Strategy Meets Evolution: Games Suppliers and Producers Play
AbstractFinal goods producers, who may be intrinsically honest (a behavioral type) or opportunistic (strategic), play a repeated game of imperfect information with suppliers of an input of variable (and non-verifiable) quality. Returns to cheating are increasing in the proportion of intrinsically honest producers. If producers compete for another scarce input, adverse selection reduces this proportion enough to enforce universal honesty, whether at a high or a low quality equilibrium. This mechanism limits the proportion of behavioral types in the population of producers over a wide range of parameters: despite their inability to compete with opportunists, they are not wholly wiped out due to the strategic response of input suppliers. Moreover, in equilibrium, opportunists must replicate the behavioral type’s behavior. Thus competition curtails the presence of the behavioral type but increases the incidence if its behavior. If a labor market, where skilled and unskilled labor coexist, is also endogenized, an honest equilibrium with both high and low quality will generally be reached; however an exclusively high quality equilibrium with unemployment of unskilled labor is also possible.
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Bibliographic InfoPaper provided by Singapore Management University, School of Economics in its series Working Papers with number 06-2006.
Length: 27 pages
Date of creation: Feb 2006
Date of revision:
Publication status: Published in SMU Economics and Statistics Working Paper Series
Other versions of this item:
- Brishti Guha, 2006. "Strategy Meets Evolution : Games Suppliers and Producers Play," Microeconomics Working Papers 22430, East Asian Bureau of Economic Research.
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- J4 - Labor and Demographic Economics - - Particular Labor Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-08-26 (All new papers)
- NEP-CSE-2006-08-26 (Economics of Strategic Management)
- NEP-EVO-2006-08-26 (Evolutionary Economics)
- NEP-GTH-2006-08-26 (Game Theory)
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