Can players avoid the tragedy of the commons in a joint debt game?

Hiromasa Takahashi (), Toru Takemoto and Akihiro Suzuki
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Hiromasa Takahashi: Hiroshima City University
Toru Takemoto: Nihon University
Akihiro Suzuki: Yamagata University

International Journal of Game Theory, 2020, vol. 49, issue 4, No 4, 975-1002

Abstract: Abstract Joint debts are debts that more than one debtor guarantees mutually. They are sometimes interpreted as a version of the tragedy of the commons. However, a simple model of the dynamic tragedy of the commons fails to capture an important feature of joint debts. The authors model joint debts as a joint borrowing limit game and compare the model with the dynamic tragedy of the commons model. Thereby, the authors show the difference in the achievability of efficiency between these two models and present the conditions for efficiency. The conditions for efficiency are as follows: (i) a not too large economic disparity between the players; (ii) not too many players. The joint borrowing limit game has a broad range of applications because the model can be applied to a case where creditors and debtors expect a debt guarantee of someone unilaterally even without an explicit contract of joint debt. For example, this model can be applied to the Eurosystem that led to Greek overborrowing.

Keywords: Joint debts; Dynamic game; Common resource; Tragedy of the commons; Greek overborrowing (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s00182-020-00722-4

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