Antonio Cabrales

Optimal network topologies for local search with congestion

The problem of searchability in decentralized complex networks is of great importance in computer science, economy, and sociology. We present a formalism that is able to cope simultaneously with the problem of search and the congestion effects that arise when parallel searches are performed, and we obtain expressions for the average search cost both in the presence and the absence of congestion. This formalism is used to obtain optimal network structures for a system using a local search algorithm. It is found that only two classes of networks can be optimal: starlike configurations, when the number of parallel searches is small, and homogeneous-isotropic configurations, when it is large.

Stochastic Replicator Dynamics

This article studies the replicator dynamics in the presence of shocks. I show that under these dynamics, strategies that do not survive the iterated deletion of strictly dominated strategies are eliminated in the long run, even in the presence of nonvanishing perturbations. I also give an example that shows that the stochastic dynamics in this article have equilibrium selection properties that differ from other dynamics in the literature.

Labor-market flexibility and aggregate employment volatility

Abstract Recent empirical work for the Spanish Economy indicates that after 1984, when the rules for temporary employment were significantly relaxed, aggregate employment increased but has become highly volatile. The counterpart of this in the labor microevidence is a significant increase in the hazard rates for match destruction. This paper develops a model of job creation and destruction with dismissal costs and analyses the effect of introducing a rule by which all jobs terminated within a given period of time are exempt from these costs. The model is calibrated using microevidence on registered social-security job matches for the Spanish economy.

On the Limit Points of Discrete Selection Dynamics

continuous dynamics. Our condition guarantees that limit points of discrete selection dynamics are rationalizable strategies. We show that the condition will be satisfied by the discrete replicator dynamic if the population does not change rapidly. These results reconcile the Samuelson-Zhang theorem, which implies that limit points of continuous replicator dynamics must be rationalizable, with an example of Dekel and Scotchmer [J. Bon. Theory, 19921, which shows that limit points of the discrete replicator dynamic may place positive probability on strictly dominated stategies. Journal of Economic Literature Classification Numbers: C72,

Markets for Information: Of Inefficient Firewalls and Efficient Monopolies

In this paper we build a formal model to study market environments where information is costly to acquire and is of use also to potential competitors. In such situations a market for information may form, where reports - of unverifiable quality - over the information acquired are sold. A complete characterization of the equilibria of the game is provided. We find that information is acquired when its costs are not too high and in that case it is also sold, though reports are typically noisy. Also, the market for information tends to be a monopoly, and there is typically inefficiency given by underinvestment in information acquisition. Regulatory interventions in the form of firewalls, limiting the access to the sale of information to third parties, uninterested in trading the underlying object, only make the inefficiency worse. On the other hand, efficiency can be attained with a monopolist selling differentiated information, provided entry is blocked. The above findings hold when information has a prevalent horizontal differentiation component. When that is not the case, and the vertical differentiation element is more important, firewalls can in fact be beneficial.

The Quality of Political Institutions and the Curse of Natural Resources

We propose a theoretical model to explain empirical regularities related to the curse of natural resources, which emphasises the behaviour and incentives of politicians. We extend the standard voting model to give voters political control beyond the elections. This gives rise to a new restriction that policies should not give rise to a revolution. Our model clarifies when resource discoveries might lead to revolutions, namely, in countries with weak institutions. It also suggests that for bad political institutions human capital depends negatively on natural resources, while for high institutional quality the dependence is reversed. This finding is corroborated in cross-section regressions.

Risk dominance selects the leader: An experimental analysis

Coordination games arise very often in studies of industrial organization and international trade. This type of games has multiple strict equilibria, and therefore the identification of testable predictions is very difficult. We study a vertical product differentiation model with two asymmetric players choosing first qualities and then prices. This game has two equilibria for some parameter values. However, we apply the risk dominance criterion suggested by Harsanyi and Selten and show that it always selects the equilibrium where the leader is the firm having some initial advantage. We then perform an experimental analysis to test whether the risk dominance prediction is supported by the behaviour of laboratory agents. We show that the probability that the risk dominance prediction is right depends crucially on the degree of asymmetry of the game. The stronger the asymmetries the higher the predictive power of the risk dominance criterion.

Three is a crowd in iterated prisoner's dilemmas: experimental evidence on reciprocal behavior

Reciprocity or conditional cooperation is one of the most prominent mechanisms proposed to explain the emergence of cooperation in social dilemmas. Recent experimental findings on networked games suggest that conditional cooperation may also depend on the previous action of the player. We here report on experiments on iterated, multi-player Prisoners dilemma, on groups of 2 to 5 people. We confirm the dependence on the previous step and that memory effects for earlier periods are not significant. We show that the behavior of subjects in pairwise dilemmas is qualitatively different from the cases with more players; After an initial decay, cooperation increases significantly reaching values above 80%. The strategy of the players is rather universal as far as their willingness to reciprocate cooperation is concerned, whereas there is much diversity in their initial propensity to cooperate. Our results indicate that, for cooperation to emerge and thrive, three is a crowd.

Implementation in adaptive better-response dynamics: Towards a general theory of bounded rationality in mechanisms

We study the classic implementation problem under the behavioral assumption that agents myopically adjust their actions in the direction of better-responses or best-responses. First, we show that a necessary condition for recurrent implementation in better-response dynamics (BRD) is a small variation of Maskin monotonicity, which we call quasimonotonicity. We also provide a mechanism for implementation in BRD if the rule is quasimonotonic and excludes worst alternatives – no worst alternative (NWA). Quasimonotonicity and NWA are both necessary and sufficient for absorbing implementation in BRD. Moreover, they characterize implementation in strict Nash equilibria. Under incomplete information, incentive compatibility is necessary for any kind of stable implementation in our sense, while Bayesian quasimonotonicity is necessary for recurrent implementation in interim BRD. Both conditions are also essentially sufficient for recurrent implementation, together with a Bayesian NWA. A characterization of implementation in strict Bayesian equilibria is also provided. Partial implementation results are also obtained.

Heterogeneous beliefs, wealth accumulation, and asset price dynamics

This paper develops and analyzes a model of asset markets with two types of investors. We study the stochastic processes for the distribution of wealth between the two types of investors and for the equilibrium asset returns. The relationship between this model and some econometric models with time varying parameters, such as the ARCH (Autoregressive Conditional Heteroskedasticity) model, as well as the relationship between the volume of trade and volatility, are examined. The dynamic properties of another model, regarding investors who use strategies that are a bit more complex, are also analyzed.