David K. Levine's research while affiliated with Washington University in St. Louis and other places

Publications (261)

Article
We show that the treatment effect estimated by standard methods such as regression discontinuity analysis or difference-in-differences may contain a transient “learning effect” that is entangled with the long-term effect of the treatment. This learning effect occurs when the variable of interest is the agents’ efforts, when treatment and control co...
Article
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We study how optimal interventions in response to a shock with limited information depend on the complexity of the system. We show that as the complexity of the system grows, the optimal intervention shrinks to zero.
Article
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Models of two contestants exerting effort to win a prize are very common and widely used in political economy. The contest success function plays as fundamental a role in the theory of contests as does the production function in the theory of the firm, yet beyond the existence of equilibrium few general results are known. This paper seeks to remedy...
Preprint
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We introduce a model of group behavior that combines expressive participation with strategic participation. Building on the idea that expressive voting in elections is much like rooting for a sports team we give applications to both sporting events and elections. In our model there is an expressive externality: we generally prefer watching and chee...
Article
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A variety of experimental and empirical research indicate that prosocial behavior is important for economic success. There are two sources of prosocial behavior: incentives and preferences. The latter, the willingness of individuals to “do their bit” for the group, we refer to as internalization, because we view it as something that a group can inf...
Article
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This paper studies a simple model of a repeated cartel that can punish using both voluntary fines and inefficient prices wars. The idea is to use the fines in response to noisy signals of bad behavior and back it up with threats of price wars in response to the easily observed failure to pay the voluntary fines. The model is shown to deliver the in...
Article
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We study the consequences of policy interventions when social norms are endogenous but costly to change. In our environment a group faces a negative externality that it partially mitigates through incentives in the form of punishments. In this setting policy interventions can have unexpected consequences. The most striking is that when the cost of...
Article
The relevance of special interests lobbying in modern democracies can hardly be questioned. But if large trade associations can overcome the free riding problem and form effective lobbies, why do they not also threaten market competition by forming equally effective cartels? We argue that the key to understanding the difference lies in supply elast...
Article
We introduce a model where social norms of voting participation are strategically chosen by competing political parties and determine voters’ turnout. Social norms must be enforced through costly peer monitoring and punishment. When the cost of enforcement of social norms is low, the larger party is always advantaged. Otherwise, in the spirit of Ol...
Article
At a time when standards of living have improved more than any time in history, this book makes a proposal for radical change. It is based—loosely—on market design principles. The plan for attacking overlapping ownership is reasonably well thought out. Most of the book, however, proposes to use mechanisms designed for a narrow purpose; to attack re...
Article
We study models of learning in games where agents with limited memory use social information to decide when and how to change their play. When agents observe only the aggregate distribution of payoffs and recall only information from the last period, aggregate play comes close to Nash equilibrium for generic games, and pure equilibria are generally...
Article
Intervention often does not lead to peace, but rather to prolonged conflict. Indeed, we document that it is an important source of prolonged conflicts. We introduce a theoretical model of the balance of power to explain why this should be the case and to analyse how peace can be achieved: either a hot peace between hostile neighbours or the peace o...
Article
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We study common agency problems in which two principals (groups) make costly commitments to incentives that are conditioned on imperfect signals of the agent's action. Our framework allows for incentives to be either rewards or punishments. For our basic model we obtain a unique equilibrium, which typically involves randomization by both principals...
Article
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We study collusion within groups in noncooperative games. The primitives are the preferences of the players, their assignment to nonoverlapping groups, and the goals of the groups. Our notion of collusion is that a group coordinates the play of its members among different incentive compatible plans to best achieve its goals. Unfortunately, equilibr...
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Motivated by the basic adage that man does not live by bread alone, we offer a theory of historical economic growth and population dynamics where human beings need food to survive, but enjoy other things, too. Our model imposes a Malthusian constraint on food, but introduces a second good to the analysis that affects living standards without affect...
Article
How can a small special interest group successfully get an inefficient transfer at the expense of a much larger group with many more resources available for lobbying? We consider a simple model of agenda setting where two groups of different size lobby a politician over a transfer from one group to the other, and the group which sets the agenda can...
Article
Game theory has been a huge success in economics. Many important questions have been answered, and game theoretic methods are now central to much economic investigation. We suggest areas where further advances are important, and argue that models of learning are a promising route for improving and widening game theory's predictive power while prese...
