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Inducing Cooperation by Self-Stipulated Penalties

  • Cheng-Zhong Qin

    (Department of Economics, University of California)

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    This paper considers an approach for inducing cooperation in prisoner¡¯s dilemma. The approach is based on players individually committing to pay self-stipulated penalties for defection. We provide a complete characterization of self-stipulated penalties that are necessary and sufficient to induce the players to cooperate in subgame-perfect equilibrium. An alternative interpretation of the conditions using contract remedies is provided.

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    Article provided by Society for AEF in its journal Annals of Economics and Finance.

    Volume (Year): 9 (2008)
    Issue (Month): 2 (November)
    Pages: 385-395

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    Handle: RePEc:cuf:journl:y:2008:v:9:i:2:p:385-395
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    1. Williamson, Oliver E, 1983. "Credible Commitments: Using Hostages to Support Exchange," American Economic Review, American Economic Association, vol. 73(4), pages 519-40, September.
    2. 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.
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