability of production may increase in the number of players for sufficiently low volunteering costs. This provides an alternative account of the fit of the model with some political-military conflict situations: A larger group does erode the individual incentive to volunteer but in an offsetting way that favors the production of the public good. A second result is that the mixed-strategy Nash equilibrium may be more socially efficient than the pure-strategy Nash equilibrium for some parameter values, which is a major reversal with respect to the standard dilemma and many other coordination games.

Given a general utility and income distribution and positive unemployment benefits, we analyze the impact of a universal basic income (UBI) financed by an income tax and reducing unemployment benefits. With extensive margins only and identical fixed costs of work, we show that UBI can benefit a poor majority. Plausible conditions can ensure similar results with different fixed costs. With both extensive and intensive margins but identical fixed costs, a modest UBI can still benefit a poor majority provided the income weighted tax elasticity of labor supply from intensive margins is less than the non-employment rate, which is usually true.

This paper provides a thorough analysis of an oligopolistic market for a vaccine, characterized by negative (demand-side) network externalities, which stem from the free-riding behavior of individuals engaged in a vaccination game. We investigate industry viability in terms of a standard natural Cournot-type learning process for network industries and show that viability tends to favor monopoly or competition among few suppliers. We confirm that market performance is highly inefficient, due to the combination of three imperfections: market power, network effects and a health externality (i.e., contagion). We investigate the extent of these imperfections. Finally, we devise a two-part government subsidy scheme for producers and consumers that may restore social efficiency in such markets.

This paper considers an oligopolistic market for a vaccine, characterized by negative network effects, which stem from the free‐riding behavior of individuals engaged in a vaccination game. Vaccine markets often suffer from three imperfections: high concentration, network effects, and a health externality (contagion). The first conclusion of the paper is that the negative network externality is important as a market distortion, as it may lead to significant welfare losses. The second and main part of the paper develops a two‐part per‐unit subsidy scheme that a social planner could use to target both consumers and producers of vaccines. The scope of such a subsidy scheme to induce the firms to produce the first‐best output without network effects (which is the most ambitious first‐best target) is investigated. In many cases, while the first‐best is attainable, it requires negative prices for vaccines, which amounts to rewarding consumers to induce them to vaccinate.

The paper analyzes the notion of an unbeatable strategy as a game-theoretic solution concept. A general framework (games with relative preferences) suitable for the analysis of this concept is proposed. Basic properties of unbeatable strategies are presented and a number of examples and applications considered.

We employ lattice-theoretic techniques to provide sufficient conditions under which sets of pure-strategy Nash equilibria across games are comparable. Differentiating our approach from previous literature, our conditions do not require any notion of complementarity between players' actions or within the components of an individual player's action. Instead, our conditions imply a bound on the magnitude of behavioral changes that stem from the interactions between actions. Our results have broad applications throughout economics, particularly in industrial organization.

In a perfectly competitive market and in multi-product monopoly with linear demands and costs, the socially optimal taxes are Ramsey independent taxes (RIT), which are independent of each other, have a simple structure, reduce all products proportionally, and affect consumers and firms in similar ways. Under imperfect competition, while not optimal in general for both social welfare and consumer surplus objectives, RIT nevertheless retain attractive uniform effects in all markets. In asymmetric Cournot and Bertrand oligopolies, the socially and consumer-efficient taxes are surprisingly complex even in simple settings. Postulating a third objective of taxation as the average of social welfare and consumer surplus restores the optimality of RIT. Finally, another important property is that RIT impose equal corresponding marginal costs across all types of markets, as required for economy-wide efficient taxation.

This paper evaluates the comparative performance of emission and performance standards in a one-stage game of abatement R&D and Cournot duopoly, in terms of R&D propensity, output and social welfare. For each standard, firms simultaneously select R&D and output levels, given the standard’s exogenous constraint. A performance standard generates higher R&D investments and output, but lower profit, than the pollution-equivalent emissions standard. The same conclusion extends to social welfare only under high demand. We also conduct a similar comparison for each of the two instruments across the one-stage and the two-stage models. The two-stage model leads to higher levels of R&D and industry output for both standards. The same conclusion applies to the social welfare comparison for the emissions standard. However, for the performance standard, the same conclusion requires a damage parameter below a given threshhold. When the standards are chosen to maximize welfare, the performance comparison becomes highly parameter-dependent, except that social welfare is higher for the performance standard. Some policy implications are discussed.

