The Uncertainty of Fairness: a Game Theory Analysis for a Debt Mutualization Scheme in the Euro Area

Sara D'Andrea and Federica Vassalli

MPRA Paper from University Library of Munich, Germany

Abstract: This paper aims to briefly present the fairness approach in game theory and its potential application. Fairness means that players consider not only personal payoffs but also others’ payoffs and beliefs regarding their actions. In this context, we distinguish two approaches, one based on the material payoff and the other on beliefs. We adopt the fairness approach in proposing three games for studying the strategic interaction between a hypothetical country and the European Union in proposing a debt mutualization scheme. We find that the optimal debt quota to share with the European Union is 50%; concerning the moral hazard problem, commitment to structural reforms for countries with high public debt leads to the best equilibrium, that can be preserved following an incentive strategy.

Keywords: Game Theory; Fairness Approach; Debt Mutualization; Euro Area (search for similar items in EconPapers)
JEL-codes: C7 H63 (search for similar items in EconPapers)
Date: 2022-09-23
New Economics Papers: this item is included in nep-eec and nep-gth
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/114690/1/MPRA_paper_114690.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:114690

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().