Cooperation in a State of Anarchy

Abhinay Muthoo

CRETA Online Discussion Paper Series from Centre for Research in Economic Theory and its Applications CRETA

Abstract: We lay down a simple (game-theoretic) model of a state-of-anarchy involving three players. We focus attention on the following question : Which subset of players (if any) will agree to cooperate amongst each other? Will all three players agree to do so, or only two of the three players (and if so, which two players)? Or will no player agree to cooperate with any other player? We show that the socially optimal outcome is for all three players to agree to cooperate with each other. We also show that due to the presence of positive externalities, in equilibrium, cooperation may only be established between two of the three players (which is sub-optimal). JEL codes: D62 ; D74 ; F02

Date: 2020
New Economics Papers: this item is included in nep-gth and nep-mic
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Working Paper: Cooperation in a State of Anarchy (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:wcreta:63

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