David Pérez-Castrillo

Bidding For The Surplus: A Non-Cooperative Approach To The Shapley Value

We consider zero-monotonic environments with transferable utility and propose a simple non-cooperative game to determine how the surplus generated by cooperation is to be shared. First, the players bid for the right to propose a sharing of the surplus. Second, after the winner pays the bids, she makes a proposal to each of the other players. If the proposal is rejected, the rest of the players will play the same game again with the proposer left out. If her proposal is accepted, she forms the grand coalition, keeping its value for herself in exchange for the proposed payments to the rest of the players. We show that the final outcome of any subgame perfect equilibrium of this mechanism always coincides with the vector of the Shapley value payoffs. Finally, we extend our results to implement the weighted Shapley values.

Spatial competition in the banking system: Localization, cross subsidies and the regulation of deposit rates

Abstract The paper analyses a spatial competition model of the banking sector. Banks offer two kind of services (deposits and credit) and can either borrow or lend on the money market. We investigate the consequences of the regulation of rates paid on deposits. The main conclusions are as follows. Regulation first increases network size beyond social optimum. In the long run it results in lower equilibrium credit rates because of increased competition. Secondly, regulation generates tied sales contracts, by which banks propose bundles of credit and deposit services. Tied sales, in turn, motivate the introduction of cross-subsidies between the two activities, the rent levied upon regulated deposits financing lower rates in the credit market. Finally it is shown that in a regulated environment, the effectiveness of monetary policy is reduced in the sense that fluctuations of money market rates are less than fully transmitted in credit rates.

RESEARCH OUTPUT FROM UNIVERSITY-INDUSTRY COLLABORATIVE PROJECTS *

We study collaborative and noncollaborative projects that are supported by government grants. First, we propose a theoretical framework to analyze optimal decisions in these projects. Second, we test our hypotheses with a unique data set containing academic publications and research funds for all academics at the major university engineering departments in the United Kingdom. We find that the type of the project (measured by its level of appliedness) increases the type of both the university and firm partners. Also, the quality of the project (number and impact of the publications) increases with the quality of the researcher and firm, and with the affinity in the partners’ preferences. The collaboration with firms increases the quality of the project only when the firms’ characteristics make them valuable partners.

Sharing the surplus: An extension of the Shapley value for environments with externalities

Economic activities, both on the macro and micro level, often entail wide-spread externalities. This in turn leads to disputes regarding the compensation levels to the various parties affected. We propose a method of deciding upon the distribution of the gains (costs) of cooperation in the presence of externalities when forming the grand coalition is efficient. We show that any sharing rule satisfying efficiency, linearity, dummy player and a strong symmetry axioms can be obtained through an average game. Adding an additional axiom, we identify one unique rule satisfying these properties.

The Principal-Agent Matching Market

We propose an agency model based on competitive markets in order to analyse an economy with several homogeneous principals and heterogeneous agents. We model the principal-agent economy as a two-sided matching game and characterise the set of stable outcomes (equilibria) of this market. In this regard we generalise the assignment game of Shapley and Shubik (1972). Unlike in the standard principal-agent theory, equilibrium payoffs of all the individuals are endogenous, equilibrium contracts are Pareto optimal, and the incremental surplus generated in a principal-agent relationship accrues to the tenant. We design a simple non-cooperative game which implements the set of stable outcomes in subgame perfect equilibrium. We also suggest policy measures in relation to efficiency and income distribution.

