Date of Award
Doctor of Philosophy (PhD)
George J. Mailath
This dissertation consists of three essays that study the dynamic games with incomplete information. In the first chapter, I study a dynamic trading game where a seller and potential buyers start out symmetrically uninformed about the quality of a good, but the seller becomes informed about the quality, so that the asymmetric information between the agents increases over time. The introduction of a widening information gap results in several new phenomena. In particular, the interaction between screening and learning generates nonmonotonic price and trading patterns, contrary to the standard models in which asymmetric information is initially given. If the seller's effective learning speed is high, the equilibrium features "collapse-and-recovery" behavior: Both the equilibrium price and the probability of a trade drop at a threshold time and then increase later. The seller's payoff is nonmonotonic in his learning speed, as a slower learning speed can lead to higher payoff for the seller.
In the second chapter, I study a dynamic one-sided-offer bargaining model between a seller and a buyer under incomplete information. The seller knows the quality of his product while the buyer does not. During bargaining, the seller randomly receives an outside option, the value of which depends on the hidden quality. If the outside option is sufficiently important, there is an equilibrium in which the uninformed buyer fails to learn the quality and continues to make the same randomized offer throughout the bargaining process. As a result, the equilibrium behavior produces an outcome path that resembles the outcome of a bargaining deadlock and its resolution. The equilibrium with deadlock has inefficient outcomes such as a delay in reaching an agreement and a breakdown in negotiations. Bargaining inefficiencies do not vanish even with frequent offers, and they may exist when there is no static adverse selection problem.
In the third chapter, I address the following question: when does an incumbent party have an incentive to experiment with a risky reform policy in the presence of future elections? I study a continuous-time game between two political parties with heterogeneous preferences and a median voter. I show that while infrequent elections are surely bad for the median voter, too frequent elections can also make him strictly worse off. When the election frequency is low, a standard agency problem arises and the incumbent party experiments with its preferred reform policy even if its outlook is not promising. On the other hand, when the election frequency is too high, in equilibrium the incumbent stops experimentation too early because the imminent election increases the incumbent's potential loss of power if it undertakes risky reform. The degree of inefficiency is large enough that too frequent elections are worse for the median voter than a dictatorship.
Hwang, Ilwoo, "Essays on Dynamic Games of Incomplete Information" (2014). Publicly Accessible Penn Dissertations. 1316.