A Note on the Cost-Benefit Ratio in Self-Enforcing Agreements
AbstractSince the analysis of a self-enforcing agreement by Barrett (1994) it has been clear that the ratio between the slopes of the marginal cost and marginal benefit functions is conclusive for stability of self-enforcing agreements. For example Finus and Rundshagen (1998) stated: 'it turns out that all qualitative results depend only on this ratio' as it determines the non-orthogonal free-riding response along Nash reaction functions. This note shows that this 'pure' connection between the cost-benefit ratio and non-orthogonal free-riding response occurs due to the 'anonymous contributions' property of public goods, and in such cases the cost-benefit ratio effect holds regardless the functional form of objectives, the formulation of congestion or the degree of impureness of the public good. Therefore we expect to see the cost-benefit ratio still be the conclusive component also in self-enforcing agreements based on more general functional forms than seen hitherto in the literature.
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Bibliographic InfoPaper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 350.
Length: 9 pages
Date of creation: 03 Apr 2009
Date of revision:
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Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
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More information through EDIRC
public goods; self-enforcing agreements; reaction function; coalition theory;
Find related papers by JEL classification:
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
- H40 - Public Economics - - Publicly Provided Goods - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-04-05 (All new papers)
- NEP-GTH-2009-04-05 (Game Theory)
- NEP-PBE-2009-04-05 (Public Economics)
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