Recent research papers by Roger B. Myerson

(May 2021)

Books by Scott Wolford and Roger Ransom show how economic theories of games and decisions can be fruitfully applied to problems in World War I. This vital application offers fundamental insights into the analytical methods of game theory. Public random variables may be essential factors in war-of-attrition games. An assumption that nations can coordinate on Pareto-superior equilibria may become less tenable when nations are at war. Interpreting a surprising mistake as evidence of an unlikely type can have serious consequences. The ability of leaders to foster consistent beliefs within a cohesive society can create inconsistency of beliefs between nations at war. [notes]

(March 2019, revised May 2021)

After the frustration of recent state-building missions, we should ask why such interventions seemed less difficult in the era of colonial expansion. So this paper reviews the basic principles of British colonialism, not to condone its evils, but to understand how it was able to establish political order in so many different parts of the world. Before 1939, foreign state-building interventions were regularly managed by a decentralized team of plenipotentiary agents who specialized in fostering local political development. Since 1945, however, international assistance has generally worked with and through an officially recognized national government, implicitly supporting a centralization of power. This paper considers the corps of British colonial District Officers as a potential model for an international state-building agency which could help to repair failed states that export violence and suffering. [notes]

(August 2020)

We analyze a model of moral hazard in local public services which could be efficiently managed by officials under local democratic accountability, but not by officials who are appointed by the ruler of a centralized autocracy. The ruler might retain an official who diverted resources from public services but contributed part to benefit the ruler. The autocratic ruler values better public services only when some residents stop making taxable investments which become unprofitable at the expected inefficient level of public spending. For public spending to benefit local residents requires political decentralization, so that they can punish an official who serves them badly while serving the ruler well. We also consider a model of a unitary democratic state where informed voters would prefer a leader who promised decentralized accountability, but elected national leaders keep inefficient centralized control of many local offices as patronage rewards for campaign contributors. [notes]

(June 2017)

Theories of economic development should be based on some general understanding of how communities have been organized in traditional societies. For such a foundation, we consider some insightful observations about traditional autonomous villages and feudal manors by Henry Sumner Maine, a 19th-century jurist who studied the history of Western law and the problems of India under British rule. Feudalism is the simplest way to integrate village-communities into a larger state system, but much of global poverty may be a legacy of feudal state-building. Economic development depends on political leadership to provide essential public goods and services, and trusted leaders may be found in local politics. Modern economic growth began in nations where local leadership was regularly integrated into national politics. [notes]

(April 2015) co-authored with Philip J. Reny

We consider the question of how to define sequential equilibria for multi-stage games with infinite type sets and infinite action sets. The definition should be a natural extension of Kreps and Wilson's 1982 definition for finite games, should yield intuitively appropriate solutions for various examples, and should exist for a broad class of economically interesting games. [notes] [supplement]

(revised Nov. 2014) coauthored with J├Ârgen Weibull

When people recurrently interact in familiar settings, social conventions may develop so that people tend to disregard alternatives outside the conventional norm. For rational players to usually restrict attention to a block of strategies, no player should prefer to deviate from the block when others are likely to act rationally and conventionally inside it. We explore concepts that formalize this idea for finite normal-form games. Settled equilibria are Nash equilibria with support in a minimal block that can be conventionally accepted in such a sense. This refinement has cutting power in many games and excludes mixed equilibria of simple coordination games. We prove general existence of settled equilibria that are proper and thus induce sequential equilibria in all extensive-form games with the given normal form. We also provide a psychological micro-model that leads to proper equilibrium. [notes]


Abstract: We consider a model of governors serving a sovereign prince, who wants to deter them from corruption and rebellion. Governors must be penalized when they cause observable crises, but a governor's expected benefits must never go below the rebellion payoff, which itself is better than what any candidate could pay for the office. Governors can trust the prince's promises only up to a given credit bound. In the optimal incentive plan, compensation is deferred until the governor's credit reaches this bound. Each crisis reduces credit by a fixed penalty. When a governor's credit is less than one penalty from the rebellion payoff, the governor must be called to court for a trial in which the probability of dismissal is less than 1. Other governors must monitor the trial because the prince would prefer to dismiss and resell the office. A high credit bound benefits the prince ex ante, but in the long run it generates entrenched governors with large claims on the state. Low credit bounds can cause the prince to apply soft budget constraints, forgiving losses and tolerating corruption for low-credit governors. (Former title: "Leadership, trust, and power: dynamic moral hazard in high office") [notes].

(July 2013)

We consider a simple overlapping-generations model with risk-averse financial agents subject to moral hazard. Efficient contracts for such financial intermediaries involve back-loaded late-career rewards. Compared to the analogous model with risk-neutral agents, risk aversion tends to reduce the growth of agents' responsibilities over their careers. This moderation of career growth rates can reduce the amplitude of the widest credit cycles, but it also can cause small deviations from steady state to amplify over time in rational-expectations equilibria. We find equilibria in which fluctuations increase until the economy enters a boom/bust cycle where no financial agents are hired in booms. [notes]

Related papers: A Model of moral-hazard credit cycles (March 2010) [notes].

RETHINKING THE PRINCIPLES OF BANK REGULATION: a review of Admati and Hellwig's Bankers' New Clothes
(March 2013)

In an important new book, Anat Admati and Martin Hellwig raise broad critical questions about bank regulation. These questions are reviewed and discussed here with a focus on how the problems of maintaining a stable financial system depend on fundamental problems of information and incentives in financial intermediation. It is argued that financial regulatory reforms can be reliably effective only when their basic principles are understood by informed citizens, and that Admati and Hellwig's book is a major contribution toward this goal, as it clearly lays out the essential case for requiring banks to have more equity.

