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Strategic Interaction and Externalities: FD-games and pollution

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  • Reinoud Joosten

Abstract

To analyze strategic interaction which may induce externalities, we designed Bathroom Games with frequency-dependent stage payoffs. Two people regularly use a bathroom, before leaving they can either clean up the mess made, or not. Cleaning up involves an effort, so this option always gives a lower immediate utility than not cleaning up. The immediate utility of using the bathroom depends on its condition: the cleaner it is, the higher the utility. The pollution at a certain point in time depends on how often the players did not clean up in the past. Furthermore, as the bathroom's condition deteriorates, cleaning up becomes more burdensome, leading to increasing disutilities. We follow the analysis of repeated games and find that if the agents are sufficiently patient, individually-rational rewards can be supported by (subgame perfect) equilibria involving threats. In almost every such equilibrium, the bathroom is cleaned up regularly.

Suggested Citation

  • Reinoud Joosten, 2004. "Strategic Interaction and Externalities: FD-games and pollution," Papers on Economics and Evolution 2004-17, Philipps University Marburg, Department of Geography.
  • Handle: RePEc:esi:evopap:2004-17
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    File URL: ftp://137.248.191.199/RePEc/esi/discussionpapers/2004-17.pdf
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    References listed on IDEAS

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    1. Arifovic, Jasmina, 1994. "Genetic algorithm learning and the cobweb model," Journal of Economic Dynamics and Control, Elsevier, vol. 18(1), pages 3-28, January.
    2. Jasmina Arifovic & John Ledyard, 2004. "Scaling Up Learning Models in Public Good Games," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 6(2), pages 203-238, May.
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    Cited by:

    1. Reinoud Joosten, 2007. "Strategic Advertisement with Externalities: A New Dynamic Approach," Papers on Economics and Evolution 2007-02, Philipps University Marburg, Department of Geography.

    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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