Pareto Efficient Outcome Research Articles

Who contributes to disaster preparedness? Predicting decision making in social dilemmas pertaining to community resilience.

Planning for community resilience through public infrastructure projects often engenders problems associated with social dilemmas, but little work has been done to understand how individuals respond when presented with opportunities to invest in such developments. Using statistical learning techniques trained on the results of a web-based common pool resource game, we analyze participants' decisions to invest in hypothetical public infrastructure projects that bolster their community's resilience to disasters. Given participants' dispositions and in-game circumstances, Bayesian additive regression tree (BART) models are able to accurately predict deviations from players' decisions that would reasonably lead to Pareto-efficient outcomes for their communities. Participants tend to overcontribute relative to these Pareto-efficient strategies, indicating general risk aversion that is analogous to individuals purchasing disaster insurance even though it exceeds expected actuarial costs. However, higher trait Openness scores reflect an individual's tendency to follow a risk-neutral strategy, and fewer available resources predict lower perceived utilities derived from the infrastructure developments. In addition, several input variables have nonlinear effects on decisions, suggesting that it may be warranted to use more sophisticated statistical learning methods to reexamine results from previous studies that assume linear relationships between individuals' dispositions and responses in applications of game theory or decisiontheory.

A maximum theorem for incomplete preferences

We extend Berge’s Maximum Theorem to allow for incomplete preferences. We provide a Maximum Theorem for a fixed preference that can be represented with a finite multi-utility consisting of continuous and strictly quasiconcave functions. We apply this result to study the continuity properties of the set of Walrasian equilibria in exchange economies in which agents have incomplete preferences and the set of Pareto efficient outcomes in strategic games with varying strategy spaces. We also provide a generalization that relaxes the multi-utility assumption and a more abstract theorem that allows for changing preferences. The latter result is based on a new continuity condition on the domains of comparability of a preference that clarifies why incompleteness often leads to failures of the maximum theorem.

Sado-masochism in Buchanan’s Samaritan’s Dilemma: A Constitutional Perspective

In this paper, we study the impact of altruism on an interaction between a Samaritan and a recipient/parasite in the frame of Buchanan’s Samaritan’s dilemma (1975). We show that, as soon as altruism reaches a certain threshold, the equilibrium of the game corresponds to the situation Buchanan called a Samaritan’s dilemma. We also show that the Nash equilibrium reached for these levels of altruism is a Pareto-efficient outcome. Thus, the situation Buchanan characterized as a Samaritan’s dilemma is not a dilemma at all. Both players are satisfied with the situation as it is and need each other, up to the point of giving birth to a sado-masochistic equilibrium. We also show that this result holds if and only if the constitutional rules are given—either the ethical rules followed by the individuals, or the form of the game. This equilibrium could be avoided if the players adopted a constitutional perspective on the situation.

Prescriptive Analytics in Urban Policing Operations

Problem definition: We consider the case of prescriptive policing, that is, the data-driven assignment of police cars to different areas of a city. We analyze key problems with respect to prediction, optimization, and evaluation as well as trade-offs between different quality measures and crime types. Academic/practical relevance: Data-driven prescriptive analytics is gaining substantial attention in operations management research, and effective policing is at the core of the operations of almost every city in the world. Given the vast amounts of data increasingly collected within smart city initiatives and the growing safety challenges faced by urban centers worldwide, our work provides novel insights on the development and evaluation of prescriptive analytics applications in an urban context. Methodology: We conduct a computational study using crime and auxiliary data on the city of San Francisco. We analyze both strong and weak prediction methods along with two optimization formulations representing the deterrence and response time impact of police vehicle allocations. We analyze trade-offs between these effects and between different crime types. Results: We find that even weaker prediction methods can produce Pareto-efficient outcomes with respect to deterrence and response time. We identify three different archetypes of combinations of prediction methods and optimization objectives that constitute the Pareto frontier among the configurations we analyze. Furthermore, optimizing for multiple crime types biases allocations in a way that generally decreases single-type performance along one outcome metric but can improve it along the other. Managerial implications: Although optimization integrating all relevant crime types is theoretically possible, it is practically challenging because each crime type requires a collectively consistent weight. We present a framework combining prediction and optimization for a subset of key crime types with exploring the impact on the remaining types to support implementation of operations-focused smart city solutions in practice.