This Special Issue of Journal of Public Economic Theory is a follow-up on Issue 24-5 (for a summary of its contributions, see Amir & Boucekkine, 2022), both issues being dedicated to the economics of epidemics, vaccines, and associated health policies. The present special issue includes seven original and carefully selected articles, some of which are pioneering within the recent COVID-19-induced, epidemics-related economics literature. The seven articles may be divided along the broad categorization by area of economics: five of them take a microeconomics perspective (Amir, et al., 2023; Higgins & Sabarwal, 2023; d'Albis, et al., 2023; Samad et al., 2023; Sorensen, 2023) and thus join similar studies published in the previous Special Issue (e.g., Azémar et al., 2022). The other two articles are grounded in a macroeconomic overlapping-generations framework (Davin et al., 2023; Marchiori & Pierrard, 2023). The economics of vaccines is a recurrent theme in this Special Issue and the articles by d'Albis et al. (2023), Sorensen (2023), and Amir et al. (2023) all address, directly or indirectly, different facets of this important issue. More specifically, all three articles propose settings and results that shed light on some rational or positive aspects of the key issue of vaccine hesitancy, which was one of the central and enduring challenges faced by national and international health authorities during the recent COVID-19 crisis (also see Federico et al., 2022). We outline in what follows the specific contributions of each of the papers contained in the present Special Issue, stressing their value-added. The article by Higgins and Sabarwal (2023) fits in the recent literature strand of games on networks, a setting used to understand strategic diffusion of actions or ideas, among other issues. Specifically, the authors study the scope for the proliferation of an action (such as a political narrative or a reaction to a health campaign on online social media) in binary-action network coordination games that include both local and global effects (with the latter included as an additive component to a player's payoff). This provides a theoretical basis to understand the success or failure of particular messages and their impact on societal outcomes. The setting naturally captures complementarities among starting sets, network resilience, and global effects and highlights the interdependence of channels through which such contagion spreads. The authors present new, natural, computationally tractable, and efficient algorithms to define and compute equilibrium objects that facilitate the general study of contagion in networks and prove their theoretical properties. The algorithms are easy to implement and help to quantify relationships previously inaccessible due to computational intractability. Using these algorithms, we study the spread of contagion in scale-free networks with 1000 players using millions of Monte Carlo simulations. Overall, this analysis provides quantitative and qualitative insight into the design of policies to control or spread contagion in networks. The scope of application is enlarged given the many other situations in different fields (e.g., epidemiology, political science and sociology) that may be modeled using this framework (see Freiberger et al., 2022). Vaccine hesitancy is a major challenge with the potential to undermine the efficacy of health and epidemic control policies, as has been made clear in the recent COVID crisis. The next three articles explore various facets of this phenomenon, which often arises from rational and strategic considerations, as proposed in these papers. D'Albis et al. (2023) provide a decision-theoretic argument to explain this issue. Since Geoffard and Philipson (1997), it has been known that disease eradication is not a reachable target when individuals act according to their own interests. A rich literature has emerged since then attempting to rationalize such behavior in a variety of contexts. One natural context of vaccine hesitancy, which fits the COVID experience in several countries, is pessimism about the efficacy of a vaccine, which often goes with the perception of significant adverse reaction effects. This may not only lead to vaccine hesitancy but also to more risky behavior, aggravating the course of the epidemics (see Auld, 2003, e.g.). D'Albis et al. show that vaccine hesitancy may persist even if vaccination has beneficial effects! To this end, the authors develop a novel ambiguity aversion argument in an otherwise simple model of individual investment in prevention under epidemics, with risk aversion toward health risk and complementarity between health and wealth. Health status depends on the prevention investment (or effort) but also on an exogenous biological (individual) characteristic, which may cover different intrinsic individual observable and nonobservable characteristics (gender, age or immunity level). Vaccination is likely to raise the level of this biological parameter (as it may enhance immunization). However, this level is not known before testing the vaccine, since the typical protocol in placebo control clinical trials is a double-blind process (i.e., neither side knows who is getting treatment and who is the placebo). The main contribution of d'Albis et al. is to provide a decision-theoretic setting to characterize the behavior of participants in such a trial, w.r.t. the decision to participate or not and the optimal prevention effort when participating in the trial. In this setting, the biological immunity parameter is not known, but follows a certain probability distribution. A similar assumption is made on the emergence of adverse reaction effects. Using the α-MEU model of preferences representation under ambiguity (i.e., decisions evaluated as a weighted sum of the highest and lowest expected utility compatible with the set of priors), α being the degree of ambiguity aversion or pessimism, the authors are able to characterize both the decision to participate in trials in terms of the level of ambiguity aversion and the distribution of the adverse reaction effect, and the optimal prevention effort of those participating in the trial. This allows them to provide an alternative theory of rational vaccine hesitancy. See Morimoto and Suzuki (2022) for previous related work. The article by Sorensen (2023) presents an n-player, simultaneous-move game, designed to model individual vaccination decisions in a strategic setting. The vaccine is designed to protect against infection, which may occur from contact with any agent already infected with the contagious disease. The vaccine is costly to the agent, and this cost includes the price, opportunity costs and other perceived costs by the agent. Infection also leads to a loss for the infected agent. Examples include diseases such as measles, mumps, rubella, and the flu. Since receiving a vaccine not only reduces one's own likelihood of getting sick, but also decreases others' chances, vaccinating creates a positive externality. The author shows that a pure-strategy Nash equilibrium always exists, is unique, and leads to a number of vaccinating agents that is decreasing in the vaccine cost. The associated analysis evaluates individuals' incentives to vaccinate, and the externalities created by each vaccination. Another result is that the number of vaccinating agents is lower than the socially optimal number. This analysis does not include a damage term in the social welfare function to account for the health (or contagion) externality, in line with the related literature on vaccination games. Interestingly, an increase in vaccine effectiveness may not only decrease the number of vaccinating agents, but also this in turn may decrease total welfare. Increased vaccine effectiveness, however, always increases total welfare at the social optimum. Thus, more effective vaccines do not always lead to better outcomes, even though they are theoretically capable of producing better societal outcomes. The article by Amir, Garcia, et al. (2023) considers an oligopolistic market for a vaccine, characterized by negative network effects, which stem from the free-riding behavior of individuals engaged in a vaccination game, as studied in detail by Sorensen (2023). While the latter study delves into