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Cooperation in a State of Anarchy

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  • Muthoo, Abhinay

    (University of Warwick)

Abstract

We lay down a simple (game-theoretic) model of a state-of-anarchy involving three players. We focus attention on the following question : Which subset of players (if any) will agree to cooperate amongst each other? Will all three players agree to do so, or only two of the three players (and if so, which two players)? Or will no player agree to cooperate with any other player? We show that the socially optimal outcome is for all three players to agree to cooperate with each other. We also show that due to the presence of positive externalities, in equilibrium, cooperation may only be established between two of the three players (which is sub-optimal). JEL codes: D62 ; D74 ; F02

Suggested Citation

  • Muthoo, Abhinay, 2020. "Cooperation in a State of Anarchy," The Warwick Economics Research Paper Series (TWERPS) 1296, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:1296
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    References listed on IDEAS

    as
    1. Bloch, Francis, 1996. "Sequential Formation of Coalitions in Games with Externalities and Fixed Payoff Division," Games and Economic Behavior, Elsevier, vol. 14(1), pages 90-123, May.
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    More about this item

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • F02 - International Economics - - General - - - International Economic Order and Integration

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