Pareto-efficient solutions and regulations of congested ride-sourcing markets with heterogeneous demand and supply

Ride-sourcing services have experienced dramatic growth over the past decade but aroused debates on whether and how the government should regulate the ride-sourcing platform. To tackle this critical issue, this paper investigates the regulatory outcomes of various representative government regulations, including price-cap regulation, vehicle fleet size control, wage (per-order) regulation, income (hourly earnings) regulation, car utilization rate regulation, commission charge regulation, etc. In particular, we try to answer two key questions: (1) whether a regulation leads to a Pareto-efficient outcome; (2) what are the impacts of the regulations on the platform’s decisions and the resulting realized passenger demand and driver supply. By conducting theoretical and numerical studies, we offer some interesting and useful managerial insights for the government in designing appropriate regulations. Notably, some prevailing regulations, such as fleet size control and wage regulation, fail to achieve a Pareto-efficient outcome, while the maximum commission regulation and minimum service level (demand) regulation can achieve Pareto-efficient outcomes in markets with homogeneous drivers and mild traffic congestion. In addition, drivers’ heterogeneity and traffic congestion substantially affect the regulatory outcomes of various regulations. For example, in markets with homogeneous drivers, the income regulation does not take effect, while in markets with heterogeneous drivers, the income regulation does influence the platform’s decisions but still cannot achieve a Pareto-efficient outcome. We also show that the government acts quite differently under mild or heavy traffic congestion: it tends to encourage more drivers to participate in the market by a minimum fleet size regulation when traffic congestion is light, but restrain the vehicle fleet size by a maximum fleet size regulation when traffic congestion is severe.

Group incentive compatibility and welfare for matching with contracts

In the matching with contracts framework, under the assumption that each hospital has a choice function that satisfies the observable substitutability condition, we show that the strategy-proof cumulative offer mechanism is no longer guaranteed to be group strategy-proof, yet it nevertheless outputs a weakly Pareto efficient outcome for any input. We also discuss why, unlike the previous observations in the literature, the equivalence of strategy-proofness and group strategy-proofness does not carry over to our context.

To abate, or not to abate? A strategic approach on green production in Cournot and Bertrand duopolies

This research analyses firms' strategic choice of adopting an abatement technology in an environment with pollution externalities when the government levies an emission tax to incentivise firms to undertake emission-reducing actions. A set of different Nash equilibria – ranging from dirty to green production – arises in both quantity-setting and price-setting duopolies. Results show that if societal awareness towards a clean environment is relatively low (resp. high) and the index measuring the relative cost of abatement is relatively high (resp. low), the strategic interaction between two independent, competing, and selfish firms playing the abatement game leads them not to abate (resp. to abate) as the Pareto efficient outcome: no conflict exists between self-interest and mutual benefit to not undertake (resp. to undertake) emissions-reducing actions. Multiple Nash equilibria or a “green” prisoner's dilemma can also emerge in pure strategies. When the choice of adopting a green technology is an anti-prisoner's dilemma (deadlock), the society is better off, as social welfare under abatement is always larger than under no abatement. These findings suggest that living in a sustainable environment encourages the improvement of public education systems for the achievement of an eco-responsible attitude and the development of clean technologies through ad hoc R&D. • The article analyses the firms' abatement game in a duopoly. • There are pollution externalities and a welfare-maximising emission tax. • A set of different Nash equilibria, ranging from dirty to green production, arises. • Results hold both in quantity-setting and price-setting strategic contexts. • Sustainability requires ad hoc R&D and an eco-responsible attitude.

Liberalism, Rationality, and Pareto Optimality

Rational players in game theory are neoliberal in the sense that they can choose any available action so as to maximize their payoffs. It is well known that this can result in Pareto inferior outcomes (e.g. the Prisoner’s Dilemma). Classical liberalism, in contrast, argues that people should be constrained by a no-harm principle (NHP) when they act. We show, for the first time to the best of our knowledge, that rational players constrained by the NHP will produce Pareto efficient outcomes in n-person non-cooperative games. We also show that both rationality and the NHP are required for this result.

Bounded Rationality and Strategic Uncertainty in a Simple Dominance Solvable Game

How much of the failures to achieve Pareto efficient outcome observed in a simple 2 x 2 dominance solvable game can be attributed to strategic uncertainty and how much is actually due to individual bounded rationality? We address this question by conducting a set of experiments involving two main treatments: one in which two human subjects interact, and another in which one human subject interacts with a computer program whose behavior is known. By making the behavior of the computer opponent perfectly predictable, the latter treatment eliminates strategic uncertainty. Our results suggest that observed coordination failures can be attributed equally to individual bounded rationality and strategic uncertainty.