the foundations for a demand side for vaccines, the present paper looks into the associated supply side, building on Amir, Liu, et al. (2023). Vaccine markets often suffer from three imperfections: high concentration, network effects, and a health externality (contagion). The first conclusion of the paper is that the negative network externality is potentially important as a market distortion, as the associated drops in demand may lead to significant welfare losses. The main objective of the paper deals with public policy intervention in vaccine markets. In addition to the consumer and producer surplus terms, the planner's social welfare reflects a damage term to capture the health externality, that is, the fact that, absent vaccines, the infected cases will spread the epidemic through contagion effects. The authors investigate the effects of a per unit subsidies for consumers and producers. In a second-best perspective where the social planner is not empowered to control market conduct, the goal is to aim at implementing subsidy schemes that replicate the first-best outcome, even though firms continue to behave in RECE fashion. The scope of such a subsidy scheme to induce the firms to produce the first-best output without network effects (which is the most ambitious first-best target) is investigated. In many cases, while the first best is attainable, it requires negative prices for vaccines, which amounts to rewarding consumers to induce them to vaccinate. While such rewards are controversial, they do enjoy the backing of some prominent economists. The article by Samad et al. (2023) reports on a laboratory experiment designed to better understand data privacy concerns with respect to genetic data and financial data. The results suggest that in some situations, individuals are more willing to risk loss of genetic data privacy than loss of financial data privacy. The authors develop a modified version of a trust game (Berg et al., 1995) in which the sender's monetary transfer increases the probability of the receiver's payoff rather than directly going to the receiver. Their modified game is implemented in a between-subjects design, framed as a decision to share genetic data in one treatment and financial data in another. To represent the fact that sharing data can be risky yet potentially rewarding, the sender's monetary transfer decision converts her remaining endowment into a lottery. Results show significantly higher transfer rates in the genetic context, indicating that people are more willing to risk the privacy of their genetic data than of their financial data. Moreover, using a method similar to the triadic approach developed by Cox (2004), the authors further conduct four within-subject treatments to decompose people's motivation for sharing data. Results from these treatments suggest that genetic data sharing is primarily motivated by personal gain, with negligible contributions from trust and altruism. Interestingly, in contrast, all three factors make significant contributions in motivating financial data sharing. The authors conjecture that this finding indicates people are more generous with their wealth when it is not at the expense of their own possible health benefits. Overall, the paper reinforces the results of the papers discussed above. The next two studies are of a macroeconomic nature and make use of overlapping generations general equilibrium settings. As such, they join a number of articles published in the previous Special Issue on the same general topic, namely Gori et al. (2022), La Torre et al. (2022); as well as studies that evaluate the performance of specific policies aiming at epidemic control, such as Iverson et al. (2022), Gallic et al. (2022), Hellmann and Thiele (2022), and Hritonenko and Yatsenko (2022). Davin et al. (2023) develop the first dynamic (overlapping-generations [OLG]) general equilibrium model where fully specified epidemic infection dynamics intersect with a pollution health externality to jointly determine long-term health and economic outcomes. While the relationship between pollution and mortality with the inherent public policy has been already studied in OLG models (see Goenka et al., 2020, for a recent study), the mechanisms uncovered by Davin et al. are more specific (and new to this literature), and more tightly connected to the medical literature on COVID. Indeed, others have argued that, as SARS-CoV-2 (COVID virus) is respiratory, its spread is likely to be strongly accelerated by air pollution through NOx particles conveying it (e.g., Rohrer et al., 2020). In the Davin et al. setting, epidemic infections follow a standard Susceptible–Infection–Susceptible model where virus transmission is accelerated by global pollution (proportional to production). In addition, mortality is age-dependent: roughly consistent with COVID outcomes, mortality risks are only faced by old agents. In addition to this novel frame, the paper provides a detailed analysis of the impact of public policy, notably in the long run. Public expenditures, essentially health expenditures reducing the virus transmission rate, are financed either by fiscal policy, mainly taxation (of labor income and/or production), but the government may also incur debt, another key characteristic of the COVID episode. Davin et al. generate a number of highly interesting results on the long-run efficiency of fiscal policy in terms of epidemic control, highlighting among others the interplay between the pollution externality and the epidemic dynamics. In particular, they show that the higher the pollution intensity, the more difficult it is to fight the epidemic. Another interesting aspect is the accurate disentangling of the complex interactions between fiscal policy and epidemic control. This is particularly enlightening in their analysis of the financing of health expenditures by public debt. They ultimately show that the crowding-in effect of public debt (i.e., the stimulus effect of public debt resulting from the subsequent rise in public spending) dominates if the rate of pollution emission is not too high. Marchiori and Pierrard (2023) explore in detail an intriguing positive health externality and suggest a number of highly interesting policy implications. As young agents generally ignore that healthier ageing leads to lower health expenditures, which in turn reduces the tax burden on the next generation, they typically underinvest in their own health. There is room in such a case for subsidizing these preventive healthcare expenditures. The basic policy take-away of the paper: subsidize preventive health care today so not to spend too much on curative care tomorrow. While the identification of this externality is not new (see Wang, 2018 for an empirical appraisal), it has not been explored in depth so far. The main question treated by Marchiori and Pierrard is precise and deep enough: how to fix the optimal subsidy rate of prevention and according to which criteria? The authors use a natural two-period overlapping generations general equilibrium set-up where agents privately invest in preventive health care when young to enjoy a better and utility-enhancing health when old and retired. Agents work when adult and save part of their labor income, which is used for consumption when retired. The unique good of the economy is produced by Cobb–Douglas technology with capital and labor as inputs. Private (preventive) health expenditures are subsidized, but curative health expenditures for the elderly are entirely paid by the government, with all public expenditures being financed by labor income taxation. The optimal subsidy results are obtained analytically on the economy's steady states at general equilibrium, which is one valuable achievement of the paper. Three optimality criteria are explored: welfare optimization, health optimization, and capital optimization (all at the steady state). The main finding of the paper is that the welfare-maximizing subsidy rate is lower than the health-maximizing rate but higher than the capital-maximizing rate. These findings are nicely interpreted along with other broader considerations, thus extending the scope of the analytical results (in particular with regard to the trade-off between health and economic outcomes, central in the recent COVID literature).