Article
We study self-referential games in which players have the ability to commit to a code of conduct—a complete description of how they play and their opponents should play. Each player receives a private signal about each others’ code of conduct and their codes of conduct specify how to react to these signals. When only some players receive informativ...
Article
Full-text available
We study self-referential games in which players have the ability to commit to a code of conduct—a complete description of how they play and their opponents should play. Each player receives a private signal about each others’ code of conduct and their codes of conduct specify how to react to these signals. When only some players receive informativ...
Article
We investigate how a collusive group can sustain non-Nash actions by enforcing internal discipline through costly peer punishment. We give a simple and tractable characterization of schemes that minimize discipline costs while preserving incentive compatibility. We apply the model to a public goods contribution problem. We find that if the per-capi...
Article
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We characterize transitions between stochastically stable states and relative ergodic probabilities in the theory of the evolution of conventions. We give an application to the fall of hegemonies in the evolutionary theory of institutions and conflict, and illustrate the theory with the fall of the Qing dynasty and the rise of communism in China.
Article
We examine self-referential games in which there is a chance of understanding an opponent's intentions. Even when this source of information is weak, we are able to prove a folk-like theorem for repeated self-referential games with private monitoring. Our main focus is on the interaction of two sources of information about opponents' play: direct o...
Article
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The literature on the evolution of impatience, focusing on one-person decision problems, often finds that evolutionary forces favor the more patient individuals. This paper shows that in games where equilibrium involves threat of punishment there are forces generating an evolutionary advantage to the impatient. In particular, it offers a two-popula...
Research
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Motivated by the basic adage that man does not live by bread alone, we offer a theory of historical economic growth and population dynamics where human beings need food to survive, but enjoy other things, too. We show using our model that technology change is sufficient for explaining historical consumption patterns and population dynamics, includi...
Chapter
Intellectual property is a propaganda term used by proponents of copyrights and patents to promote the idea that government-enforced monopolies over ideas and parts of ideas share the beneficial effects of property. In fact, economic research shows that both copyrights and patents do more economic harm than good. In many areas, including copyright...
Article
This paper investigates learning-based agents that are capable of mimicking human behavior in game playing, a central task in computational economics. Although computational economists have developed various game-playing agents, well-established machine learning methods such as graphical models have not been applied before. Leveraging probabilistic...
Article
Full-text available
Motivated by the basic adage that man does not live by bread alone, we offer a theory of historical economic growth and population dynamics where human beings need food to survive, but enjoy other things, too. We show using our model that technology change is sufficient for explaining historical consumption patterns and population dynamics, includi...
Article
Full-text available
We examine the long-term implication of two models of learning with recency bias: recursive weights and limited memory. We show that both models generate similar beliefs and that both have a weighted universal consistency property. Using the limited-memory model we produce learning procedures that both are weighted universally consistent and conver...
Article
Different discrete time triangular arrays representing a noisy signal of players’ activities can lead to the same limiting diffusion process yet lead to different limit equilibria. Whether the limit equilibria are equilibria of the limiting continuous time game depends on the limit properties of test statistics for whether a player has deviated. We...
Article
In a model of evolution driven by conflict between societies more powerful states have an advantage. When the influence of outsiders is small we show that this results in a tendency to hegemony. In a simple example in which institutions differ in their “exclusiveness” we find that these hegemonies will be inefficiently “extractive” in the sense of...
Article
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The controversy over Intellectual Property Rights (patents and copyright) is here to stay. The steady accumulation of substantial empirical evidence casting serious doubts on the allegedly beneficial effects that Ipr s have on innovation and creativity is forcing an increasing number of researchers to question received wisdom. We have been doing t...
Article
The case against patents can be summarized briefly: there is no empirical evidence that they serve to increase innovation and productivity, unless productivity is identified with the number of patents awarded—which, as evidence shows, has no correlation with measured productivity. Both theory and evidence suggest that while patents can have a parti...
Article
The Malthusian theory of evolution disregards a pervasive fact about human societies: they expand through conflict. When this is taken account of the long-run favors not a large population at the level of subsistence, nor yet institutions that maximize welfare or per capita output, but rather institutions that maximize free resources. These free re...
Article
We examine self-referential games in which there is a chance of understanding an opponent’s intentions. Our main focus is on the interaction of two sources of information about opponents’ play: direct observation of the opponent’s code-of-conduct, and indirect observation of the opponent’s play in a repeated setting. Using both sources of informati...