(Mar. 2012)

Abstract. This paper considers the question of defining standards for democratic state-building. One may question the possibility of benevolent state-building interventions, but any hope for planning such interventions, or for holding their planners to account, requires some understanding of what should come first in building a successful democratic society. I argue that elections are not enough. Successful democratic development depends on a plentiful supply of leaders who have good reputations for using public funds responsibly in both local and national politics. If the goal of an intervention is truly to help establish a sovereign democratic state, not to install a hand-picked leadership dependent on foreign support, then interveners could be expected to foster a political reconstruction based on elected local councils and a national assembly, with parliamentary responsibility for local and national administration. [notes]

Related papers: A Field Manual for the Cradle of Civilization: Theory of Leadership and Lessons of Iraq (Sept 2008) [notes].
Rethinking the Fundamentals of State-Building (Mar 2011) [Prism, notes].
Local and National Democracy in Political Reconstruction (July 2014).
American military readiness must include state-building, coauthored with J. Kael Weston (Nov 2016).
How to prepare for state-building? (Sept 2017) [Prism].
Perspectives on the theory of state-building (Sept 2020).

(March 2009)

For democracy to prosper in Pakistan, structural reforms to strengthen democratic competition could be vital. This paper considers some suggested reforms, using ideas from economics of oligopolistic competition and game theory. Successful democracy is based on a flexible system of strong political parties and a plentiful supply of politicians who have good reputations for responsible democratic leadership. Unimpeded parliamentary responsibility for government helps develop strong parties. National parties should be able to nominate candidates in all elections, including local elections and tribal areas. For a flexible party system, members of the National Assembly should be free to form new parties, not restricted by sanctions against floor-crossing. With federalism, provincial and local democracy also reduce political entry barriers, as politicians can prove their qualifications for higher office by responsible service at lower levels of government. Electing responsible local councils by approval-voting open-list proportional representation can strengthen the local base of democratic leadership in all communities. In single-seat districts of provincial and national assemblies, the use of runoff elections would allow more flexible party competition. [notes]

Related papers: Local Foundations for Strong Democracy in Pakistan (July 2009).
Breaking the Countercyclical Pattern of Local Democracy in Pakistan (April 2010) with Ali Cheema and Adnan Q Khan.
Democratic Decentralization and Economic Development (Jan 2013) [notes].
Local Foundations for Better Governance, World Bank policy research working paper 7131 (Nov 2014).
The Strength of American Federal Democracy (Oct 2015), in Horizons. [notes]

(Dec. 2008)

We consider a simple political-economic model where capitalist investment is constrained by the government's temptation to expropriate. Political liberalization can relax this constraint, increasing the government's revenue, but also increasing the ruler's political risks. We analyze the ruler's optimal liberalization, where our measure of political liberalization is the probability of the ruler being replaced if he tried to expropriate private investments. Poorer endowments can support a reputational equilibrium with more investment, even without liberalization. So we find a resources curse, where larger resource endowments can decrease investments and reduce the ruler's revenue. The ruler's incentive to liberalize can be greatest with intermediate resource endowments. Strong liberalization becomes optimal in cases where capital investments yield approximately constant returns for national output. Mobility of productive factors that complement capital can increase incentives to liberalize, but equilibrium prices may adjust so that liberal and authoritarian regimes co-exist. [notes]

(revised Aug. 2005)

Abstract: Success and failure of democracy are interpreted as different equilibria of a dynamic political game with costs of changing leadership and with incomplete information about politicians' virtue. Unitary democracy can be frustrated when voters do not replace corrupt leaders, because any new leader would probably also govern corruptly. But federal democracy cannot be consistently frustrated at both national and provincial levels, because provincial leaders who govern responsibly could build reputations to become contenders for higher national office. Similarly, democracy cannot be consistently frustrated in a democratization process that begins with decentralized provincial democracy and only later introduces nationally elected leadership. [notes]

(Sept. 1996)

Abstract: This paper offers a short introduction to some of the fundamental results of social choice theory. Topices include: Nash implementability and the Muller-Satterthwaite impossibility theorem, anonymous and neutral social choice correspondences, two-party competition in tournaments, binary agendas and the top cycle, and median voter theorems. The paper begins with a simple example to illustrate the importance of multiple equilibria in game-theoretic models of political institutions.

Research notes

COIN 2007, Schwartz lecture, Basel talk, ES 2009, Knight lecture, Laffont lecture [notes], Bonn, Frankfurt, Sackler [edited, pnas, notes], Booth-KPMG talk, authoritarian constitutions, Zhejiang U talk, China 2015, AAEA Schultz lecture, World Bank MENA talk, UCLG 2013, Oxford, Harare, Siracusa, Kinshasa, Philippines, Berlin, ASSA 2017 Nobel session, villages, deterrence, Cameroon,
Primeval kinship and the origins of human language,
moral hazard and macroeconomics [uc forum],
notes on sequential equilibria of infinite games,
rough notes for a short course on political economics from 7/2007 (and from 7/2005),
2007 prize lecture and biography (at, 2014 autobiography,
talk at Harvard following Jeffrey Sachs 4/2008,
Stony Brook talk on foundations of political institutions 7/2006,short overview,
overview of political economics for a conference at Northwestern U. 5/2005,
notes on virtual utility, interim bargaining, beer-quiche,
justice, institutions, multiple equilibria,
bipolar multicandidate elections with corruption,
comparison of electoral systems, incentives to cultivate favored minorities,
my 2002 discussion on game theory with Yanis Varoufakis (who has subsequently become Finance Minister of Greece),
political economics and the Weimar disaster,
history of Nash equilibrium,
survey of information on local democracy in developing countries (by S. Ghosh).

Research spreadsheets

Also available here: a thesis on psycholinguistics of reading by Rosemarie F. Myerson.