A PSEUDO "FOLK" THEOREM IN THE STRATEGIC PROVISION OF STOCK EXTERNALITIES

Zili Yang

International Game Theory Review (IGTR), 2003, vol. 05, issue 04, 347-359

Abstract: The paper discusses the relationship between the efficient provision and the Nash equilibrium of stock externalities in a dynamic setting. The following proposition has been proved: under certain conditions, the maximal gains of an agent in the economy by deviating from the Pareto optimal provision of stock externalities is less ∊, an arbitrary small positive number, when the time discount rate of the agents are sufficiently close to 0. Namely, under the same conditions, a Pareto efficient path is an ∊-Nash equilibrium where ∊ could be smaller than any predetermined level. The propositions are different from the folk theorems in repeated games because supporting of the ∊-Nash equilibrium does not require the threat of retaliations from other agents. The policy implications of the above results are also discussed here.

Keywords: Open-loop Nash equilibrium; ∊-Nash equilibrium; stock externality; JEL classification code: C79; C62; D62 (search for similar items in EconPapers)
JEL-codes: B4 C0 C6 C7 D5 D7 M2 (search for similar items in EconPapers)
Date: 2003
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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DOI: 10.1142/S0219198903001094

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