Choosing Wisely: A Multibidding Approach

Reaching decisions about the location of noxious facilities, such as dump sites, environmentally hazardous plants, nuclear power generators and the like, is a highly contentious issue. For instance, in February 2000, the U.S. Senate decided that nationwide nuclear waste would be shipped to the Yucca mountain site in Nevada (conditional to it being approved as a high-level nuclear waste repository). Despite the attractive compensation package, the State of Nevada voiced vehement opposition. President Clinton vetoed the bill, and in May 2000 the Senate failed to overturn it. As such, the major problem facing the U.S. nuclear industry on where to site a high-level radioactive waste repository remains virtually unresolved. Neither are decisions about the location of desirable events easily solvable. Every two years, the International Olympic Committee selects hosts for the summer and winter games, a procedure that is constantly under review and revision in order to bring about the “best possible” outcome. Until about a year ago, the decision was made by a vote based on bids and plans submitted by candidate cities. However, the recent controversy surrounding the choice of Salt Lake City to host the 2002 winter games culminated in the design of a new procedure for choosing the host of the 2006 winter games. This procedure called for the selection of two finalist cities (in this case, Turin and Sion), immediately after which the host was selected by secret ballot (in this case, Turin). Another similar issue is currently the subject of heated debate in Spain. The Spanish government, both on the national and local level, has recently been discussing various possible projects for transferring water from rivers in the north of Spain to the arid southern regions. The parties involved have conflicting interests with regard to several aspects of the projects proposed. Particularly, the water-rich regions are hesitant to give up parts of their water resources. The parties involved have still not agreed upon the choice of a transport mode or the size of the transfer payments that would compensate the localities that are relinquishing part of the water supply. These and several other cases belong to a class of problems in which a group of agents has to choose one out of several projects. A project is efficient if it maximizes the aggregate welfare of the group members. Reaching an efficient outcome is trivial when the designer has all the relevant information. However, it is often the case that the parties concerned possess much more information than the designer. Hence, the designer faces a nontrivial problem if she wishes to optimally choose one of the projects. Moreover, from a normative point of view, even if the designer has all the information, it is easier to justify the use of a fixed procedure to reach a decision than to modify the procedure for various cases in light of information disclosed or already available to the designer. Several well-known methods are available for the problem of choosing one out of a set of alternatives. One class of methods consists of various voting schemes, such as majority voting or the Borda rule. The outcomes generated by these methods need not be efficient due to strategic behavior on the part of the agents. Another class of methods consists of VickreyClarke-Groves mechanisms. For this class, “truthtelling” is a dominant strategy that always results in the choice of an efficient alternative. However, these mechanisms are not budgetbalanced and the payments collected from the * Perez-Castrillo: Department of Economics & CODE, Universitat Autonoma de Barcelona, 08193 Bellatera (Barcelona), Spain; Wettstein: Department of Economics, BenGurion University of the Negev, Monaster Center for Economic Research, Beer-Sheva 84105, Israel. We thank Herve Moulin for his helpful suggestions; Suresh Mutuswami who encouraged us to check for strong Nash equilibria, and Francis Bloch, Mark Gradstein, Moshe Justman, Jordi Masso, and two anonymous referees for their useful comments. Perez-Castrillo gratefully acknowledges financial support from BEC2000-0172 and 2000SGR-00054.

Designing Contracts for University Spin-offs

We provide a theoretical model about how to design academic spin-off contracts between the university technology transfer office (TTO), the researcher, and the venture capitalist. The optimal contract entails the allocation of founder shares to the researcher to secure her participation in the venture. It may also require the researcher to be financially involved in the project to give her incentives to provide effort. We also show that when the TTO has better information than the other two participants concerning the likelihood of success of the spin-off, it will end up owning both founder and financial shares in the venture.

Contrats de licences et asymetrie d'information

This paper deals with the form of licencing contracts when there is asymmetric information. We show that when the licensor has private information he can signals the high quality patents through contracts based on royalties. Conversely, when the licensee has more information about the value of the patent, contracts including only a fixed fee attract those for whom the innovation has a high value.

Bidding for the surplus: realizing efficient outcomes in economic environments

In this paper, we consider two classes of economic environments. In the first type, agents are faced with the task of providing local public goods that will benefit some or all of them. In the second type, economic activity takes place via formation of links. Agents need both to both form a network and decide how to share the output generated. For both scenarios, we suggest a bidding mechanism whereby agents bid for the right to decide upon the organization of the economic activity. The subgame perfect equilibria of this game generate efficient outcomes.

Efficient Bidding with Externalities

We implement a family of efficient proposals to share benefits generated in environments with externalities. These proposals extend the Shapley value to games with externalities and are parametrized through the method by which the externalities are averaged. We construct two slightly different mechanisms: one for environments with negative externalities and the other for positive externalities. We show that the subgame perfect equilibrium outcomes of these mechanisms coincide with the sharing proposals.