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Efficiency in strategic form games: A little trust can go a long way

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  • Jianpei Li
  • Paul Schweinzer

Abstract

We study the incentives of noncooperative players to play a cooperative game. That is, we look for individually rational, redistributive, pre-game agreements enacted in order to coordinate towards efficient equilibrium play. Contrasting with standard Nash equilibrium analysis, we assume that players can commit to the agreements they negotiate and that utility is verify and transferable. We show that agreeing on a proportional-exponential redistribution rule is individually rational and implements the socially efficient outcome as Nash equilibrium. Moreover, we show that this class of redistributional contracts may be naturally obtained as the outcome of Nash bargaining.

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Bibliographic Info

Paper provided by Department of Economics, University of York in its series Discussion Papers with number 13/19.

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Date of creation: Jul 2013
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Handle: RePEc:yor:yorken:13/19

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Keywords: Redistribution; Efficiency; Social contract;

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  1. Varian, H,R., 1991. "A Solution to the Problem of Externalities when Agents are Well-Informed," Papers 10, Michigan - Center for Research on Economic & Social Theory.
  2. Luis Corchon & Matthias Dahm, 2007. "Foundations For Contest Success Functions," Economics Working Papers we070401, Universidad Carlos III, Departamento de Economía.
  3. Guillaume Haeringer & Sophie Bade & Ludovic Renou, 2006. "Bilateral Commitment," Working Papers 2006.75, Fondazione Eni Enrico Mattei.
  4. Cheng-Zhong Qin, 2008. "Inducing Cooperation by Self-Stipulated Penalties," Annals of Economics and Finance, Society for AEF, vol. 9(2), pages 385-395, November.
  5. Wilkie, Simon & Jackson, Matthew O., 2002. "Endogenous Games and Mechanisms: Side Payments Among Players," Working Papers 1150, California Institute of Technology, Division of the Humanities and Social Sciences.
  6. Ken Binmore, 1994. "Game Theory and the Social Contract, Volume 1: Playing Fair," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262023636, December.
  7. Hao Jia, 2008. "A stochastic derivation of the ratio form of contest success functions," Public Choice, Springer, vol. 135(3), pages 125-130, June.
  8. Qiang Fu & Jingfeng Lu, 2012. "Micro foundations of multi-prize lottery contests: a perspective of noisy performance ranking," Social Choice and Welfare, Springer, vol. 38(3), pages 497-517, March.
  9. John C. Harsanyi, 1953. "Cardinal Utility in Welfare Economics and in the Theory of Risk-taking," Journal of Political Economy, University of Chicago Press, vol. 61, pages 434.
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