Young children use commodities as an indirect medium of exchange

Barter and commodity markets have been ubiquitous throughout history, suggesting that humans are good at exploiting profitable exchange opportunities. This paper studies our ability to trade through a developmental approach. We present a market experiment involving children who have not yet fully developed trading habits and are relatively unfamiliar with the concept of money. Namely, we ask 117 children aged 5 to 8 to trade in situations in which efficient market outcomes can either be achieved through simple barter or else necessitate the endogenous emergence of commodity money (trade requires transitory bookkeeping losses). We find that equilibrium outcomes are frequent (74% to 82% of subgroups depending on the treatment). Pareto efficient equilibrium outcomes occur in 82% of barter economies and 53% of commodity markets. Finally, 47% of children always trade efficiently. The results indicate that many young children can engage in profitable market exchanges.

Financial intermediation and the welfare theorems in incomplete markets

In production economies with incomplete markets, shareholders disagree about the objective of the firm. We show that a weak financial intermediary, who is unable to complete markets, can offer just enough spanning to resolve this disagreement. The intermediary is limited to offering one customized contract per consumer. Knowledge of demand functions is sufficient for offering the right contracts. Once agreement among shareholders is reached, productive efficiency is restored, which in turn permits a Pareto efficient market outcome. This result shows that the first welfare theorem does not depend on complete spanning, but merely on institutions that provide the right span. However, this cannot be said about the second welfare theorem: For some wealth distributions, equilibria with transfers fail to exist due to nonconvexities caused by market incompleteness.

A SUNSPOT-BASED THEORY OF UNCONVENTIONAL MONETARY POLICY

This paper is about the effectiveness of qualitative easing, a form of unconventional monetary policy that changes the risk composition of the central bank balance sheet. We construct a general equilibrium model where agents have rational expectations, and there is a complete set of financial securities, but where some agents are unable to participate in financial markets. We show that a change in the risk composition of the central bank’s balance sheet affects equilibrium asset prices and economic activity. We prove that, in our model, a policy in which the central bank stabilizes non-fundamental fluctuations in the stock market is self-financing and leads to a Pareto efficient outcome.

Why consumers’ ‘New power’ will change marketing

Because the sharing economy compels firm-stakeholder dynamics towards a multi-stakeholder market orientation (MSMO), the structures and power dynamics of sharing-economy firms differ markedly from traditional-economy firms. In this vein, we explore sharing-economy firms’ dependence on stakeholders (new power), the continual threat of new entrants (exponential organisations), and how these conditions combine to create additional stakeholder value by shifting Pareto efficient outcomes. We also discuss how previous scholarly efforts to impel traditional-economy firms toward stakeholder orientations failed because these firms generally treated stakeholder satisfaction as an optional rather than crucial goal for achieving sustainable competitive advantages. Finally, we argue that sharing-economy firms continue to disrupt markets, which increases every firm's need to explore value creation in theory and practice.

Some Strategic Decision Problems in Networks

The following analysis demonstrates that network efficiency is a very delicate matter. Neither the restriction to suitable core-subnets, nor intelligent enlargements guarantee efficient results in any case. For instance, the numerical example in Myerson (1977) contains a prisoners’ dilemma situation for some agents in the network. Of course, the outcome is inefficient from the perspective of these players – but not for the unrestricted network. Breass’ paradox shows that the enlargement of a network can lead to an inefficient outcome in the Nash equilibrium even if all players are taken into consideration. Restricting the network can create a Pareto efficient outcome. A third model discusses the strategic problem of a cyber network attack in the form of an inspection game. From the defender’s point of view, the question arises which nodes of the network are essential attack targets and thus need special security attention. In principle two types of nodes are critical: important ones and unimportant ones. Important nodes, as they connect to many other essential nodes and are therefore suitable multipliers for network malware and information capture, and unimportant nodes, from the attacker’s point of view, which are, in general, not in the focus of security attention, such that infiltration via them may be undetected for a long time.

The “fixed” pie perception and strategy in dyadic versus multiparty negotiations

Mixed-motive negotiations are strategically, socially, and motivationally complex. Theorists argue that multiparty negotiations exacerbate these complexities leading to inefficient outcomes. In contrast, we propose that multiparty negotiators respond to the complexities of their negotiation context by using strategy differently than dyadic negotiators and that one reason why is that they arrive at the negotiation table with weaker fixed pie perceptions than dyadic negotiators. Results across three studies showed that multiparty negotiators had weaker fixed pie perceptions compared to dyadic negotiators. Multiparty negotiators also engaged in more integrative strategic behavior and used more complex complementary and structural sequences of behavior than dyadic negotiators. These differences in use of strategy helped multiparty negotiators achieve Pareto efficient outcomes equal to those of dyads. To obtain a conservative estimate of the effect size of context on fixed pie perceptions, we conducted an internal meta-analysis of our file drawer.

