A Non-cooperative Approach to the Compensation Rules for Primeval Games

Yuan Ju and Peter Borm

No KERP 2006/18, Keele Economics Research Papers from Centre for Economic Research, Keele University

Abstract: To model inter-individual externalities and analyze the associated compensation issue, Ju and Borm (2005) introduces a new game-theoretic framework, primeval games, and proposes, from a cooperative perspective, three compensation rules as solution concepts for primeval games: the marginalistic rule, the concession rule, and the primeval rule. In this paper, we provide a non-cooperative approach to address these problems more specifically. Inspired by the generalized bidding approach (Ju and Wettstein (2006)) for TU games, we design various bidding mechanisms to fit the model of primeval games and show that each implements the corresponding compensation rule in subgame perfect equilibrium. These mechanisms require nearly no condition on the game environment and obtain each solution itself rather than in expected terms. Moreover, since the various mechanisms share a common basic structure, this paper offers a non-cooperative benchmark to compare different axiomatic solutions, which, in return, may advance the axiomatic study of the issue by constructing alternative compensation rules.

Keywords: Externality; compensation; primeval games; marginalistic rule; concession rule; primeval rule; bidding mechanism; implementation. (search for similar items in EconPapers)
JEL-codes: C71 C72 D62 D63 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2006-09
New Economics Papers: this item is included in nep-gth
Note: We thank Eric van Damme and David Wettstein for helpful suggestions and discussions. We also appreciate the comments from the participants at the 2nd Spain Italy Netherlands Meeting on Game Theory in Foggia, Italy.
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Working Paper: A Non-cooperative Approach to the Compensation Rules for Primeval Games (2006)
Working Paper: A Non-cooperative Approach to the Compensation Rules for Primeval Games (2006)
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