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Indirect Evolution versus Strategic Delegation: A Comparison of Two Approaches to Explaining Economic Institutions

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  • Dufwenberg, Martin

    ()
    (Department of Economics)

  • Güth, Werner

    (Department of Economics)

Abstract

Two major methods of explaining economic institutions, namely by strategic choices or through (indirect) evolution, are compared for the case of a homogenous quadratic duopoly market. Sellers either can provide incentives for agents to care for sales, or evolve as sellers who care for sales in addition to profits. The two approaches are conceptually quite different, yet similar in the sense that both allow certain kinds of commitment. We show that when the two models are set up in intuitively comparable ways strategic delegation does not change the market results as compared to the usual duopoly solution, while indirect evolution causes a more competitive behavior. Thus the case at hand underscores the differences between the two approaches in explaining economic institutions.

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Bibliographic Info

Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 1998:9.

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Length: 19 pages
Date of creation: 06 Mar 1998
Date of revision:
Publication status: Published in European Journal of Political Economy, 1999, pages 281-295.
Handle: RePEc:hhs:uunewp:1998_009

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Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
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Web page: http://www.nek.uu.se/
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Keywords: Indirect evolution; strategic delgation; commitment; duopoly markets; agency theory;

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  1. Rotemberg, Julio J, 1994. "Human Relations in the Workplace," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 102(4), pages 684-717, August.
  2. Gueth, W. & Kliemt, H., 1993. "Competition or Co-Operation," Discussion Paper, Tilburg University, Center for Economic Research 1993-39, Tilburg University, Center for Economic Research.
  3. Katz, Michael L., 1991. "Game-Playing Agents: Unobservable Contracts as Precommitments," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt79b870w0, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  4. repec:fth:harver:1502 is not listed on IDEAS
  5. Fershtman, C & Gneezy, U, 1996. "Strategic Delegation : An Experiment," Papers 43-96, Tel Aviv.
  6. Baik, Kyung Hwan & Kim, In-Gyu, 1997. "Delegation in contests," European Journal of Political Economy, Elsevier, vol. 13(2), pages 281-298, May.
  7. Caillaud, Bernard & Jullien, B & Picard, P, 1995. "Competing Vertical Structures: Precommitment and Renegotiation," Econometrica, Econometric Society, Econometric Society, vol. 63(3), pages 621-46, May.
  8. Jorgen W. Weibull, 1997. "Evolutionary Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262731215, December.
  9. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-40, December.
  10. Werner Güth & Steffen Huck, 2005. "On the Evolutionary Stability of Profit Maximization," Homo Oeconomicus, Institute of SocioEconomics, vol. 22, pages 208-230.
  11. Hammerstein, Peter & Selten, Reinhard, 1994. "Game theory and evolutionary biology," Handbook of Game Theory with Economic Applications, Elsevier, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 2, chapter 28, pages 929-993 Elsevier.
  12. Guth, Werner & Huck, Steffen, 1997. "A new justification of monopolistic competition," Economics Letters, Elsevier, vol. 57(2), pages 177-182, December.
  13. Werner Güth & Hartmut Kliemt, 1994. "Competition Or Co-Operation: On The Evolutionary Economics Of Trust, Exploitation And Moral Attitudes," Metroeconomica, Wiley Blackwell, vol. 45(2), pages 155-187, 06.
  14. Guth, Werner, 1995. "An Evolutionary Approach to Explaining Cooperative Behavior by Reciprocal Incentives," International Journal of Game Theory, Springer, vol. 24(4), pages 323-44.
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Cited by:
  1. Possajennikov, A., 1999. "On Evolutionary Stability of Spiteful Preferences," Discussion Paper, Tilburg University, Center for Economic Research 1999-56, Tilburg University, Center for Economic Research.
  2. Güth, Werner, 1998. "Sequential versus independent commitment: An indirect evolutionary analysis of bargaining rules," SFB 373 Discussion Papers 1998,5, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.

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