Article
We derive a simplified version of the model of Fudenberg and Levine [2006, 2011] and show how this approximate model is useful in explaining choice under risk. We show that in the simple case of three outcomes, the model can generate indifference curves that “fan out” in the Marshack-Machina triangle, and thus can explain the well-known Allais and...
Article
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We reexamine the effects of the anchoring manipulation of Ariely, Loewenstein, and Prelec (2003) on the evaluation of common market goods and find very weak anchoring effects. We perform the same manipulation on the evaluation of binary lotteries, and find no anchoring effects at all. This suggests limits on the robustness of anchoring effects. (JE...
Article
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The standard dual-self model of self-control, with a shorter-run self who cares only about the current period, is excessively sensitive to the timing of decisions and to the interpolation of additional "no-action" time periods in between the dates when decisions are made. We show that when the shorter-run self is not completely myopic, this excess...
Chapter
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Which kind of intellectual property regime is more favorable to innovation: one that enforces patents or one that does not? Economic theory is unable to answer this question, as valid arguments can be made both for and against patents; hence we must turn to empirical evidence. In this paper, we review empirical evidence gathered by other researcher...
Article
The literature on the evolution of impatience, focusing on one-person decision problems, finds that evolutionary forces favor the more patient individuals. This paper shows that in the context of a game, this is not necessarily the case. In particular, it offers a two-population example where evolutionary forces favor impatience in one group while...
Article
The point of departure for most neuroeconomics is behavioral economics: the rational man of economics has been rejected in favor of more realistic psychological models. The old model supposes hyperrationality of individuals, and because it has been discredited, existing economic theory is useless. To complete the behavioral revolution, we need only...
Article
Full-text available
Which kind of intellectual property regime is more favorable to innovation: one that enforces patents or one that does not? Economic theory is unable to answer this question, as valid arguments can be made both for and against patents; hence we must turn to empirical evidence. In this paper, we review empirical evidence gathered by other researcher...
Article
The most widely used economic models of social preferences are specified only for certain outcomes. There are two obvious methods of extending them to lotteries. If we do so by expected utility theory, so that the independence axiom is satisfied, our results imply that the resulting preferences do not exhibit ex ante fairness. If we do so by replac...
Article
This paper asks if "higher education as a signal" helps explain the comovements between college enrollment rate and skill premium for younger workers in the US from the 1970s. In my model a continuum of agents, heterogeneous in talent and initial wealth, make schooling and working decisions: work now or take up college …rst? When college is very ex...
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Competing interests: Aidan Hollis has received a grant relating to work in this area from the Social Sciences and Humanities Research Council. He is also vice-president and a director of Incentives for Global Health, a US-based nongovernmental organization that is developing the Health Impact Fund proposal. These positions are unpaid. Thomas Pogge...
Article
More advanced technologies demand higher degrees of specialization - and longer chains of production connecting raw inputs to final outputs. Longer production chains are subject to a "weakest link" effect: they are more fragile and more prone to failure. Optimal chain length is determined by the trade-off between the gains to specialization and the...
Article
We develop a dual-self model of self-control that is compatible with modern dynamic macroeconomic theory and evidence. We show that a convex cost of self-control explains a wide range of behavioral anomalies concerning risk, including the Allais paradox, and also explains the observed interaction between risk and delay. We calibrate the model to ob...
Article
How can economic policies lead us to greater wealth, welfare and happiness? There is no bigger question in economics. The answer lies in correct economic theories that capture the causality linking policies to outcomes. Economic theories are a dime a dozen – we have more theories than we have human beings. The key need to answer any economic questi...
Article
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Modern economics examines a range of issues ranging from political economy to the theory of organizations. Behavioral economics purports to be instrumental in these extensions. The goal of this essay is to address the question of what -if any thing- behavioral economics brings to economics. The modern paradigmatic man (or more often these days woma...
Article
When a firm is forced to pay abnormally high wages, hiring transfers rents. This effectively endows the employer with the ability to grant favors, and he may wish to do so even at some cost to efficient production. We refer to this as the brother-in-law effect. This article analyzes its consequences. When the brother-in-law effect is due to unioniz...
