Yuan Ju () (Department of Economics, Keele,) Peter Borm (CentER for Economic Research and Department of Econometrics and Operations Research, Tilburg University,)
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To model inter-individual externalities and analyze the associated compensation issue, Ju and Borm (2005) introduces a new game-theoretic framework, primeval games, and proposes, from a cooperative perspective, three compensation rules as solution concepts for primeval games: the marginalistic rule, the concession rule, and the primeval rule. In this paper, we provide a non-cooperative approach to address these problems more specifically. Inspired by the generalized bidding approach (Ju and Wettstein (2006)) for TU games, we design various bidding mechanisms to fit the model of primeval games and show that each implements the corresponding compensation rule in subgame perfect equilibrium. These mechanisms require nearly no condition on the game environment and obtain each solution itself rather than in expected terms. Moreover, since the various mechanisms share a common basic structure, this paper offers a non-cooperative benchmark to compare different axiomatic solutions, which, in return, may advance the axiomatic study of the issue by constructing alternative compensation rules.
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Paper provided by Centre for Economic Research, Keele University in its series Keele Economics Research Papers with number
KERP 2006/18.
Length: 21 pages Date of creation: Sep 2006 Date of revision: Handle: RePEc:kee:kerpuk:2006/18
Note: We thank Eric van Damme and David Wettstein for helpful suggestions and discussions. We also appreciate the comments from the participants at the 2nd Spain Italy Netherlands Meeting on Game Theory in Foggia, Italy. Contact details of provider: Postal: Department of Economics, University of Keele, Keele, Staffordshire, ST5 5BG - United Kingdom Phone: +44 (0)1782 584581 Fax: +44 (0)1782 717577 Email: Web page: http://www.keele.ac.uk/depts/ec/cer/ More information through EDIRC
Order Information: Postal: Centre for Economic Research, Research Institute for Public Policy and Management, Keele University, Staffordshire ST5 5BG - United Kingdom Email: Web: http://www.keele.ac.uk/depts/ec/cer/pubs_kerps.htm
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Find related papers by JEL classification: C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games D62 - Microeconomics - - Welfare Economics - - - Externalities D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
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