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Efficiency in strategic form games: A little trust can go a long way

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  • Jianpei Li
  • Paul Schweinzer

Abstract

We study the incentives of noncooperative players to play a cooperative game. That is, we look for individually rational, redistributive, pre-game agreements enacted in order to coordinate towards efficient equilibrium play. Contrasting with standard Nash equilibrium analysis, we assume that players can commit to the agreements they negotiate and that utility is verify and transferable. We show that agreeing on a proportional-exponential redistribution rule is individually rational and implements the socially efficient outcome as Nash equilibrium. Moreover, we show that this class of redistributional contracts may be naturally obtained as the outcome of Nash bargaining.

Suggested Citation

  • Jianpei Li & Paul Schweinzer, 2013. "Efficiency in strategic form games: A little trust can go a long way," Discussion Papers 13/19, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:13/19
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    References listed on IDEAS

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    More about this item

    Keywords

    Redistribution; Efficiency; Social contract;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations

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