Game Theory for Applied Economics

by Gibbons, Robert

• ISBN13: 9780691003955
• ISBN10: 0691003955
• Edition: Reprint
• Format: Paperback
• Copyright: 1992-07-13
• Publisher: Ingram Pub Services

Summary

This book introduces one of the most powerful tools of modern economics to a wide audience: those who will later construct or consume game-theoretic models. Robert Gibbons addresses scholars in applied fields within economics who want a serious and thorough discussion of game theory but who may have found other works overly abstract. Gibbons emphasizes the economic applications of the theory at least as much as the pure theory itself; formal arguments about abstract games play a minor role. The applications illustrate the process of model building--of translating an informal description of a multi-person decision situation into a formal game-theoretic problem to be analyzed. Also, the variety of applications shows that similar issues arise in different areas of economics, and that the same game-theoretic tools can be applied in each setting. In order to emphasize the broad potential scope of the theory, conventional applications from industrial organization have been largely replaced by applications from labor, macro, and other applied fields in economics. The book covers four classes of games, and four corresponding notions of equilibrium: static games of complete information and Nash equilibrium, dynamic games of complete information and subgame-perfect Nash equilibrium, static games of incomplete information and Bayesian Nash equilibrium, and dynamic games of incomplete information and perfect Bayesian equilibrium.

Table of Contents

Static Games of Complete Information	1	(54)
Basic Theory: Normal-Form Games and Nash Equilibrium	2	(12)
Normal-Form Representation of Games	2	(2)
Iterated Elimination of Strictly Dominated Strategies	4	(4)
Motivation and Definition of Nash Equilibrium	8	(6)
Applications	14	(15)
Cournot Model of Duopoly	14	(7)
Bertrand Model of Duopoly	21	(1)
Final-Offer Arbitration	22	(5)
The Problem of the Commons	27	(2)
Advanced Theory: Mixed Strategies and Existence of Equilibrium	29	(19)
Mixed Strategies	29	(4)
Existence of Nash Equilibrium	33	(15)
Further Reading	48	(1)
Problems	48	(3)
References	51	(4)
Dynamic Games of Complete Information	55	(88)
Dynamic Games of Complete and Perfect Information	57	(14)
Theory: Backwards Induction	57	(4)
Stackelberg Model of Duopoly	61	(3)
Wages and Employment in a Unionized Firm	64	(4)
Sequential Bargaining	68	(3)
Two-Stage Games of Complete but Imperfect Information	71	(11)
Theory: Subgame Perfection	71	(2)
Bank Runs	73	(2)
Tariffs and Imperfect International Competition	75	(4)
Tournaments	79	(3)
Repeated Games	82	(33)
Theory: Two-Stage Repeated Games	82	(6)
Theory: Infinitely Repeated Games	88	(14)
Collusion between Cournot Duopolists	102	(5)
Efficiency Wages	107	(5)
Time-Consistent Monetary Policy	112	(3)
Dynamic Games of Complete but Imperfect Information	115	(14)
Extensive-Form Representation of Games	115	(7)
Subgame-Perfect Nash Equilibrium	122	(7)
Further Reading	129	(1)
Problems	130	(8)
References	138	(5)
Static Games of Incomplete Information	143	(30)
Theory: Static Bayesian Games and Bayesian Nash Equilibrium	144	(8)
An Example: Cournot Competition under Asymmetric Information	144	(2)
Normal-Form Representation of Static Bayesian Games	146	(3)
Definition of Bayesian Nash Equilibrium	149	(3)
Applications	152	(12)
Mixed Strategies Revisited	152	(3)
An Auction	155	(3)
A Double Auction	158	(6)
The Revelation Principle	164	(4)
Further Reading	168	(1)
Problems	169	(3)
References	172	(1)
Dynamic Games of Incomplete Information	173	(84)
Introduction to Perfect Bayesian Equilibrium	175	(8)
Signaling Games	183	(27)
Perfect Bayesian Equilibrium in Signaling Games	183	(7)
Job-Market Signaling	190	(15)
Corporate Investment and Capital Structure	205	(3)
Monetary Policy	208	(2)
Other Applications of Perfect Bayesian Equilibrium	210	(23)
Cheap-Talk Games	210	(8)
Sequential Bargaining under Asymmetric Information	218	(6)
Reputation in the Finitely Repeated Prisoners' Dilemma	224	(9)
Refinements of Perfect Bayesian Equilibrium	233	(11)
Further Reading	244	(1)
Problems	245	(8)
References	253	(4)
Index	257