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

CentER Discussion Paper No. 2006-97

20 Pages Posted: 25 Oct 2006  

Yuan Ju

University of York; Tilburg University

Peter Borm

Tilburg University - Center for Economic Research (CentER); Tilburg University - Department of Econometrics & Operations Research

Date Written: September 2006

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

JEL Classification: C71, C72, D62, D63

Suggested Citation

Ju, Yuan and Borm, Peter, A Non-Cooperative Approach to the Compensation Rules for Primeval Games (September 2006). CentER Discussion Paper No. 2006-97. Available at SSRN: https://ssrn.com/abstract=939514 or http://dx.doi.org/10.2139/ssrn.939514

Yuan Ju (Contact Author)

University of York ( email )

Heslington
York, YO10 5DD
United Kingdom

Tilburg University

P.O. Box 90153
Tilburg, DC 5000 LE
Netherlands

Peter E. M. Borm

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tilburg University - Department of Econometrics & Operations Research

Tilburg, 5000 LE
Netherlands

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