Article
We examine the role of off-path "superstitions" in macro-economics, and show how a false belief about off-path play is the key element underlying both the Lucas Critique and the game-theoretic concept of self-confirming equilibrium. However, the impact of false beliefs in these two cases is different: In the Lucas case, a policy maker's incorrect b...
Article
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The theory of learning in games explores how, which, and what kind of equilibria might arise as a consequence of a long-run nonequilibrium process of learning, adaptation, and/or imitation. If agents strategies are completely observed at the end of each round (and agents are randomly matched with a series of anonymous opponents), fairly simple rule...
Article
Is there an optimal cost-benefit scheme for spurring innovation?
Article
The link between economic theory and experimental data is much tighter than is commonly supposed. Many presumed paradoxes arise because the theory is incorrectly applied. We go through several examples, emphasizing the theory as seen by a theorist. The main problem with the theory is that in some instances it lacks predictive power – We highlight w...
Article
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This paper develops a dual-self model that is compatible with modern dynamic macroeconomic theory and evidence, and calibrates it to make quantitatively accurate predictions in experiments that display a wide range of behavioral anomalies concerning risk, including the Allais paradox. To obtain a quantitative fit, we extend the simpler "nightclub"...
Article
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This paper provides a survey on studies that analyze the macroeconomic effects of intellectual property rights (IPR). The first part of this paper introduces different patent policy instruments and reviews their effects on R&D and economic growth. This part also discusses the distortionary effects and distributional consequences of IPR protection a...
Article
We study repeated games with frequent actions and frequent imperfect public signals, where the signals are aggregates of many discrete events, such as sales or tasks. The high-frequency limit of the equilibrium set depends both on the probability law governing the discrete events and on how many events are aggregated into a single signal. When the...
Article
Increased transmission capacity and diminishing returns to scale in power production capacities have raised the opportunity cost of electricity in many countries. The resulting market changes have often been counteracted by policy, i.e. subsidized electricity prices to for instance energy intensive industries. Firm data, emphasizing cost heterogene...
Article
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We examine a theory of competitive innovation in which new ideas are introduced only when diminishing returns to the use of existing ideas sets in. After an idea is introduced, the knowledge capital associated with that idea expands, and its value falls. Once the value falls far enough, it becomes profitable to introduce a new idea. The resulting t...
Article
A model of learning, adaptation and innovation is used to simulate the co-evolution of strategies (implemented by Moore machines) in the repeated Prisoner's Dilemma stage-game. In contrast to previous simulations that assumed perfect informational and implementation accuracy, the agents' strategies are prone to two types of errors: (a) action-imple...
Article
This book brings together the joint work of Drew Fudenberg and David Levine (through 2008) on the closely connected topics of repeated games and reputation effects, along with related papers on more general issues in game theory and dynamic games. The unified presentation highlights the recurring themes of their work.
Book
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‘Intellectual property’ - patents and copyrights - have become controversial. We witness teenagers being sued for ‘pirating’ music - and we observe AIDS patients in Africa dying due to lack of ability to pay for drugs that are high priced to satisfy patent holders. Are patents and copyrights essential to thriving creation and innovation - do we nee...
Article
In traditional reputation models, the ability to build a reputation is good for the long-run player. In [Ely, J., Valimaki, J., 2003. Bad reputation. NAJ Econ. 4, 2; http://www.najecon.org/v4.htm. Quart. J. Econ. 118 (2003) 785–814], Ely and Valimaki give an example in which reputation is unambiguously bad. This paper characterizes a class of games...
Article
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We model electoral competition between two parties in a winner-take-all election. Parties choose strategically first their platforms and then their campaign spending under aggregate uncertainty about voters' preferences. We use the model to examine why campaign spending in the United States has increased at the same time that politics has become mo...
Article
Full-text available
We study repeated games with frequent actions and frequent imperfect public signals, where the signals are aggregates of many discrete events, such as sales or tasks. The high-frequency limit of the equilibrium set depends both on the probability law governing the discrete events and on how many events are aggregated into a single signal. When the...
Article
We show that with common knowledge and a common rate of time preference, the potential loser can always avoid wasteful conflict through a time-consistent series of small concessions. We examine how the failure of each of these assumptions may explain why conflicts arise. We also debate which actions may be helpful in such unfortunate circumstances.