Corporate responsibility and the plurality of market aims

AbstractA number of recent authors, most notably Joseph Heath, have persausively defended a market‐centered account of corporate responsibility that grounds standards of business conduct upon the normative presuppositions of the market. They have us focus on two important items: first, the value of welfare, or Pareto efficient outcomes, which underwrites the legitimacy of market arrangements; and second, the behavioral requirements needed to assure that corporations conduct business in a manner consistent with this value. This article critically examines the aspirations of this literature by embracing its basic method but questioning how well it understands the aim of the market. It puts forth a limited case for corporate responsibility anchored in other dimensions of the public good, distinct from the value of efficiency, and argues that a plausible understanding of corporate responsibility arises from the notion that market arrangements are sites of delegated social authority to provision other aspects of the common good.

Is the Mandatory Implementation of Workplace Health Management Systems Harmful to the Competitiveness of European Employers or an Obstacle to Economic Growth?

This paper analyses, reviews and connects the existing literature about workplace health management systems. We investigate the empirical evidence if a mandatory implementation could lead to a Pareto improvement for all stakeholders. This evaluation is based on the inclusion of several studies, which are not yet connected to the health-related issue. The increasing incidence of employee health issues generates high costs for employers as well as for insurers. Workplace Health Management Systems act as preventive measures in reducing health-related costs. Many case studies are used to explain the concepts and the specific cost reduction for the companies analyzed. But there is still a lack of a broad empirical base to provide convincing evidence for the cost-effectiveness of these programs. To demonstrate the general efficiency of these systems, several studies of different concepts with similar characteristics are compared to ensure, that the mandatory implementation leads to positive effects on the economy. We find that by implementing just a few prevention measures, positive returns can be achieved for a majority of sectors. Given that the market seems incapable of creating this allocation improvement by itself, the integration of health management into the Working Conditions Act seems reasonable, since this could allow a Pareto-efficient outcome to be achieved. Consequently, implementation will not lead to a reduction in the competitiveness of European employers, but rather to increased staff retention and improved productivity due to fewer employee sick days and an improvement in public health and makes the mandatory implementation of workplace health management systems a considerable issue for policymakers.

A Network Approach to Public Goods

Suppose that agents can exert costly effort that creates nonrival, heterogeneous benefits for each other. At each possible outcome, a weighted, directed network describing marginal externalities is defined. We show that Pareto efficient outcomes are those at which the largest eigenvalue of the network is 1. An important set of efficient solutions—Lindahl outcomes—are characterized by contributions being proportional to agents’ eigenvector centralities in the network. The outcomes we focus on are motivated by negotiations. We apply the results to identify who is essential for Pareto improvements, how to efficiently subdivide negotiations, and whom to optimally add to a team.

Flexible Resource Allocation in Device-to-Device Communications Using Stackelberg Game Theory

In underlaid device-to-device (D2D) cellular networks, severe radio interference can be typical for cellular and D2D users, which causes each D2D user’s quality-of-experience (QoE) to degrade significantly. Thus, in this paper, a dynamic Stackelberg game is formulated with a single-leader (base station) and multiple-followers (D2D pairs). The leader reduces interference within the network by charging a price to followers, whereas followers react to this price and compete to find optimal transmit power and resource block allocation. To enhance D2D user QoE, D2D users are categorized into one of three application classes with each class mapped to a different utility function. To address this, we propose a crucial innovation where the several different utility functions, available to followers, are solved using a non-scalarized approach, as a scalarized approach to this multi-criteria optimization problem is generally infeasible in real-time D2D cellular communications. To solve the game, a distributed algorithm is proposed, and it is shown to converge to a sub-game perfect Stackelberg equilibrium across all users. Simulation results show that the proposed approach reduces transmit power effectively and increases throughput, giving a Pareto-efficient outcome, while guaranteeing best social welfare and satisfaction across all D2D users.

Set-valued games and mixed-strategy equilibria in discounted supergames

This paper examines the subgame-perfect mixed-strategy equilibria in discounted supergames. We present a method that finds all the equilibrium payoffs without public correlation in 2 × 2 games. The method makes it possible to solve and analyse the set of equilibria in more detail. This is the first time that the mixed-strategy payoff set is solved in the repeated prisoner’s dilemma. We find that the players can obtain higher payoffs in mixed strategies, there are more Pareto efficient outcomes, and the set of equilibria can be dramatically larger. We show that the equilibrium payoffs can be efficiently computed by finding certain extreme points of the set. This result relies on the classification of games, the monotonicity properties of the problem and splitting the sets into X-Y convex parts. We also introduce set-valued games, where the players’ payoffs are chosen from given sets, and show that these games can be solved with the same methodology.