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Gaming modeling of self-enforcing agreements and free-rider problem

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  • Sokolovskyi, Dmytro

Abstract

The paper justifies the selection of formal conditions under which the rational-minded actors will tend to observe the implicit contract between them. Self-enforcing agreements are characterized by inappropriateness of arbitration support, primarily due to too high transaction costs of such support. It is an underdeveloped area of research of self-enforcing agreements does not operate categories of reputation directly. The question is: can there be such conditions for the relationship of agents, in which compliance with the agreement will be beneficial to both of them without them having a priori information? As the main method for research the problem selected the game theory. Is constructed the game model of subjects’ relationships and found the value of the payment functions for which there is Nash equilibrium in pure strategies “to comply with agreement“. It is shown, that above game simulate the relationship of agents, which can lead to a free-rider problem in the theory of collective goods. That is the solution of this game is also a solution to the free-rider problem, that demonstrate the dual tasks of self-enforcing agreements and the free-rider problem in the allocation of collective goods. The novelty of the study results is to obtain an analytical expression for the automatic compliance with the agreement conditions by rationally acting cognitively perfect agents and formal proof of their adequacy. The ability to analyze the behavior of economic agents in matters of free-riding by simple formal tools of the game theory makes presented results useful from a practical point of view.

Suggested Citation

  • Sokolovskyi, Dmytro, 2017. "Gaming modeling of self-enforcing agreements and free-rider problem," MPRA Paper 80818, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:80818
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    File URL: https://mpra.ub.uni-muenchen.de/80818/1/MPRA_paper_80818.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    contract theory; self-forced agreement; behavior of economic agents; game model; pure strategies; Nash equilibrium; free-rider problem;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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