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Efficiency in a Policy Game with Finite Alternating Repetition

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  • Morooka, Chihiro

Abstract

The policy game is a non-cooperative game, where the government decides the rate of inflation, whereas the private sector expects it. In the policy game, the sum of the payoffs is maximized when the government chooses an efficient action and the private sector responds to it appropriately. However, the policy game has only one inefficient Nash equilibrium because the government always takes the myopic action regardless of the private sectorʼs expectation. In this paper, we analyze a specific model of the policy game with finite alternating repetitions. By applying backward induction, it is proved that only the efficient actions are chosen in subgame perfect equilibria.

Suggested Citation

  • Morooka, Chihiro, 2020. "Efficiency in a Policy Game with Finite Alternating Repetition," Economic Review, Hitotsubashi University, vol. 71(3), pages 275-278, July.
    • Handle: RePEc:hit:ecorev:v:71:y:2020:i:3:p:275-278
    DOI: 10.15057/31309
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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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