Economic Theory

Game Theory and Industrial Organization

Most industries are characterized by oligopolistic market structures, i.e. by a small number of rival firms which strategically interact when deciding on capacities, cost-reducing investment, R&D, advertising, location, horizontal and vertical product differentiation, information sharing behavior and, finally, prices. The strategic competition of firms in different settings is analyzed in a couple of papers.

Selected publications:

Experimental Economics

One of the first experimental games is the ultimatum game. Two players are allotted a sum of money. The first player, called the Proposer, offers some portion of the money to the second player, called the Responder. If the Responder accepts, he gets what was offered, and the Proposer gets the rest. If the Responder rejects the offer, both players get nothing. This game first attracted attention because the empirical results differed so dramatically from the predictions of traditional game theory which assumes self-interest. If both players are income maximizers, then the Proposer should offer the smallest unit of currency, and the Responder should accept. Instead, offers typically average about 30 to 40 percent of the total, with a 50-50 split often the mode. Offers of less than 20 percent are frequently rejected. Modifications of the ultimatum game are the generosity game and the envy game. The research question is how to interpret this evidence and how to incorporate these findings into a more descriptive version of game theory.

Selected publications:

Economics of Innovation and Technological Change

On the one hand, the innovation dynamics of firms depend decisively on the market structure in which firms compete (Schumpeterian hypotheses) but, on the other hand, the resulting product and process innovations induce a continuing process of technological and structural change. The theoretical and empirical analyses focus on the explanatory factors of firms’ R&D decisions as well as on the resulting dynamics of the R&D-based technological change.

Selected publications:

Education, Unemployment and Economic Growth

The two main engines of quantitative and qualitative growth are education and human capital accumulation on the one hand and R&D and technological progress on the other hand. The analyses focus on the explanatory factors of long-run growth and cycles. Since labor markets are imperfect unemployment arises and interacts with technological change.

Selected publications:

Natural Resources and Environmental Economics

After the last cycles of innovation have focused on an improvement of labor productivity, the focus now shifts more and more to natural resources and environmental capacities. To bring this issue to the focus of political decision makers and management, one main research line of environmental economics analyses the potential economic impacts of inaction (e.g. in the field of climate change). Another aspect considers the role of environmental regulation and its impact on eco-innovation. Also, new research in growth theory considers limited environmental resources and develops proposals for a more sustainable growth.

Selected publications:

 

Credit Contracts and Financial Markets

Credit markets are typically characterized by asymmetric information leading to moral hazard and adverse selection problems. Fundamentally solvent debtor firms are therefore frequently forced into bankruptcy due to information asymmetries and to creditor coordination failures. A new game theoretical approach deals with global games, defined by a continuum of agents, to account for the coordination problem.

Selected publications: