Jack Ochs

Overcoming the Coordination Problem: Dynamic Formation of Networks

We analyze a multi-period entry game among privately informed agents who differ with respect to the number of agents who must enter in order for their own entry to be profitable. In each period agents who have not yet joined decide whether to subscribe to a network. There exists a unique equilibrium that approximates any symmetric equilibrium arbitrarily closely as the discount factor approaches one. This resolves the coordination problem. Ex-post efficiency is necessarily achieved asymptotically as the population size grows large. These results do not hold if subscribers can reverse their decisions without cost.

Equilibrium Selection in Static and Dynamic Entry Games

We experimentally assess the predictive power of two equilibrium selection principles for binary N-player entry games with strategic complementarities. In static entry games, we test the theory of global games which posits that players play games of complete information as if they were playing a related global game of incomplete information. By contrast, in dynamic n-period entry games, the efficient subgame perfect equilibrium prediction is for all to enter whenever the payoff relevant state variable exceeds a certain threshold. The subgame perfect entry threshold of the dynamic game will generally differ from the global game threshold of the static version of the same game. Nevertheless, our experimental findings suggest that entry thresholds are similar between static and dynamic versions of the same game. An implication is that the modeling of entry games with strategic complementarities as static, one-shot games – ignoring the dynamic element of such interactions – may not be unreasonable.

On exploiting scale economies

Abstract Indivisibilities give rise to scale economies in the provision of many local public services. Exploitation of these scale economies often requires that the activities of several communities be coordinated. In this study we analyze the game analog to a simple waste collection system in order to determine the requirements for the design of a financing system that will sustain optimal participation in a regional service system plan. We find that market based pricing in the face of scale economies created by indivisibilities will generally not support an optimal partition of communities into service districts. We also find that characterization of the game structure of local public service delivery systems is feasible and provides information for designing appropriate cost-sharing arrangements.