Higher Level Models

Augusto Schianchi () and Andrea Mantovi ()
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Augusto Schianchi: Università di Parma
Andrea Mantovi: Università di Parma

Chapter Chapter 4 in The Economics of Cryptocurrencies and Digital Money, 2023, pp 89-115 from Palgrave Macmillan

Abstract: Abstract This chapter brings to completion our game theoretic analysis. We introduce the “instrumental” approach to game theory advocated by Larry Samuelson as the methodological stance that shapes our discussion. We do not aim at an exhaustive review of the extant literature but rather at a selective review of relevant models of mining competition concerning the vertical structure of the industry, in which the game form features two stages, one of which coincides with (or closely resembles) the basic game discussed in the previous chapter. The exhaustive analytical treatment of the previous chapter is not replicated for evident reasons of limited space. We consider risk-neutral miners engaged in acquiring specialized hardware. Then, we consider risk-averse miners and argue that mining pools emerge for risk-sharing purposes. The degrees of freedom at play and the resulting concentration of mining differentiate from those depicted by Arnosti and Weinberg for stylized miners. The interaction of miners and users is further addressed. Backward induction is given a thorough discussion.

Keywords: Instrumental Game Theory; Specialized hardware; Mining pools; Backward induction (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:pal:psincp:978-3-031-44248-3_4

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DOI: 10.1007/978-3-031-44248-3_4

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