This paper examines marginal deviations from free trade in an asymmetric Cournot world. We provide necessary and sufficient conditions under which: (i) small import tariffs, (ii) export subsidies, (iii) production subsidies and (iv) consumption taxes increase country-level as well as world social welfare and consumer surplus. We find that free trade is generally not optimal: some countries' tariffs or subsidies can always improve world welfare. Every country's export subsidy raises the average of world social welfare and consumer surplus. Finally, we rank the different policies and show that production subsidies are most likely to raise world social welfare, followed by export subsidies and then import tariffs, whereas consumption taxes never do.

Journal of Public Economic TheoryVolume 24, Issue 5 p. 861-872 INTRODUCTION Introduction to the special issue on new insights into economic epidemiology: Theory and policy Rabah Amir, Corresponding Author Rabah Amir rabah-amir@uiowa.edu Department of Economics, University of Iowa, Iowa City, IA, United States Correspondence Rabah Amir, Department of Economics, University of Iowa, 21 East Market Street, PBB Building W282, Iowa City 52242, IA, USA. Email: rabah-amir@uiowa.eduSearch for more papers by this authorRaouf Boucekkine, Raouf Boucekkine Rennes School of Business, Rennes, FranceSearch for more papers by this author Rabah Amir, Corresponding Author Rabah Amir rabah-amir@uiowa.edu Department of Economics, University of Iowa, Iowa City, IA, United States Correspondence Rabah Amir, Department of Economics, University of Iowa, 21 East Market Street, PBB Building W282, Iowa City 52242, IA, USA. Email: rabah-amir@uiowa.eduSearch for more papers by this authorRaouf Boucekkine, Raouf Boucekkine Rennes School of Business, Rennes, FranceSearch for more papers by this author First published: 15 September 2022 https://doi.org/10.1111/jpet.12620Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinked InRedditWechat Volume24, Issue5New insights into economic epidemiology: Theory and policyOctober 2022Pages 861-872 RelatedInformation