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A Note on the Cost-Benefit Ratio in Self-Enforcing Agreements


  • Hennlock, Magnus

    () (Department of Economics, School of Business, Economics and Law, Göteborg University)


Since the analysis of a self-enforcing agreement by Barrett (1994) it has been clear that the ratio between the slopes of the marginal cost and marginal benefit functions is conclusive for stability of self-enforcing agreements. For example Finus and Rundshagen (1998) stated: 'it turns out that all qualitative results depend only on this ratio' as it determines the non-orthogonal free-riding response along Nash reaction functions. This note shows that this 'pure' connection between the cost-benefit ratio and non-orthogonal free-riding response occurs due to the 'anonymous contributions' property of public goods, and in such cases the cost-benefit ratio effect holds regardless the functional form of objectives, the formulation of congestion or the degree of impureness of the public good. Therefore we expect to see the cost-benefit ratio still be the conclusive component also in self-enforcing agreements based on more general functional forms than seen hitherto in the literature.

Suggested Citation

  • Hennlock, Magnus, 2009. "A Note on the Cost-Benefit Ratio in Self-Enforcing Agreements," Working Papers in Economics 350, University of Gothenburg, Department of Economics.
  • Handle: RePEc:hhs:gunwpe:0350

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    References listed on IDEAS

    1. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
    2. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    3. Hennlock, Magnus, 2005. "On strategic incentives and the management of stochastic renewable resources," Department of Economics publications 1018, Swedish University of Agricultural Sciences, Department of Economics.
    4. Agnar Sandmo, 1973. "Public Goods and the Technology of Consumption," Review of Economic Studies, Oxford University Press, vol. 40(4), pages 517-528.
    5. Carraro, Carlo & Siniscalco, Domenico, 1993. "Strategies for the international protection of the environment," Journal of Public Economics, Elsevier, vol. 52(3), pages 309-328, October.
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    More about this item


    public goods; self-enforcing agreements; reaction function; coalition theory;

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • H40 - Public Economics - - Publicly Provided Goods - - - General

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