Article
This paper calculates indices of central bank autonomy (CBA) for 163 central banks as of end-2003, and comparable indices for a subgroup of 68 central banks as of the end of the 1980s. The results confirm strong improvements in both economic and political CBA over the past couple of decades, although more progress is needed to boost political auton...
Chapter
Intellectual property refers to patents, copyrights, trademarks and other forms of ownership of ideas. It results in monopoly power that has significant consequences for discouraging as well as encouraging innovation and growth. The discouragement effect is especially important when ideas are used as building blocks for other ideas. The economics l...
Article
Full-text available
This paper provides a survey on studies that analyze the macroeconomic effects of intellectual property rights (IPR). The first part of this paper introduces different patent policy instruments and reviews their effects on R&D and economic growth. This part also discusses the distortionary effects and distributional consequences of IPR protection a...
Article
This paper provides a survey on studies that analyze the macroeconomic effects of intellectual property rights (IPR). The first part of this paper introduces different patent policy instruments and reviews their effects on R&D and economic growth. This part also discusses the distortionary effects and distributional consequences of IPR protection a...
Article
We comment on the Shoham, Powers, and Grenager survey of multi-agent learning and game theory, emphasizing that some of their categories are important for economics and others are not. We also try to correct some minor imprecisions in their discussion of the economics literature on learning in games.
Article
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Here is the bottomline: JMK got his economic theory wrong, and the facts too. But, and not a minor feat, he got all his questions and his guess about the future right. This may prove that while the man was a tad arrogant, he perhaps was not a fool. Perhaps, indeed, he was brilliant, possibly so much so that he never had to bother with logical consi...
Article
In a repeated game with imperfect public information, the set of equilibria depends on the way that the distribution of public signals varies with the players' actions. Recent research has focused on the case of "frequent monitoring," where the time interval between periods becomes small. Here we study a simple example of a commitment game with a l...
Article
We study evolutionarily stable outcomes for a class of games that admit cooperation and conflict as possible Nash equilibria. We make use of two ideas: existing strategies are more likely to be imitated than new strategies are to be introduced; players are able to identify opponents' behavior prior to interaction. The long-run evolutionary limit is...
Article
Corruption in the public sector erodes tax compliance and leads to higher tax evasion. Moreover, corrupt public officials abuse their public power to extort bribes from the private agents. In both types of interaction with the public sector, the private agents are bound to face uncertainty with respect to their disposable incomes. To analyse effect...
Article
We examine the role of off-path "superstitions" in macro-economics, and show how a false belief about off-path play is the key element underlying both the Lucas Critique and the game-theoretic concept of self-confirming equilibrium. However, the impact of false beliefs in these two cases is different: In the Lucas case, a policy maker's incorrect b...
Article
Full-text available
Following the structure of many commodity markets, we consider a few large firms and a competitive fringe of many small suppliers choosing quantities in an infinite-horizon setting subject to demand shocks. We show that a collusive agreement among the large firms may not only bring an output contraction but also an output expansion (relative to the...
Article
Full-text available
Intellectual property (IP) protection involves a trade-off between the undesirability of monopoly and the desirable encouragement of creation and innovation. Optimal policy depends on the quantitative strength of these two forces. We give a quantitative assessment of current IP policies. We focus particularly on the scale of the market, showing tha...
Article
Typical models of bankruptcy and collateral rely on incomplete asset markets. In fact, bankruptcy and collateral add contingencies to asset markets. In some models, these contingencies can be used by consumers to achieve the same equilibrium allocations as in models with complete markets. In particular, the equilibrium allocation in the debt constr...

Citations

... (4.4/5). My own review in this Journal is positive (Bauer, 2021a), and several online reviews [12][13][14] agree that the book is sound and unbiased, as does Levine (2021). ...
... However, the techniques employed in those papers cannot be used to study contests of the di¤erence form. Ewerhart andSun (2018, 2020) and Levine and Mattozzi (2021) observed that mixed-strategy equilibria in contests with analytic payo¤s have …nite support. The use of higher-order Pólya frequency functions in the analysis of non-cooperative games had been restricted so far to the class of games in which payo¤s depend on the di¤erence of strategies only (Karlin, 1957). ...
... This is not the topic of analysis in this study, since we focus on the linear-in-means model in which peer effects are supposed to be positive. 8 There are different definitions of social norms in the literature (see, e.g., Akerlof, 1997;Dutta et al., 2019). Here, we define the social norm of an agent as the average action of her neighbors. ...