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

Jianpei Li and Paul Schweinzer

Discussion Papers from Department of Economics, University of York

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.

Keywords: Redistribution; Efficiency; Social contract (search for similar items in EconPapers)
JEL-codes: C72 D62 D71 (search for similar items in EconPapers)
Date: 2013-07
New Economics Papers: this item is included in nep-gth, nep-hpe, nep-mic and nep-soc
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Persistent link: https://EconPapers.repec.org/RePEc:yor:yorken:13/19

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